<PAGE> 1
KEMPER EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 16, 1995
KEMPER BLUE CHIP FUND ("BLUE CHIP FUND")
KEMPER GROWTH FUND ("GROWTH FUND")
KEMPER SMALL CAPITALIZATION EQUITY FUND ("SMALL CAP FUND")
KEMPER TECHNOLOGY FUND ("TECHNOLOGY FUND")
KEMPER TOTAL RETURN FUND ("TOTAL RETURN FUND")
KEMPER VALUE PLUS GROWTH FUND ("VALUE+GROWTH FUND")
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for each of the funds (the "Funds") listed
above. It should be read in conjunction with the combined prospectus of the
Funds dated October 16, 1995. For Funds other than Value+Growth Fund, this is a
revision of a Statement of Additional Information dated February 1, 1995. The
prospectus may be obtained without charge from the Funds.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Investment Restrictions................................................. B-1
Investment Policies and Techniques...................................... B-8
Portfolio Transactions.................................................. B-14
Investment Manager and Underwriter...................................... B-15
Purchase and Redemption of Shares....................................... B-21
Dividends and Taxes..................................................... B-22
Performance............................................................. B-23
Officers and Trustees................................................... B-36
Shareholder Rights...................................................... B-39
Value+Growth Fund--Report of Independent Auditors (September 20,
1995)................................................................. B-40
Value+Growth Fund--Statement of Net Assets (September 20, 1995)......... B-41
Appendix -- Ratings of Fixed Income Investments......................... B-42
</TABLE>
The financial statements appearing in each Fund's 1994 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report for the
Fund for which this Statement of Additional Information is requested accompanies
this document.
KEF-13 10/95 (LOGO) printed on recycled paper
<PAGE> 2
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which,
together with the investment objective and fundamental policies of such Fund,
cannot be changed without approval of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940, this means the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund.
THE BLUE CHIP FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the total value of the Fund's assets would be invested in
securities of that issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objective and policies.
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction number
(4) above. (The collateral arrangements with respect to options, financial
futures and delayed delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(7) Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position is open it owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short and unless
not more than 10% of the Fund's total assets is held as collateral for such
sales at any one time.
(8) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(9) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase 25% or more of
the Fund's total assets would be invested in any one industry.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate (including real estate limited
partnership interests), although it may invest in securities which are secured
by real estate and securities of issuers which invest or deal in real estate.
(11) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
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(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Blue Chip
Fund may not:
(i) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(ii) Invest for the purpose of exercising control or management of another
issuer.
(iii) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers which
invest in or sponsor such programs.
(iv) Purchase securities of other open-end investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
(v) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) which with their predecessors have a record of less than
three years continuous operation and equity securities of issuers which are not
readily marketable.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchange. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE GROWTH FUND AND THE VALUE+GROWTH FUND, EACH MAY NOT, AS A FUNDAMENTAL
POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
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(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Growth
Fund did not borrow money as permitted by investment restriction number 4 in the
latest fiscal year and neither Fund has a present intention of borrowing during
the current year. The Fund has adopted the following non-fundamental
restrictions, which may be changed by the Board of Trustees without shareholder
approval. The Growth Fund and the Value+Growth Fund, each may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
B-3
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(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable securities in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE SMALL CAP FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present
B-4
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intention of borrowing during the current year. The Fund has adopted the
following non-fundamental restrictions, which may be changed by the Board of
Trustees without shareholder approval. The Small Cap Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers or
trustees of the Fund or its investment adviser owns beneficially more than 1/2
of 1% of the securities of such issuer and together own more than 5% of the
securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE TECHNOLOGY FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
B-5
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(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
(7) Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Technology
Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets unless
immediately thereafter not more than (i) 3% of the total outstanding voting
stock of such company would be owned by the Fund, (ii) 5% of the Fund's total
assets would be invested in any one such company, and (iii) 10% of the Fund's
total assets would be invested in such securities.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
B-6
<PAGE> 8
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE TOTAL RETURN FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(3) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies" in the prospectus.
(4) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowings secured thereby.
(5) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(6) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on put and call options, combinations thereof or
similar options; however, the Fund may buy or sell options on financial futures
contracts.
(7) Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Total
Return Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation and in equity securities which are not readily marketable.
B-7
<PAGE> 9
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment funds.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Each Fund may engage in options transactions and may engage in
financial futures transactions in accordance with its respective investment
objectives and policies. The Blue Chip, Growth, Small Cap, Total Return and
Value+Growth Funds each may invest in put and call options but may not write
(sell) options. The Technology Fund may write (sell) covered call options and
secured put options and may purchase put and call options. Each such Fund
intends to engage in such transactions if it appears to the investment manager
to be advantageous to do so in order to pursue its investment objective and also
to hedge against the effects of market risks but not for speculative purposes.
The use of futures and options, and possible benefits and attendant risks, are
discussed below along with information concerning other investment policies and
techniques.
OPTIONS ON SECURITIES. The Technology Fund may write (sell) "covered" call
options on securities as long as it owns the underlying securities subject to
the option or an option to purchase the same underlying securities, having an
exercise price equal to or less than the exercise price of the "covered" option,
or will establish and maintain for the term of the option a segregated account
consisting of cash, U.S. Government securities or other liquid high-grade debt
obligations ("eligible securities") having a value at least equal to the
fluctuating market value of the optioned securities. The Technology Fund may
write "covered" put options provided that, as long as the Fund is obligated as a
writer of a put option, the Fund will own an option to sell the underlying
securities subject to the option, having an exercise price equal to or greater
than the exercise price of the "covered" option, or it will deposit and maintain
in a segregated account eligible securities having a value equal to or greater
than the exercise price of the option. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the underlying security at
the exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying security
at the exercise price during the option period. The
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<PAGE> 10
premium received for writing an option will reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to such market price, the price volatility of the underlying
security, the option period, supply and demand and interest rates. The Funds may
write (for the Technology Fund) or purchase spread options, which are options
for which the exercise price may be a fixed dollar spread or yield spread
between the security underlying the option and another security that is used as
a bench mark. The exercise price of an option may be below, equal to or above
the current market value of the underlying security at the time the option is
written. The buyer of a put who also owns the related security is protected by
ownership of a put option against any decline in that security's price below the
exercise price less the amount paid for the option. The ability to purchase put
options allows a Fund to protect capital gains in an appreciated security it
owns, without being required to actually sell that security. At times a Fund
would like to establish a position in a security upon which call options are
available. By purchasing a call option, a Fund is able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because a Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium, plus the interest income on the money market investment.
If the secured put writer has to buy the underlying security because of the
exercise of the put option, the secured put writer incurs an unrealized loss to
the extent that the current market value of the underlying security is less than
the exercise price of the put option. However, this would be offset in whole or
in part by gain from the premium received and any interest income earned on the
money market investment.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives and Policies"), the Funds may deal in over-the-counter traded options
("OTC 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 nonperformance 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 the premium is paid in advance by
the dealer. OTC options are available for a greater variety of securities, and a
wider range of expiration dates and exercise prices, than are exchange traded
options. Since there is no exchange, pricing is normally done by reference to
information from market makers, which information is carefully monitored by the
investment manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put
B-9
<PAGE> 11
writer. Similarly, a purchaser of such put or call option might also find it
difficult to terminate its position on a timely basis in the absence of a
secondary market.
The Funds understand the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The investment manager
disagrees with this position and has found the dealers with which it engages in
OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Funds have adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Funds' portfolios. A brief description of
such procedures is set forth below.
A Fund will only engage in OTC options transactions with dealers that have been
specifically approved by the investment manager pursuant to procedures adopted
by the Fund's Board of Trustees. The investment manager believes that the
approved dealers should be able to enter into closing transactions if necessary
and, therefore, present minimal credit risks to a Fund. The investment manager
will monitor the credit-worthiness of the approved dealers on an ongoing basis.
A Fund currently will not engage in OTC options transactions if the amount
invested by the Fund in OTC options, plus (for the Technology Fund) a "liquidity
charge" related to OTC options written by the Fund, plus the amount invested by
the Fund in illiquid securities, would exceed 15% of the Fund's net assets. The
"liquidity charge" referred to above is computed as described below.
The Technology Fund anticipates entering into agreements with dealers to which
the Fund sells OTC options. Under these agreements the Fund would have the
absolute right to repurchase the OTC options from the dealer at any time at a
price no greater than a price established under the agreements (the "Repurchase
Price"). The "liquidity charge" referred to above for a specific OTC option
transaction will be the Repurchase Price related to the OTC option less the
intrinsic value of the OTC option. The intrinsic value of an OTC call option for
such purposes will be the amount by which the current market value of the
underlying security exceeds the exercise price. In the case of an OTC put
option, intrinsic value will be the amount by which the exercise price exceeds
the current market value of the underlying security. If there is no such
agreement requiring a dealer to allow the Fund to repurchase a specific OTC
option written by the Fund, the "liquidity charge" will be the current market
value of the assets serving as "cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. The Blue Chip, Growth, Small Cap, Total Return
and Value+Growth Funds may purchase, and the Technology Fund may purchase and
write, call and put options on securities indices in an attempt to hedge against
market conditions affecting the value of securities that the Fund owns or
intends to purchase, and not for speculation. Through the writing or purchase of
index options, a Fund can achieve many of the same objectives as through the use
of options on individual securities. Options on securities indices are similar
to options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike security options, all settlements are in cash
and gain or loss depends upon price movements in the market generally (or in a
particular industry or segment of the market), rather than upon price movements
in individual securities. Price movements in securities that the Fund owns or
intends to purchase will probably not correlate perfectly with movements in the
level of an index since the prices of such securities may be affected by
somewhat different factors and, therefore, the Fund bears the risk that a loss
on an index option would not be completely offset by movements in the price of
such securities.
When the Technology Fund writes an option on a securities index, it will
segregate, and mark-to-market, eligible securities equal in value to 100% of the
exercise price in the case of a put, or the contract value in the case of a
call. In addition, where the Fund writes a call option on a securities index at
a time when the contract value exceeds the exercise price, the Fund will
segregate and mark-to-market, until the option expires or is closed out, cash or
cash equivalents equal in value to such excess.
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<PAGE> 12
A Fund may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on futures contracts and
index options involve risks similar to those risks relating to transactions in
financial futures contracts described below. Also, an option purchased by a Fund
may expire worthless, in which case the Fund would lose the premium paid
therefor.
FINANCIAL FUTURES CONTRACTS. The Funds may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security,
or an amount of foreign currency or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might affect adversely the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the contract at a specified
price during a specified delivery period. A "purchase" of a futures contract
means the undertaking of a contractual obligation to acquire the securities or
cash value of an index or foreign currency at a specified price during a
specified delivery period. At the time of delivery, in the case of fixed income
securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery without having to make or take
delivery of the underlying assets by purchasing (or selling, as the case may be)
on a commodities exchange an identical futures contract calling for delivery in
the same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the underlying securities or
other assets. All transactions in the futures market are made, offset or
fulfilled through a clearing house associated with the exchange on which the
contracts are traded. A Fund will incur brokerage fees when it purchases or
sells contracts, and will be required to maintain margin deposits. At the time a
Fund enters into a futures contract, it is required to deposit with its
custodian, on behalf of the broker, a specified amount of cash or eligible
securities, called "initial margin." The initial margin required for a futures
contract is set by the exchange on which the contract is traded. Subsequent
payments, called "variation margin," to and from the broker are made on a daily
basis as the market price of the futures contract fluctuates. The costs incurred
in connection with futures transactions could reduce a Fund's return. Futures
contracts entail risks. If the investment manager's judgment about the general
direction of markets or exchange rates is wrong, the overall performance may be
poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. A Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. A Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and
B-11
<PAGE> 13
call options on futures contracts written by it. A Fund will establish
segregated accounts or will provide cover with respect to written options on
financial futures contracts in a manner similar to that described under "Options
on Securities." Options on futures contracts involve risks similar to those
risks relating to transactions in financial futures contracts described above.
Also, an option purchased by a Fund may expire worthless, in which case the Fund
would lose the premium paid therefor.
REGULATORY RESTRICTIONS. To the extent required to comply with SEC Release No.
IC-10666, when purchasing a futures contract, writing a put option or entering
into a forward currency exchange purchase, a Fund will maintain in a segregated
account cash, U.S. Government securities or liquid high-grade debt obligations
equal to the value of such contracts. A Fund will use cover in connection with
selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only in an attempt to hedge against changes in
interest rates or market conditions affecting the value of securities which the
Fund holds or intends to purchase.
FOREIGN CURRENCY OPTIONS. The Funds may engage in foreign currency options
transactions. A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if a Fund were
holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund had
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of their financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Funds may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, a Fund may be able to achieve many of the same objectives as through
forward foreign currency exchange contracts more effectively and possibly at a
lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. 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 ("term") 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. The investment manager believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that to do so is in the best interests of a Fund. A Fund will not
speculate in foreign currency exchange.
If a Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
B-12
<PAGE> 14
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between a Fund's entering into a
forward contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain that might result should the value of such currency increase. A
Fund may have to convert its holdings of foreign currencies into U.S. Dollars
from time to time in order to meet such needs as Fund expenses and redemption
requests. Although foreign exchange dealers do not charge a fee for conversion,
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies.
A Fund will not enter into forward contracts or maintain a net exposure in such
contracts when 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. 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 the
purchase of a foreign currency. If the value of the securities segregated
declines, additional cash or securities is 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.
REPURCHASE AGREEMENTS. A Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be marked-to-
market every business day so that the value of such securities is at least equal
to the investment value of the repurchase agreement, including any accrued
interest thereon. No Fund currently intends to invest more than 5% of its net
assets in repurchase agreements during the current year.
SHORT SALES AGAINST-THE-BOX. The Blue Chip Fund may make short sales
against-the-box for the purpose of deferring realization of gain or loss for
federal income tax purposes. A short sale "against-the-box" is a short sale in
which the Fund owns at least an equal amount of the securities sold short or
securities convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and at least equal in amount to,
the securities sold short. The Fund may engage in such short sales only to the
extent that not more than 10% of the Fund's total assets (determined at the time
of the short sale) is held as collateral for such sales. The Fund does not
currently intend, however, to engage in such short sales to the extent that more
than 5% of its net assets will be held as collateral therefor during the current
year.
OTHER CONSIDERATIONS--HIGH YIELD (HIGH RISK) BONDS. As reflected in the
prospectus, the Total Return Fund may invest a portion of its assets in fixed
income securities that are in the lower rating categories of recognized rating
agencies or are non-rated. These lower rated or non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories.
The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also tend to be more sensitive to economic conditions
than are higher rated securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, regarding lower rated bonds may
depress the prices for such securities. These and other factors adversely
affecting the market value of high yield securities will adversely affect the
Fund's net asset value. Although some risk is inherent in all securities
ownership,
B-13
<PAGE> 15
holders of fixed income securities have a claim on the assets of the issuer
prior to the holders of common stock. Therefore, an investment in fixed income
securities generally entails less risk than an investment in common stock of the
same issuer.
High yield securities frequently are issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or a corporate takeover. Companies that issue such high yielding
securities often are highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risk associated with acquiring
the securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or recession, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuer.
Zero coupon securities and pay-in-kind bonds involve additional special
considerations. Zero coupon securities are debt obligations that do not entitle
the holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently with similar maturities and
credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that unlike bonds that pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment.
Additional information concerning high yield securities appears under
"Appendix--Ratings of Fixed Income Investments."
PORTFOLIO TRANSACTIONS
KFS is the investment manager for the Kemper Funds and KFS and its affiliates
also furnish investment management services to other clients including Kemper
Corporation and the Kemper insurance companies. KFS is the sole shareholder of
Kemper Asset Management Company and Kemper Investment Management Company
Limited. These three entities share some common research and trading facilities.
DVA is the investment manager for Kemper-Dreman Fund, Inc. and the sub-adviser
for the Value+Growth Fund. At times investment decisions may be made to purchase
or sell the same investment securities for a Fund and for one or more of the
other clients managed by KFS or DVA. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security through the
same trading facility, the transactions are allocated as to amount and price in
a manner considered equitable to each.
National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options a Fund
will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or futures contracts available to a Fund. On the
other hand, the ability of a Fund to participate in volume transactions may
produce better executions for a Fund in some cases. The Board of Trustees of
each Fund believes that the benefits of KFS's and DVA's organization outweigh
any limitations that may arise from simultaneous transactions or position
limitations.
B-14
<PAGE> 16
KFS and DVA, in effecting purchases and sales of portfolio securities for the
account of a Fund, will implement each Fund's policy of seeking best execution
of orders, which includes best net prices, except to the extent that KFS and DVA
may be permitted to pay higher brokerage commissions for research services as
described below. Consistent with this policy, orders for portfolio transactions
are placed with broker-dealer firms giving consideration to the quality,
quantity and nature of each firm's professional services, which include
execution, clearance procedures, wire service quotations and statistical and
other research information provided to a Fund and KFS or DVA. Any research
benefits derived are available for all clients, including clients of affiliated
companies. Since it is only supplementary to KFS's and DVA's own research
efforts and must be analyzed and reviewed by KFS' and DVA's staff, the receipt
of research information is not expected to materially reduce expenses. In
selecting among firms believed to meet the criteria for handling a particular
transaction, KFS and DVA may give consideration to those firms that have sold or
are selling shares of the Funds and of other funds managed by KFS and DVA, as
well as to those firms that provide market, statistical and other research
information to a Fund and KFS and DVA, although neither KFS nor DVA is not
authorized to pay higher commissions or, in the case of principal trades, higher
prices to firms that provide such services, except as described below.
KFS and DVA may in certain instances be permitted to pay higher brokerage
commissions (not including principal trades) solely for receipt of market,
statistical and other research services. Subject to Section 28(e) of the
Securities Exchange Act of 1934 and procedures that may be adopted by the Board
of Trustees of each Fund, a Fund could pay a firm that provides research
services to KFS or DVA commissions for effecting a securities transaction for
the Fund in excess of the amount other firms would have charged for the
transaction if KFS or DVA determines in good faith that the greater commission
is reasonable in relation to the value of the research services provided by the
executing firm viewed in terms either of a particular transaction or KFS's or
DVA's overall responsibilities to the Fund or other clients. Not all of such
research services may be useful or of value in advising a particular Fund.
Research benefits will be available for all clients of KFS and its subsidiaries.
The investment management fee paid by a Fund to KFS is not reduced because KFS
or DVA receives these research services.
The table below shows total brokerage commissions paid by each Fund for the last
three fiscal years and for the most recent fiscal year, the percentage thereof
that was allocated to firms based upon research information provided or sales of
Kemper Fund shares (except for the Value+Growth Fund, which commenced operations
on October 16, 1995).
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH/SALES OF
KEMPER FUND SHARES
FUND FISCAL 1994 IN FISCAL 1994 FISCAL 1993 FISCAL 1992
- ------------------------------------------- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Blue Chip.................................. $ 565,000 98% $ 1,128,000 $ 592,000
Growth..................................... $ 7,110,000 98% $ 8,100,000 $ 4,224,000
Small Cap.................................. $ 2,782,000 86% $ 2,740,000 $ 1,855,000
Technology................................. $ 1,644,000 85% $ 3,279,000 $ 2,814,000
Total Return............................... $ 7,705,000 81% $ 6,884,000 $ 4,236,000
</TABLE>
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is each Fund's investment manager. Pursuant to
investment management agreements, KFS acts as each Fund's investment adviser,
manages its investments, administers its business affairs, furnishes office
facilities and equipment, provides clerical, bookkeeping and administrative
services, and permits any of its officers or employees to serve without
compensation as trustees or officers of a Fund if elected to such positions.
Each investment management agreement provides that each Fund pays the charges
and expenses of its operations, including the fees and expenses of the trustees
(except those who are officers or employees of KFS), independent auditors,
counsel,
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<PAGE> 17
custodian and transfer agent and the cost of share certificates, reports and
notices to shareholders, brokerage commissions or transaction costs, costs of
calculating net asset value, taxes and membership dues. Each Fund bears the
expenses of registration of its shares with the Securities and Exchange
Commission, while Kemper Distributors, Inc. ("KDI"), as principal underwriter,
pays the cost of qualifying and maintaining the qualification of each Fund's
shares for sale under the securities laws of the various states. KFS has agreed
to reimburse each Fund to the extent required by applicable state expense
limitations should all operating expenses of each Fund, including the investment
management fees of KFS but excluding taxes, interest, distribution fees,
extraordinary expenses, brokerage commissions or transaction costs and any other
properly excludable expenses, exceed the applicable state expense limitations.
The Funds believe that the most restrictive state expense limitation currently
in effect would require that such operating expenses not exceed 2.5% of the
first $30 million of average daily net assets, 2% of the next $70 million and
1.5% of average daily net assets over $100 million. Under such state expense
limitation, custodian costs attributable to foreign securities that are in
excess of similar domestic custodian costs are excluded from operating expenses.
The investment management agreements provide that KFS shall not be liable for
any error of judgment or of law, or for any loss suffered by a Fund in
connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
KFS in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under each agreement.
Each Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually (a) by a majority
of the trustees who are not parties to such agreement or interested persons of
any such party except in their capacity as trustees of the Fund and (b) by the
shareholders or the Board of Trustees of the Fund. The agreement for the
Value+Growth Fund has an initial term ending March 1, 1997. Each Fund's
investment management agreement may be terminated at any time upon 60 days
notice by either party, or by a majority vote of the outstanding shares of the
Fund, and will terminate automatically upon assignment. If additional Fund's
become subject to an investment management agreement, the provisions concerning
continuation, amendment and termination shall be on a Fund by Fund basis.
Additional Funds may be subject to a different agreement.
The current investment management fee rates paid by the Funds are in the
prospectus, see "Investment Manager and Underwriter." The investment management
fees paid by each Fund for its last three fiscal years are shown in the table
below (except for the Value+Growth Fund, which commenced operations on October
16, 1995).
<TABLE>
<CAPTION>
FUND FISCAL 1994 FISCAL 1993 FISCAL 1992
- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Blue Chip.................................................. $ 1,072,000 1,298,000 763,000
Growth..................................................... $ 9,634,000 8,320,000 5,661,000
Small Cap.................................................. $ 3,746,000+ 2,290,000++ 2,447,000
Technology................................................. $ 3,296,000 3,074,000 3,015,000
Total Return............................................... $10,997,000 6,837,000 5,763,000
</TABLE>
- ---------------
+ Fee was increased $499,000 from $3,247,000 base fee.
++ Fee was decreased from $2,392,000 base fee.
The Small Cap Fund pays a base annual investment 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 on the basis of the
investment performance of the Class A shares of the Fund as compared with the
performance of the Standard & Poor's 500 Stock Index (the "Index"). The Small
Cap Fund will pay an additional monthly fee at an annual rate of .05% of such
average daily net assets for each percentage point (fractions to be prorated) by
which the performance of the Class A shares of the Fund exceeds that of the
Index for the immediately preceding twelve months; provided that such additional
monthly fee shall not exceed 1/12 of .30% of the average daily net assets.
Conversely, the compensation payable by the Small Cap Fund will be reduced by an
annual rate of .05% of such average daily net assets for each percentage point
(fractions to be prorated) by which the performance of the Class A shares of the
B-16
<PAGE> 18
Fund falls below that of the Index, provided that such reduction in the monthly
fee shall not exceed 1/12 of .30% of the average net assets. The total fee on an
annual basis can range from .35% to .95% of average daily net assets. The Small
Cap Fund's investment performance during any twelve month period is measured by
the percentage difference between (a) the opening net asset value of one Class A
share of the Fund and (b) the sum of the closing net asset value of one Class A
share of the Fund plus the value of any income and capital gain dividends on
such share during the period treated as if reinvested in Class A shares of the
Fund at the time of distribution. The performance of the Index is measured by
the percentage change in the Index between the beginning and the end of the
twelve month period with cash distributions on the securities which comprise the
Index being treated as reinvested in the Index at the end of each month
following the payment of the dividend. Each monthly calculation of the incentive
portion of the fee may be illustrated as follows: if over the preceding twelve
month period the Small Cap Fund's adjusted net asset value applicable to one
Class A share went from $10.00 to $11.00 (10% appreciation), and the Index,
after adjustment, went from 100 to 104 (or only 4%), the entire incentive
compensation would have been earned by KFS. On the other hand, if the Index rose
from 100 to 110 (10%), no incentive fee would have been payable. A rise in the
Index from 100 to 116 (16%) would have resulted in the minimum monthly fee of
1/12 of .35%. Since the computation is not cumulative from year to year, an
additional management fee may be payable with respect to a particular year,
although the Small Cap Fund's performance over some longer period of time may be
less favorable than that of the Index. Conversely, a lower management fee may be
payable in a year in which the performance of the Fund's Class A shares' is less
favorable than that of the Index, although the performance of the Fund's Class A
shares over a longer period of time might be better than that of the Index.
Prior to May 31, 1994, the Blue Chip Fund paid KFS an investment management fee,
payable monthly, at the annual rate of .65 of 1% of average daily net assets of
the Fund. Prior to May 31, 1994, the Growth Fund and the Total Return Fund each
paid KFS an investment management fee, payable monthly, at the annual rate of
.65 of 1% of the first $200 million of average daily net assets, .55 of 1% of
the next $300 million of average daily net assets and .45 of 1% of average daily
net assets over $500 million. Prior to May 31, 1994, the Technology Fund paid
KFS an investment management fee, payable monthly, at the annual rate of .60 of
1% of the first $200 million of average daily net assets, .50 of 1% of the next
$300 million of average daily net assets and .40 of 1% of average daily net
assets over $500 million.
VALUE+GROWTH FUND SUB-ADVISER. Dreman Value Advisors, Inc. ("DVA"), 10 Exchange
Place, Jersey City, New Jersey 07302, is the sub-adviser for the value portion
of the Value+Growth Fund. DVA is a wholly owned subsidiary of KFS. DVA will act
as sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
KFS.
Under the terms of the Sub-Advisory Agreement, DVA will manage the value portion
of the Value+Growth Fund's portfolio and will provide such investment advice,
research and assistance as KFS may, from time to time, reasonably request. DVA
may, under the terms of the Sub-Advisory Agreement, render similar services to
others including other investment companies. For its services, DVA will receive
from KFS a monthly fee at the annual rate of .25% of the Fund's average daily
net assets. DVA permits any of its officers or employees to serve without
compensation as trustees or officers of the Value+Growth Fund if elected to such
positions.
The Sub-Advisory Agreement provides that DVA will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Sub-Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
DVA in the performance of its duties or from reckless disregard by DVA of its
obligations and duties under the Sub-Advisory Agreement.
The Sub-Advisory Agreement has an initial term ending March 1, 1997 and
continues by its terms from year to year if such continuance is specifically
approved at least annually (a) by a majority of the trustees who are not parties
to such agreement or interested persons of any such party except in their
capacity as trustees of the Fund, and (b) by the shareholders or the Board of
Trustees of the Fund. The Sub-Advisory Agreement may be terminated at any time
B-17
<PAGE> 19
upon 60 days' notice by KFS, DVA or the Board of Trustees of the Fund or by
majority vote of the outstanding shares of the Fund, and will terminate
automatically upon assignment or upon termination of the Fund's investment
management agreement.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), a wholly owned subsidiary of KFS, is the principal underwriter and
distributor for the shares of each Fund and acts as agent of each Fund in the
continuous offering of its shares. KDI bears all its expenses of providing
services pursuant to the distribution agreements, including the payment of any
commissions. Each Fund pays the cost for the prospectus and shareholder reports
to be set in type and printed for existing shareholders, and KDI, as principal
underwriter, pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. KDI also pays
for supplementary sales literature and advertising costs. Before February 1,
1995, KFS was the principal underwriter and distributor.
Each distribution agreement continues in effect from year to year so long as
such continuance is approved for each class at least annually by a vote of the
Board of Trustees of the Fund, including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
agreement. Each agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
Fund or by KDI upon 60 days' notice. Termination by a Fund with respect to a
class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
Investment Company Act of 1940. The agreement may not be amended for a class to
increase the fee to be paid by a Fund with respect to such class without
approval by a majority of the outstanding voting securities of such class of the
Fund and all material amendments must in any event be approved by the Board of
Trustees in the manner described above with respect to the continuation of the
agreement. The provisions concerning the continuation, amendment and termination
of the distribution agreement are on a Fund by Fund basis and for each Fund on a
class by class basis.
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of each Fund's Class A shares for the
fiscal years noted (except for the Value+Growth Fund, which commenced operations
on October 16, 1995).
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS PAID TO KEMPER
COMMISSIONS RETAINED UNDERWRITER AFFILIATED
FUND FISCAL YEAR BY UNDERWRITER PAID TO ALL FIRMS FIRMS
- ------------------------------ ----------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Blue Chip..................... 1994 $ 64,000 398,000 68,000
1993 $ 130,000 1,022,000 214,000
1992 $ 239,000 5,827,000 1,563,000
Growth........................ 1994 $ 489,000 3,861,000 591,000
1993 $1,404,000 12,057,000 1,622,000
1992 $3,126,000 34,418,000 6,739,000
Small Cap..................... 1994 $ 182,000 1,264,000 243,000
1993 $ 224,000 4,669,000 1,148,000
1992 $ 278,000 1,779,000 402,000
Technology.................... 1994 $ 43,000 218,000 38,000
1993 $ 65,000 250,000 37,000
1992 $ 86,000 257,000 51,000
Total Return.................. 1994 $ 523,000 4,036,000 693,000
1993 $ 620,000 5,144,000 746,000
1992 $ 811,000 9,003,000 1,972,000
</TABLE>
B-18
<PAGE> 20
CLASS B SHARES AND CLASS C SHARES. Since the distribution agreement provides for
fees charged to Class B and Class C shares that are used by KDI to pay for
distribution services (see the prospectus under "Investment Manager and
Underwriter"), the agreement (the "Plan") is approved and renewed separately for
the Class B and Class C shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, which regulates the manner in which an
investment company may, directly or indirectly, bear expenses of distributing
its shares. Expenses of the Funds and of KFS, the underwriter until February 1,
1995, in connection with the Rule 12b-1 Plans for the Class B and Class C Shares
are set forth below (except for the Value+Growth Fund, which commenced
operations on October 16, 1995). A portion of the marketing, sales and operating
expenses shown below could be considered overhead expense.
<TABLE>
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID
BY UNDERWRITER
DISTRIBUTION CONTINGENT TOTAL ----------------------------------
FEES PAID DEFERRED COMMISSIONS COMMISSIONS ADVERTISING MARKETING
FUND CLASS B FISCAL BY FUND TO SALES CHARGES PAID BY UNDERWRITER PAID BY UNDERWRITER AND PROSPECTUS AND SALES
SHARES YEAR* UNDERWRITER TO UNDERWRITER TO FIRMS TO AFFILIATED FIRMS LITERATURE PRINTING EXPENSES
- ---------------- ------ ----------- -------------- ------------------- ------------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip....... 1994 $ 4,000 2,000 27,000 9,000 4,000 1,000 12,000
Growth.......... 1994 $ 1,794,000 534,000 1,282,000 122,000 106,000 28,000 662,000
Small Cap....... 1994 $ 390,000 104,000 487,000 61,000 43,000 11,000 251,000
Technology...... 1994 $ 4,000 -- 29,000 11,000 3,000 -- 8,000
Total Return.... 1994 $ 3,909,000 1,158,000 2,376,000 329,000 220,000 73,000 1,401,000
<CAPTION>
MISC.
FUND CLASS B OPERATING INTEREST
SHARES EXPENSES EXPENSES
- ---------------- --------- --------
<S> <C> <C>
Blue Chip....... 5,000 1,000
Growth.......... 80,000 95,000
Small Cap....... 31,000 75,000
Technology...... 4,000 1,000
Total Return.... 179,000 378,000
</TABLE>
- ---------------
* Class B shares were first offered on May 31, 1994.
<TABLE>
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY
TOTAL DISTRIBUTION UNDERWRITER
DISTRIBUTION DISTRIBUTION FEES PAID --------------------------------------
FEES PAID FEES PAID BY UNDERWRITER ADVERTISING MARKETING
FUND CLASS C FISCAL BY FUND BY UNDERWRITER TO AFFILIATED AND PROSPECTUS AND SALES
SHARES YEAR** TO UNDERWRITER TO FIRMS FIRMS LITERATURE PRINTING EXPENSES
- ------------------ ----------- -------------- -------------- -------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip......... 1994 $ -- -- -- 1,000 -- 2,000
Growth............ 1994 $2,000 2,000 1,000 3,000 1,000 16,000
Small Cap......... 1994 $1,000 1,000 -- 2,000 1,000 12,000
Technology........ 1994 $ -- -- -- -- -- 1,000
Total Return...... 1994 $3,000 3,000 1,000 5,000 2,000 32,000
<CAPTION>
MISC.
FUND CLASS C OPERATING INTEREST
SHARES EXPENSES EXPENSES
- ------------------ --------- --------
<S> <C> <C>
Blue Chip......... 2,000 --
Growth............ 2,000 --
Small Cap......... 2,000 --
Technology........ 1,000 --
Total Return...... 5,000 1,000
</TABLE>
- ---------------
** Class C shares were first offered on May 31, 1994.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. Each
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to .25 of 1% of average daily net assets of each class of each Fund.
Before February 1, 1995, KFS was the administrator.
KDI has entered into related arrangements with various financial services firms,
such as broker-dealers or banks ("firms"), that provide services and facilities
for their customers or clients who are shareholders of a Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other services as may be agreed upon from
time to time and permitted by applicable statute, rule or regulation. KDI pays
each firm a service fee, payable quarterly, at an annual rate of up to .25 of 1%
of the net assets in Fund accounts that it maintains and services attributable
to Class A, Class B and Class C shares, respectively, in each case commencing
with the month after investment (month of investment for Class C shares);
provided, however, KDI may advance the first year service fee as described in
the prospectus under "Investment Manager and Underwriter." Firms to which
service fees may be paid include broker-dealers affiliated with KDI.
B-19
<PAGE> 21
The following information concerns the administrative services fee paid by each
Fund (except for the Value+Growth Fund, which commenced operations on October
16, 1995).
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICE FEES
PAID BY FUND SERVICE FEES SERVICE FEES
---------------------------------- PAID BY ADMINISTRATOR PAID BY ADMINISTRATOR
FUND FISCAL YEAR CLASS A CLASS B CLASS C TO FIRMS TO AFFILIATED FIRMS
- -------------------- ----------- ---------- --------- ------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip........... 1994* $ 407,000 2,000 -- 413,000 92,000
1993 $ 476,000 * * 476,000 129,000
1992 $ 262,000 * * 262,000 74,000
Growth.............. 1994* $3,628,000 553,000 1,000 4,347,000 618,000
1993 $3,740,000 * * 3,740,000 627,000
1992 $2,264,000 * * 2,264,000 434,000
Small Cap........... 1994* $1,066,000 124,000 -- 1,212,000 321,000
1993 $ 935,000 * * 935,000 292,000
1992 $ 705,000 * * 705,000 250,000
Technology.......... 1994* $ 873,000 1,000 -- 885,000 83,000
1993 $ 820,000 * * 820,000 81,000
1992 $ 766,000 * * 766,000 67,000
Total Return........ 1994* $3,635,000 1,212,000 1,000 5,063,000 959,000
1993 $3,159,000 * * 3,159,000 869,000
1992 $2,603,000 * * 2,603,000 773,000
</TABLE>
- ---------------
* Class B and Class C shares were first offered on May 31, 1994.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for a Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fee that it receives
from a Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of a Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which there is a firm of record. The Board of Trustees of a Fund,
in its discretion, may approve basing the fee to KDI on all Fund assets in the
future.
Certain trustees or officers of a Fund are also directors or officers of KFS or
KDI as indicated under "Officers and Trustees."
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian and
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 custodian, has custody of all securities
and cash of each Fund held outside of the United States. They attend to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by each Fund. IFTC is also each Fund's transfer
agent and dividend-paying agent. Pursuant to a services agreement with IFTC,
Kemper Service Company ("KSvC"), an affiliate of KFS, serves as "Shareholder
Service Agent." IFTC receives an annual fee as custodian for each Fund, payable
monthly, at a rate of $.10 per $1,000 of average monthly net assets of each Fund
plus certain transaction charges and out-of-pocket expense reimbursement. IFTC
receives as transfer agent, and pays to KSvC, annual account fees of $6 per
account plus account set up, transaction and maintenance charges, annual fees
associated with the contingent deferred sales charge (Class B only) and
out-of-pocket expense reimbursement. IFTC's fee is reduced by certain earnings
credits in favor of the Fund. The following shows for each Fund's 1994 fiscal
year, the custodian and transfer agent fees paid to IFTC
B-20
<PAGE> 22
(excluding related expenses) and the shareholder service fees IFTC remitted to
KSvC. Prior to February 1, 1995, IFTC was 50% owned by KFS. As noted previously,
the Value+Growth Fund commenced operations on October 16, 1995.
<TABLE>
<CAPTION>
FEES PAID BY FEES IFTC
FUND FUND TO IFTC PAID TO KSVC
------------ ------------
<S> <C> <C>
Blue Chip............................................................... $ 632,000 625,000
Growth.................................................................. $ 5,388,000 5,284,000
Small Cap............................................................... $ 1,595,000 1,561,000
Technology.............................................................. $ 643,000 613,000
Total Return............................................................ $ 5,775,000 5,646,000
</TABLE>
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
PURCHASE AND REDEMPTION OF SHARES
As described in the Funds' prospectus, shares of a Fund are sold at their public
offering price, which is the net asset value per share of the Fund next
determined after an order is received in proper form plus, with respect to Class
A shares, an initial sales charge. The minimum initial investment is $1,000 and
the minimum subsequent investment is $100 but such minimum amounts may be
changed at any time. See the prospectus for certain exceptions to these
minimums. An order for the purchase of shares that is accompanied by a check
drawn on a foreign bank (other than a check drawn on a Canadian bank in U.S.
Dollars) will not be considered in proper form and will not be processed unless
and until the Fund determines that it has received payment of the proceeds of
the check. The time required for such a determination will vary and cannot be
determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of such Fund as described in the Funds' prospectus. The redemption
within one year of Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege described in the prospectus may be subject to a 1%
contingent deferred sales charge (see "Purchase of Shares" in the prospectus).
Redemption of Class B shares may be subject to a contingent deferred sales
charge. When a Fund is asked to redeem shares for which it may not yet have
received good payment, it may delay the mailing of a redemption check until it
has determined that collected funds have been received for the purchase of such
shares, which will be up to 15 days.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B shares by certain classes of persons or through certain
types of transactions as described in the prospectus is provided because of
anticipated economies in sales and sales related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
a Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that (a) the
B-21
<PAGE> 23
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
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.
A Fund may at any time vary its foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Trustees of the Fund determines
appropriate under the then current circumstances. In particular, and without
limiting the foregoing, a Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").
Dividends will be reinvested in shares of the Fund paying such dividends unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of other Kemper Funds as described in the prospectus.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
TAXES. Each Fund intends to continue to qualify (or for the Value+Growth Fund,
intends to qualify) as a regulated investment company under Subchapter M of the
Code and, if so qualified, will not be liable for federal income taxes to the
extent its earnings are distributed. One of the Subchapter M requirements to be
satisfied is that less than 30% of a Fund's gross income during its fiscal year
must be derived from gains (not reduced by losses) from the sale or other
disposition of securities and certain other investments held for less than three
months. A Fund may be limited in its options, futures and foreign currency
transactions in order to prevent recognition of such gains.
A Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options and futures held by the Fund at the end of
the fiscal year. Under these provisions, 60% of any capital gain net income or
loss recognized will generally be treated as long-term and 40% as short-term.
However, although certain forward contracts and futures contracts on foreign
currency are marked-to-market, the gain or loss is generally ordinary under
Section 988 of the Code. In addition, the straddle rules of the Code would
require deferral of certain losses realized on positions of a straddle to the
extent that the Fund had unrealized gains in offsetting positions at year end.
Gains and losses attributable to fluctuations in the value of foreign currencies
will be characterized generally as ordinary gain or loss under Section 988 of
the Code. For example, if a Fund sold a foreign bond and part of the gain or
loss on the sale was attributable to an increase or decrease in the value of a
foreign currency, then the currency gain or loss may be treated as ordinary
income or loss. If such transactions result in greater net ordinary income, the
dividends paid by the Fund will be increased; if the result of such transactions
is lower net ordinary income, a portion of dividends paid could be classified as
a return of capital.
B-22
<PAGE> 24
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 of the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. Each Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of a Fund or other Kemper Mutual Fund listed in the
prospectus under "Special Features--Class A Shares--Combined Purchases" may
reinvest the amount redeemed at net asset value at the time of the reinvestment
in shares of any Fund or in shares of a Kemper Mutual Fund within six months of
the redemption as described in the prospectus under "Redemption or Repurchase of
Shares--Reinvestment Privilege." If a shareholder realized a loss on the
redemption or exchange of a Fund's shares and reinvests in shares of the same
Fund 30 days before or after the redemption or exchange, the transactions may be
subject to the wash sale rules resulting in a postponement of the recognition of
such loss for federal income tax purposes. An exchange of a Fund's shares for
shares of another fund is treated as a redemption and reinvestment for federal
income tax purposes upon which gain or loss may be recognized.
A Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of a Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
As described in the prospectus, each Fund's historical performance or return for
a class of shares may be shown in the form of "average annual total return" and
"total return" figures. These various measures of performance are described
below. Performance information will be computed separately for each class.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B shares includes the effect of the applicable
contingent deferred sales charge that may be imposed at the end of the period.
The redeemable value is then divided by the initial investment, and this
quotient is taken to the Nth root (N representing the number of years in the
period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return may also be calculated
without deducting the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the Fund's "Financial Highlights" table
in the Fund's financial statements. Total return performance for a specific
period is calculated by first taking an investment (assumed below to be $10,000)
("initial investment") in a Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge (in the
B-23
<PAGE> 25
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B shares may or may not include the effect
of the applicable contingent deferred sales charge that may be imposed at the
end of the period. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B shares would be
reduced if such charge were included. Total return figures for Class A shares
for various periods are set forth in the tables below.
A Fund's performance figures are based upon historical results and are not
representative of future performance. Each Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 5.75% of the offering price. Class B
shares and Class C shares are sold at net asset value. Redemptions of Class B
shares may be subject to a contingent deferred sales charge that is 4% in the
first year following the purchase, declines by a specified percentage each year
thereafter and becomes zero after six years. Returns and net asset value will
fluctuate. Factors affecting each Fund's performance include general market
conditions, operating expenses and investment management. Any additional fees
charged by a dealer or other financial services firm would reduce the returns
described in this section. Shares of each Fund are redeemable at the then
current net asset value, which may be more or less than original cost.
The figures below show performance information for various periods. Comparative
information for certain indices is also included. Please note the differences
and similarities between the investments which a Fund may purchase and the
investments measured by the applicable indices. The net asset values and returns
of each class of shares of the Funds will also fluctuate. No adjustment has been
made for taxes payable on dividends. The periods indicated were ones of
fluctuating securities prices and interest rates. As indicated previously, the
Value+Growth Fund commenced operations on October 16, 1995.
B-24
<PAGE> 26
BLUE CHIP FUND -- OCTOBER 31, 1994
<TABLE>
<CAPTION>
Initial Income Ending Percentage
TOTAL $10,000 Capital Gain Dividends Ending Percentage Value Increase Dow Jones Standard
RETURN Investment Dividends Reinvested Value Increase (unadjusted) (unadjusted) Industrial & Poor's
TABLE (1) Reinvested (2) (adjusted)(1) (adjusted)(1) (1) (1) Average(3) 500(4)
- --------------- ---------- ------------ ---------- ------------- ------------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 12,911 $1,078 $2,648 $16,637 66.4% $ 17,654 76.5% 169.6% 156.0%
Five Years 11,545 915 1,661 14,121 41.2 14,976 49.8 73.2 62.0
One Year 8,371 200 492 9,063 (9.4) 9,618 (3.8) 9.2 3.9
Year to Date 9,086 0 53 9,139 (8.6) 9,697 (3.0) 6.5 3.6
CLASS B SHARES
Life of
Fund(++) $ 9,992 $ 0 $ 50 $ 9,642 (3.6)% $ 10,042 0.4% 5.2% 4.6%
CLASS C SHARES
Life of
Fund(++) $ 10,016 $ 0 $ 51 -- -- $ 10,067 0.7% 5.2% 4.6%
<CAPTION>
Russell Lipper U.S.
TOTAL Consumer 1000(R) Growth Treasury
RETURN Price Growth and Income Bill
TABLE Index(5) Index(6) Fund(7) Index(8)
- --------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 29.6% 161.9% 144.3% 47.3%
Five Years 19.0 65.9 61.1 27.7
One Year 2.6 5.4 3.1 3.9
Year to Date 2.5 4.3 2.4 2.3
CLASS B SHARES
Life of
Fund(++) 1.4% 7.0% 3.2% 2.3%
CLASS C SHARES
Life of
Fund(++) 1.4% 7.0% 3.2% 2.3%
</TABLE>
<TABLE>
<CAPTION>
Lipper
Russell Growth U.S.
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer 1000(R) and Treasury
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Income Bill
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(7) Index(8)
---------------- ------- ------- ------- --------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 7.6% -- -- 15.4% 14.6% 3.8% 14.9% 13.8% 5.7%
Life of Fund(++) -- (8.4)% 1.6% 13.0 11.4 3.3 17.6 7.9 5.6
Five Years 7.2 -- -- 11.6 10.1 3.6 10.7 10.0 5.0
One Year (9.4) -- -- 9.2 3.9 2.6 5.4 3.1 3.9
</TABLE>
- ---------------
(+) Since November 23, 1987 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-25
<PAGE> 27
GROWTH FUND -- SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage
TOTAL $10,000 Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- ----------------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 24,169 $ 153,191 $ 74,415 $ 251,775 2,417.8% $267,260 2,572.6% 1,312.3%
Fifteen Years 10,967 38,696 17,805 67,468 574.7 71,597 616.0 730.7
Ten Years 9,563 16,401 7,564 33,528 235.3 35,581 255.8 355.7
Five Years 12,445 1,892 958 15,295 53.0 16,232 62.3 67.4
One Year 7,948 537 53 8,538 (14.6) 9,061 (9.4) 11.1
Year to Date 8,917 0 0 8,917 (10.8) 9,459 (5.4) 4.5
CLASS B SHARES
Life of Fund(++) $ 9,832 $ 0 $ 0 $ 9,439 (5.6)% $ 9,832 (1.7)% 3.2%
CLASS C SHARES
Life of Fund(++) $ 9,840 $ 0 $ 0 -- -- $ 9,840 (1.6)% 3.2%
<CAPTION>
Russell U.S.
TOTAL Standard Consumer 1000(R) Lipper Treasury
RETURN & Poor's Price Growth Growth Bill
TABLE 500(4) Index(5) Index(6) Fund(9) Index(8)
- ----------------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 1,474.6 % 365.4% * 965.0% 587.1%
Fifteen Years 664.4 100.3 577.7% 563.0 205.0
Ten Years 289.9 42.3 282.9 261.2 79.7
Five Years 54.7 19.5 59.2 55.4 27.7
One Year 3.7 3.0 5.8 1.3 3.9
Year to Date 1.3 2.5 1.9 (0.7) 2.3
CLASS B SHARES
Life of Fund(++) 2.3 % 1.3% 4.5% 1.3% 2.3%
CLASS C SHARES
Life of Fund(++) 2.3 % 1.3% 4.5% 1.3% 2.3%
</TABLE>
<TABLE>
<CAPTION>
Dow Russell
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R) Lipper
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(9)
---------------- ------- ------- ------- ---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 12.0% -- -- 9.7% 10.2% 5.5% * 8.7%
Life of
Fund(++) -- (15.9)% (4.7)% 10.0 7.1 3.9 14.2% 4.0
Fifteen Years 13.6 -- -- 15.2 14.5 4.7 13.6 13.4
Ten Years 12.9 -- -- 16.4 14.6 3.6 14.4 13.7
Five Years 8.9 -- -- 10.9 9.1 3.6 9.7 9.2
One Year (14.6) -- -- 11.1 3.7 3.0 5.8 1.3
<CAPTION>
U.S.
AVERAGE ANNUAL Treasury
TOTAL RETURN Bill
TABLE Index(8)
---------------- --------
<S> <C>
Life of Fund(+) 7.0%
Life of
Fund(++) 7.0
Fifteen Years 7.7
Ten Years 6.0
Five Years 5.0
One Year 3.9
</TABLE>
- ---------------
* Data not available.
(+) Since April 4, 1966 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-26
<PAGE> 28
SMALL CAP FUND -- SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Dow Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- ---------------------------- ------------ ---------- ---------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 27,406 $110,161 $ 40,791 $178,358 1,683.6% $189,059 1,790.6% 1,198.6%
Fifteen Years 16,841 44,885 15,032 76,758 667.6 81,841 718.4 730.7
Ten Years 11,930 17,123 4,805 33,858 238.6 35,939 259.4 355.7
Five Years 11,620 3,944 991 16,555 65.6 17,575 75.8 67.4
One Year 8,494 500 29 9,023 (9.8) 9,569 (4.3) 11.1
Year to Date 9,179 0 0 9,179 (8.2) 9,732 (2.7) 4.5
CLASS B SHARES
Life of Fund(++) $ 10,230 $ 0 $ 0 $ 9,830 (1.7)% $ 10,230 2.3% 3.2%
CLASS C SHARES
Life of Fund(++) $ 10,212 $ 0 $ 0 -- -- $ 10,212 2.1% 3.2%
<CAPTION>
Russell
TOTAL Standard Consumer Wilshire 1000(R)
RETURN & Poor's Price Mid Cap Growth
TABLE 500(4) Index(5) Growth(10) Index(6)
- ------------------ -------- -------- ---------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 1,202.5 % 317.3% * *
Fifteen Years 664.4 100.3 677.3% 577.7%
Ten Years 289.9 42.3 251.6 282.9
Five Years 54.7 19.5 71.5 59.2
One Year 3.7 3.0 5.9 5.8
Year to Date 1.3 2.5 1.4 1.9
CLASS B SHARES
Life of Fund(++) 2.3 % 1.3% 4.8% 4.5%
CLASS C SHARES
Life of Fund(++) 2.3 % 1.3% 4.8% 4.5%
</TABLE>
<TABLE>
<CAPTION>
Dow Russell
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer Wilshire 1000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Mid Cap Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Growth(10) Index(6)
- ------------------------------ ------- ------- ---------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 11.9% -- -- 10.5% 10.6% 5.7% -- *
Life of Fund(++) -- (5.0)% 6.4% 10.0 7.1 3.9 4.8% 14.2%
Fifteen Years 14.6 -- -- 15.2 14.5 4.7 14.7 13.6
Ten Years 13.0 -- -- 16.4 14.6 3.6 13.4 14.4
Five Years 10.6 -- -- 10.9 9.1 3.6 11.4 9.7
One Year (9.8) -- -- 11.1 3.7 3.0 5.9 5.8
</TABLE>
- ---------------
* Data not available.
(+) Since February 20, 1969 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-27
<PAGE> 29
TECHNOLOGY FUND -- OCTOBER 31, 1994
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1) (1)
- ----------------- ---------- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 48,524 $ 1,882,535 $ 406,722 $2,337,781 23,277.8% $ 2,478,988 24,689.9%
Twenty-five Years 12,722 94,680 19,047 126,449 1,164.5 134,167 1,241.7
Fifteen Years 11,297 48,434 7,549 67,280 572.8 71,419 614.2
Ten Years 9,207 21,919 2,701 33,827 238.3 35,896 259.0
Five Years 10,638 6,617 627 17,882 78.8 18,970 89.7
One Year 10,150 686 0 10,836 8.4 11,495 15.0
Year to Date 10,648 0 0 10,648 6.5 11,297 13.0
CLASS B SHARES
Life of Fund(++) $ 11,461 $ 0 $ 0 $ 11,061 10.6% $ 11,461 14.6%
CLASS C SHARES
Life of Fund(++) $ 11,461 $ 0 $ 0 -- -- $ 11,461 14.6%
<CAPTION>
Russell
TOTAL Dow Jones Standard Consumer 1000(R)
RETURN Industrial & Poor's Price Growth
TABLE Average(3) 500(4) Index(5) Index(6)
- ----------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 16,509.9% 19,634.1% 510.2% *
Twenty-five Years 1,265.3 1,215.7 300.8 *
Fifteen Years 806.8 735.1 98.8 637.8%
Ten Years 362.0 297.1 42.0 289.2
Five Years 73.2 62.0 19.0 65.9
One Year 9.2 3.9 2.6 5.4
Year to Date 6.5 3.6 2.5 4.3
CLASS B SHARES
Life of Fund(++) 5.2% 4.6% 1.4% 7.0%
CLASS C SHARES
Life of Fund(++) 5.2% 4.6% 1.4% 7.0%
</TABLE>
<TABLE>
<CAPTION>
Russell
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer 1000(R)
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6)
- ----------------- ------- ------- ------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 12.6% -- -- 11.7% 12.1% 4.0% *
Life of Fund(++) -- 27.4% 38.7% 13.0 11.4 3.3 17.6%
Twenty-five Years 10.7 -- -- 11.0 10.9 5.7 *
Fifteen Years 13.6 -- -- 15.8 15.2 4.7 14.3
Ten Years 13.0 -- -- 16.5 14.8 3.6 14.6
Five Years 12.3 -- -- 11.6 10.1 3.6 10.7
One Year 8.4 -- -- 9.2 3.9 2.6 5.4
</TABLE>
- ---------------
* Data not available.
(+) Since September 7, 1948 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-28
<PAGE> 30
TOTAL RETURN FUND -- OCTOBER 31, 1994
<TABLE>
<CAPTION>
Initial Capital Income Ending Percentage Ending Percentage Dow
TOTAL $10,000 Gain Dividends Value Increase Value Increase Jones
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (1) (1) (1) (1) Average(3)
- --------------------------- -------- -------- --------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 21,564 $ 94,585 $ 146,524 $ 262,673 2,526.7% $ 278,863 2,688.6% 1,677.4%
Twenty-five Years 19,655 58,024 89,631 167,310 1,573.1 177,468 1,674.7 1,265.3
Fifteen Years 15,826 20,403 27,937 64,166 541.7 68,073 580.7 806.8
Ten Years 13,169 6,557 8,646 28,372 183.7 30,092 200.9 362.0
Five Years 10,282 1,998 2,411 14,691 46.9 15,589 55.9 73.2
One Year 7,634 703 338 8,675 (13.3) 9,208 (7.9) 9.2
Year to Date 8,618 0 152 8,770 (12.3) 9,307 (6.9) 6.5
CLASS B SHARES
Life of Fund(++) $ 9,838 $ 0 $ 56 $ 9,501 (5.0)% $ 9,894 (1.1)% 5.2%
CLASS C SHARES
Life of Fund(++) $ 9,838 $ 0 $ 57 -- -- $ 9,895 (1.1)% 5.2%
<CAPTION>
Standard Russell
TOTAL & Consumer 1000(R) Lipper Lehman Bros.
RETURN Poor's Price Growth Balanced Gov't/Corp.
TABLE 500(4) Index(5) Index(6) Fund(11) Index(12)
- --------------------------- ------- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 1,859.5% 383.8% * * *
Twenty-five Years 1,215.7 300.8 * * *
Fifteen Years 735.1 98.8 637.8% 486.6% 372.3%
Ten Years 297.1 42.0 289.2 207.1 162.4
Five Years 62.0 19.0 65.9 53.4 45.8
One Year 3.9 2.6 5.4 (0.6) (4.6)
Year to Date 3.6 2.5 4.3 (0.7) (4.0)
CLASS B SHARES
Life of Fund(++) 4.6% 1.4% 7.0% 1.4% 0.2%
CLASS C SHARES
Life of Fund(++) 4.6% 1.4% 7.0% 1.4% 0.2%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE Russell
ANNUAL Fund Fund Fund Dow Jones Standard Consumer 1000(R) Lipper
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Balanced
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(11)
- ------------------ ------- ------- ------- --------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 11.3% -- -- 9.8% 10.2% 5.3% * *
Life of Fund(++) -- (11.6)% (2.5)% 13.0 11.4 3.3 17.6% 3.4%
Twenty-five Years 11.9 -- -- 11.0 10.9 5.7 * *
Fifteen Years 13.2 -- -- 15.8 15.2 4.7 14.3 12.5
Ten Years 11.0 -- -- 16.5 14.8 3.6 14.6 11.9
Five Years 8.0 -- -- 11.6 10.1 3.6 10.7 8.9
One Year (13.3) -- -- 9.2 3.9 2.6 5.4 (0.6)
<CAPTION>
AVERAGE
ANNUAL Lehman Bros.
TOTAL RETURN Gov't/Corp.
TABLE Index(12)
- ------------------ ------------
<S> <C>
Life of Fund(+) *
Life of Fund(++) 0.4%
Twenty-five Years *
Fifteen Years 10.9
Ten Years 10.1
Five Years 7.8
One Year (4.6)
</TABLE>
- ---------------
* Data not available.
(+) Since March 2, 1964 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were adjusted
for the maximum initial sales charge at the beginning of the period, which is
5.75%. The Initial Investment for Class B and Class C shares was not adjusted.
Amounts were adjusted for Class B shares for the contingent deferred sales
charge that may be imposed at the end of the period based upon the schedule for
shares sold currently, see "Redemption or Repurchase of Shares" in the
prospectus. No adjustments were made to Class C shares since they do not have an
initial or contingent deferred sales charge.
(2) Includes short-term capital gain dividends, if any.
(3) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange. Assumes
reinvestment of dividends. Source is Towers Data Systems and Lipper Analytical
Services, Inc.
(4) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange. Assumes
reinvestment of dividends. Source is Towers Data Systems and Lipper Analytical
Services, Inc.
(5) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(6) The Russell 1000(R) Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select. Assumes reinvestment of dividends. Source is Lipper Analytical
Services, Inc.
(7) The Lipper Growth and Income Fund Index is a net asset value weighted index
of the performance of certain mutual funds tracked by Lipper Analytical
Services, Inc. The largest mutual funds within the Lipper "growth and income
investment" objective category are included in the index. Performance is based
on changes in net asset value with all dividends reinvested and with no
adjustment for sales charges.
(8) The U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) The Lipper Growth Fund Index is a net asset value weighted index of the
performance of certain mutual funds tracked by Lipper Analytical Services, Inc.
The largest mutual funds within the Lipper "growth investment" objective
category are included in the index. Performance is based on changes in net asset
value with all dividends reinvested and with no adjustment for sales changes.
(10) The Wilshire Mid Cap Growth Index is a market capitalization-weighted index
including domestic equity securities chosen from the Wilshire Mid-Cap 750 which
exhibit growth characteristics. Assumes reinvestment of dividends. Source is
Wilshire Associates Incorporated.
(11) The Lipper Balanced Fund Index is a net asset value weighted index of the
performance of certain mutual funds tracked by Lipper Analytical Services, Inc.,
New York, New York. The largest mutual funds within the Lipper "balanced
investment" objective category are included in the index. Performance is based
on changes in net asset value with all dividends reinvested and with no
adjustment for sales charges.
B-29
<PAGE> 31
(12) The Lehman Brothers Government/Corporate Bond Index is on a total return
basis and is comprised of all publicly issued, non-convertible, domestic debt of
the U.S. Government or any agency thereof, quasi-federal corporation, or
corporate debt guaranteed by the U.S. Government and all publicly issued,
fixed-rate, non-convertible, domestic debt of the three major corporate
classifications: industrial, utility, and financial. Only notes and bonds with a
minimum outstanding principal amount of $1,000,000 and a minimum of one year to
maturity are included. Bonds included must have a rating of at least Baa by
Moody's Investors Service, Inc., BBB by Standard & Poor's Corporation or in the
case of bank bonds not rated by either Moody's or S&P, BBB by Fitch Investors
Service. This index is unmanaged. Source is CDA Investment Technologies, Inc.,
Silver Spring, Maryland.
Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National IndexTM for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of a Fund, such as the Total
Return Fund, to the performance of a hypothetical portfolio weighted 60% in the
Standard & Poor's 500 Stock Index (an unmanaged index generally representative
of the U.S. stock market) and 40% in the Lehman Brothers Government/Corporate
Bond Index (an unmanaged index generally representative of intermediate and
long-term government and investment grade corporate debt securities). See the
footnotes above for a more complete description of these indexes. The Total
Return Fund may invest in both equity and fixed income securities. The
percentage of assets invested in each type of security will vary from time to
time in the discretion of the Fund's investment manager and will not necessarily
approximate the 60%/40% weighting of this hypothetical index.
Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC/Donoghue's Money Fund Averages(R) (All
Taxable). As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.
B-30
<PAGE> 32
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund (except the Value+Growth Fund), which includes the current maximum
sales charge of 5.75%, with income and capital gain dividends reinvested in
additional shares. Each table covers the period from commencement of operations
of the Fund to December 31, 1994.
<TABLE>
<CAPTION>
BLUE CHIP FUND (11/23/87)
--------DIVIDENDS--------- -------CUMULATIVE VALUE OF SHARES ACQUIRED--------
ANNUAL ANNUAL REINVESTED
YEAR INCOME CAPITAL GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1987 $ 0 $ 0 $ 9,519 $ 0 $ 0 $ 9,519
1988 339 0 8,545 342 0 8,887
1989 220 0 10,650 659 0 11,309
1990 134 0 10,776 806 0 11,582
1991 531 712 14,284 1,657 786 16,727
1992 185 0 13,949 1,810 768 16,527
1993 897 374 13,392 2,647 1,118 17,157
1994 269 27 12,472 2,733 1,068 16,273
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH FUND (4/4/66)
------DIVIDENDS------ ------CUMULATIVE VALUE OF SHARES ACQUIRED------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1966 $ 0 $ 0 $ 8,920 $ 0 $ 0 $ 8,916
1967 75 954 13,165 77 984 14,220
1968 121 1,278 15,103 211 2,371 17,684
1969 242 836 12,897 410 2,862 16,168
1970 306 0 12,137 726 2,692 15,548
1971 313 652 13,794 1,143 3,757 18,692
1972 280 765 13,907 1,419 4,544 19,876
1973 322 0 11,089 1,471 3,622 16,174
1974 384 0 7,779 1,383 2,541 11,698
1975 368 0 10,809 2,295 3,530 16,626
1976 376 0 13,689 3,303 4,471 21,452
1977 383 0 13,757 3,715 4,495 21,963
1978 661 572 15,439 4,827 5,613 25,879
1979 852 3,998 18,775 6,772 10,900 36,439
1980 1,097 5,842 23,439 9,656 19,407 52,502
1981 1,053 2,201 19,253 8,955 18,257 46,465
1982 1,364 1,691 23,346 12,515 24,081 59,942
1983 4,257 5,471 25,476 17,849 31,659 74,984
1984 1,772 6,113 20,973 16,409 32,242 69,624
1985 2,313 8,923 22,822 20,376 45,166 88,364
1986 3,785 22,963 18,803 20,481 60,930 100,214
1987 12,643 22,692 13,065 26,916 65,975 105,956
1988 3,977 0 13,963 32,949 70,505 117,417
1989 2,844 0 17,907 45,201 90,420 153,528
1990 2,898 6,132 17,495 47,095 94,866 159,456
1991 7,496 5,963 27,552 82,490 156,017 266,059
1992 542 542 27,009 81,412 153,492 261,913
1993 1,631 16,494 25,552 78,674 161,958 266,184
1994 0 3,505 23,701 72,977 153,770 250,448
-----------------------------------------------------------------------------------
</TABLE>
B-31
<PAGE> 33
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
SMALL CAP FUND (2/20/69)
---------------DIVIDENDS----------- -----CUMULATIVE VALUE OF SHARES ACQUIRED------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1969 $ 94 $ 0 $ 9,179 $ 95 $ 0 $ 9,274
1970 172 0 8,924 275 0 9,199
1971 117 243 10,868 463 267 11,598
1972 121 634 10,925 583 890 12,398
1973 193 0 7,745 615 631 8,991
1974 197 0 4,953 585 403 5,941
1975 192 0 7,585 1,096 618 9,299
1976 162 0 9,915 1,605 808 12,328
1977 223 0 10,981 2,007 895 13,883
1978 358 1,527 11,548 2,469 2,471 16,488
1979 1,455 1,845 14,009 4,521 4,932 23,462
1980 1,770 1,232 18,670 7,745 7,771 34,186
1981 829 1,607 16,916 7,931 8,811 33,658
1982 657 1,201 20,472 10,389 12,108 42,969
1983 1,386 3,307 23,170 13,087 16,875 53,132
1984 1,082 0 20,934 12,916 15,247 49,097
1985 1,217 1,482 25,386 17,035 20,161 62,582
1986 581 11,279 24,104 16,782 30,928 71,814
1987 5,059 17,848 15,990 16,510 39,485 71,985
1988 1,062 0 16,982 18,656 41,931 77,569
1989 2,370 0 20,896 25,344 51,599 97,839
1990 1,325 6,405 18,019 23,288 51,425 92,732
1991 4,370 7,283 27,925 40,971 87,829 156,725
1992 0 12,972 25,613 37,580 93,726 156,919
1993 578 9,825 28,161 41,914 113,195 183,270
1994 0 10,437 25,566 38,053 113,583 177,202
- --------------------------------------------------------------------------------
</TABLE>
B-32
<PAGE> 34
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
TECHNOLOGY FUND (9/7/48)
-------DIVIDENDS------- ---------CUMULATIVE VALUE OF SHARES ACQUIRED---------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1948 $ 0 $ 0 $ 10,127 $ 0 $ 0 $ 10,127
1949 305 112 10,907 354 125 11,386
1950 618 510 12,490 1,046 659 14,195
1951 722 569 13,608 1,870 1,312 16,790
1952 700 303 15,158 2,854 1,779 19,791
1953 812 595 14,325 3,494 2,292 20,111
1954 962 1,308 22,406 6,656 5,050 34,112
1955 1,129 1,681 24,367 8,426 7,310 40,103
1956 1,286 1,973 24,873 9,890 9,466 44,229
1957 1,362 2,109 20,485 9,344 9,912 39,741
1958 1,356 1,883 29,557 15,178 16,404 61,139
1959 1,430 2,771 34,283 19,144 22,002 75,429
1960 1,591 3,018 32,615 19,858 24,191 76,664
1961 1,498 3,620 37,426 24,332 31,506 93,264
1962 1,482 2,766 29,367 20,530 27,753 77,650
1963 1,686 3,388 32,152 24,207 33,809 90,168
1964 2,026 3,949 34,220 27,804 39,936 101,960
1965 2,279 5,209 41,983 36,626 54,459 133,068
1966 2,421 7,556 36,878 34,531 56,060 127,469
1967 2,347 16,506 43,123 42,726 83,106 168,955
1968 2,661 29,453 38,354 40,541 104,411 183,306
1969 4,067 15,134 30,970 36,388 98,699 166,057
1970 4,576 2,306 29,156 39,278 95,450 163,884
1971 4,307 7,228 31,519 46,839 111,044 189,402
1972 3,573 9,256 32,320 51,550 123,411 207,281
1973 4,092 0 26,202 45,665 100,050 171,917
1974 5,036 0 19,704 38,853 75,239 133,796
1975 5,503 0 26,160 57,435 99,889 183,484
1976 5,671 0 31,983 76,277 122,122 230,382
1977 6,134 3,081 30,127 78,198 118,387 226,712
1978 8,346 6,127 34,852 99,253 143,347 277,452
1979 8,825 14,677 42,911 132,292 192,861 368,064
1980 11,331 22,789 59,831 198,060 293,649 551,540
1981 12,949 29,973 46,878 166,926 259,055 472,859
1982 15,945 18,664 53,122 207,300 312,576 572,998
1983 22,078 88,219 53,165 228,712 402,902 684,779
1984 18,122 67,505 44,050 206,394 401,017 651,461
1985 11,304 43,186 51,561 253,748 516,719 822,028
1986 11,483 185,857 46,920 240,583 653,079 940,582
1987 28,099 200,645 38,481 222,331 744,271 1,005,083
1988 25,656 56,631 36,414 236,256 763,523 1,036,193
1989 35,011 36,281 42,828 314,484 935,927 1,293,237
1990 25,588 29,491 41,138 327,604 930,196 1,298,939
1991 18,709 328,427 47,131 395,051 1,432,891 1,875,073
1992 0 216,548 41,055 344,122 1,467,648 1,852,825
1993 0 127,584 42,953 360,038 1,666,453 2,069,449
1994 0 304,928 41,308 346,245 1,916,846 2,304,399
-----------------------------------------------------------------------------------------
</TABLE>
B-33
<PAGE> 35
- --------------------------------------------------------------------------------
TOTAL RETURN FUND (3/2/64)
<TABLE>
<CAPTION>
-------DIVIDENDS------- ------CUMULATIVE VALUE OF SHARES ACQUIRED---------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1964 $ 286 $ 36 $ 9,775 $ 280 $ 35 $ 10,090
1965 485 75 10,249 788 113 11,150
1966 498 133 9,337 1,195 238 10,770
1967 528 533 10,367 1,854 821 13,042
1968 576 934 11,552 2,685 1,869 16,106
1969 705 186 9,608 2,880 1,734 14,222
1970 787 91 9,977 3,851 1,899 15,727
1971 798 308 10,806 4,991 2,382 18,179
1972 913 475 11,102 6,040 2,937 20,079
1973 1,095 0 9,502 6,202 2,514 18,218
1974 1,164 0 7,370 5,841 1,950 15,161
1975 1,251 0 9,324 8,721 2,467 20,512
1976 1,412 0 11,920 12,712 3,153 27,785
1977 1,580 689 11,517 13,873 3,777 29,167
1978 1,997 2,026 11,173 15,386 5,733 32,292
1979 2,493 3,239 12,547 19,958 9,982 42,487
1980 3,872 2,955 15,545 29,058 15,524 60,127
1981 2,893 2,272 14,278 29,458 16,532 60,268
1982 4,254 2,803 15,771 37,194 21,076 74,041
1983 8,825 3,719 16,256 47,149 25,542 88,947
1984 4,093 1,005 15,142 48,081 24,798 87,961
1985 5,472 2,977 17,891 62,603 32,510 113,004
1986 6,471 12,816 18,069 69,383 45,459 132,911
1987 5,213 3,478 16,564 67,975 45,219 129,758
1988 7,763 0 16,991 77,756 46,384 141,131
1989 7,619 0 19,432 96,645 53,047 169,124
1990 10,289 0 19,029 105,091 51,947 176,067
1991 8,001 6,055 24,999 146,974 74,795 246,768
1992 6,616 9,754 23,957 147,512 81,449 252,918
1993 10,120 22,863 23,578 155,228 103,420 282,226
1994 6,437 0 20,901 143,755 91,675 256,331
</TABLE>
- --------------------------------------------------------------------------------
* Includes short-term capital gain dividends.
The following tables compare the performance of the Class A shares of the Funds
over various periods with that of other mutual funds within the categories
described below according to data reported by Lipper Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service. Lipper
performance figures are based on changes in net asset value, with all income and
capital gain dividends reinvested. Such calculations do not include the effect
of any sales charges. Future performance cannot be guaranteed. Lipper publishes
performance analyses on a regular basis. Each category includes funds with a
variety of objectives, policies and market and credit risks that should be
considered in reviewing these rankings.
BLUE CHIP FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Growth & Income
Funds
------------------
<S> <C>
Five Year (Period ended 12/31/94)............................................. 120 of 182
One Year (Period ended 12/31/94).............................................. 310 of 347
</TABLE>
B-34
<PAGE> 36
The Lipper Growth & Income Funds category includes funds which combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
GROWTH FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Growth Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/94)......................................... 39 of 96
Ten Years (Period ended 12/31/94)............................................. 43 of 132
Five Years (Period ended 12/31/94)............................................ 51 of 226
One Year (Period ended 12/31/94).............................................. 389 of 481
</TABLE>
The Lipper Growth Funds category includes funds which normally invest in
companies whose long-term earnings are expected to grow significantly faster
than the earnings of the stocks represented in the major unmanaged stock
indices.
SMALL CAP FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Small Cap Company
Growth Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/94)......................................... 3 of 9
Ten Years (Period ended 12/31/94)............................................. 9 of 18
Five Years (Period ended 12/31/94)............................................ 12 of 34
One Year (Period ended 12/31/94).............................................. 44 of 75
</TABLE>
The Lipper Mid Cap Company Growth Fund category includes funds which by
prospectus or portfolio practice limit their investments to companies on the
basis of the size of the company.
TECHNOLOGY FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Science &
Technology Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/94)......................................... 2 of 4
Ten Years (Period ended 12/31/94)............................................. 6 of 10
Five Years (Period ended 12/31/94)............................................ 9 of 15
One Year (Period ended 12/31/94).............................................. 12 of 26
</TABLE>
The Lipper Science & Technology Funds category includes funds which invest 65%
of their equity portfolio in science and technology stocks.
TOTAL RETURN FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Balanced Funds
------------------
<S> <C>
Fifteen Years (Period ended 12/31/94)......................................... 13 of 24
Ten Years (Period ended 12/31/94)............................................. 14 of 25
Five Years (Period ended 12/31/94)............................................ 12 of 57
One Year (Period ended 12/31/94).............................................. 149 of 152
</TABLE>
The Lipper Balanced Fund category includes funds whose primary objectives are to
conserve principal by maintaining at all times a balanced portfolio of both
stock and bonds. Typically, the stock/bond ratio ranges around 60% to 40%.
B-35
<PAGE> 37
OFFICERS AND TRUSTEES
The officers and trustees of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with KFS, the investment manager,
DVA, the sub-adviser, and KDI, the principal underwriter, are as follows (The
number following each person's title is the number of investment companies
managed by KFS and its affiliates for which he or she holds similar positions):
ALL FUNDS:
DAVID W. BELIN (6/20/28), Trustee (22), 2000 Financial Center, 7th and Walnut,
Des Moines, Iowa; Member, Belin Harris Lamson McCormick, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee (22), 16410 Avila Boulevard, Tampa, Florida;
Director, Management Consulting Services, McNulty & Company; formerly, Executive
Vice President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee (22), One Park Place, Milwaukee, Wisconsin;
Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee (22), 800 North Lindbergh Boulevard, St.
Louis, Missouri; Senior Vice President and Chief Financial Officer, Monsanto
Company (chemical products); prior thereto, Vice President, FMC Corporation
(manufacturer of machinery and chemicals); prior thereto, Director, Executive
Vice President and Chief Financial Officer, Staley Continental, Inc. (food
products).
DONALD R. JONES (1/17/30), Trustee (22), 1303 East Algonquin Road, Schaumburg,
Illinois; Retired; Director, Motorola, Inc. (manufacturer of electronic
equipment and components); formerly, Executive Vice President and Chief
Financial Officer, Motorola, Inc.
DAVID B. MATHIS (4/13/38), Trustee* (33), Kemper Center, Long Grove, Illinois;
Chairman, Chief Executive Officer and Director, Kemper Corporation; Director,
KFS, Kemper Financial Companies, Inc., and IMC Global Inc.; Chairman of the
Board, Lumbermens Mutual Casualty Company.
SHIRLEY D. PETERSON (9/3/41), Trustee (22), 401 Rosemont Avenue, Frederick,
Maryland; President, Hood College; prior thereto, partner, Steptoe & Johnson
(attorneys); prior thereto, Commissioner, Internal Revenue Service; prior
thereto, Assistant Attorney General, U.S. Department of Justice.
WILLIAM P. SOMMERS (7/22/33), Trustee (22), 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); prior thereto, Executive Vice President, Iameter (medical
information and educational service provider), prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) (retired); Director, Rohr, Inc., Therapeutic Discovery Corp. and Litton
Industries.
STEPHEN B. TIMBERS (8/8/44), President and Trustee* (33), 120 South LaSalle
Street, Chicago, Illinois; President, Chief Operating Officer and Director,
Kemper Corporation; Chairman, Chief Executive Officer, Chief Investment Officer
and Director, KFS; Director, KDI, Kemper Financial Companies, Inc., DVA, Gillett
Holdings Inc. and LTV Corporation.
JOHN E. PETERS (11/4/47), Vice President* (33), 120 South LaSalle Street,
Chicago, Illinois; Senior Executive Vice President, Kemper Financial Services,
Inc.; President and Director, KDI; Director, DVA.
CHARLES F. CUSTER (8/19/28), Vice President and Assistant Secretary* (33), 222
North LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman &
Kammholz (attorneys), Legal Counsel to the Fund.
JEROME L. DUFFY (6/29/36), Treasurer* (33), 120 South LaSalle Street, Chicago,
Illinois; Senior Vice President, KFS.
B-36
<PAGE> 38
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (33), 120 South
LaSalle Street, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, KFS.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (25), 120 South LaSalle
Street, Chicago, Illinois; Vice President, KFS; Vice President and Director of
State Registrations, KDI.
BLUE CHIP FUND:
TRACY McCORMICK CHESTER (9/27/54), Vice President* (3), 120 South LaSalle
Street, Chicago, Illinois; Senior Vice President, KFS; formerly, Portfolio
Manager for Fiduciary Management; prior thereto, independent consultant managing
private accounts.
SMALL CAP FUND:
KAREN A. HUSSEY (6/18/59), Vice President* (2), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, KFS; formerly, Portfolio Manager, The
Northern Trust Company.
TECHNOLOGY FUND:
RICHARD A. GOERS (6/20/44), Vice President* (1), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, KFS.
FRANK D. KORTH (7/11/45), Vice President* (1), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, KFS.; formerly, President, Value Line
Fund.
TOTAL RETURN FUND:
GARY A. LANGBAUM (12/16/48), Vice President* (2), 120 South LaSalle Street,
Chicago, Illinois; Executive Vice President, KFS.
VALUE+GROWTH FUND:
DANIEL J. BUKOWSKI (5/6/63), Vice President* (2), 120 South LaSalle Street,
Chicago, Illinois, Senior Vice President and Director of Quantitative Research,
KFS.
TRACY McCORMICK CHESTER (9/27/54), Vice President* (3), 120 South LaSalle
Street, Chicago, Illinois; Senior Vice President, KFS; formerly, Portfolio
Manager for Fiduciary Management; prior thereto, independent consultant managing
private accounts.
DAVID N. DREMAN (5/6/36), Vice President* (2), 10 Exchange Place, Suite 2050,
Jersey City, New Jersey, Chairman and Director, DVA.
JOHN E. NEAL (3/9/50), Vice President* (4), 120 South LaSalle Street, Chicago,
Illinois; President, Chief Operating Officer and Director, KFS; Director, DVA,
KDI and several other Kemper Corporation subsidiaries; prior thereto, Senior
Vice President, Kemper Real Estate Management Company.
* Interested persons of the Fund as defined in the Investment Company Act of
1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Funds, except that Mr. Custer's law firm
receives fees from the Funds as counsel to the Funds. The table below
B-37
<PAGE> 39
shows amounts paid or accrued to those trustees who are not designated
"interested persons" during each Fund's 1994 fiscal year except that the
information in the last column is for calendar year 1994.
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM FUND RETIREMENT BENEFITS FROM FUND AND
------------------------------------------------------ VALUE+ ACCRUED AS PART OF KEMPER FUND COMPLEX
NAME OF TRUSTEE BLUE CHIP GROWTH SMALL CAP TECH TOTAL RETURN GROWTH FUND EXPENSES PAID TO TRUSTEES**
- --------------------- --------- ------ --------- ------ ------------ ------ ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W. Belin*...... $ 1,800 $5,800 $ 3,400 $3,900 $6,000 $0 $ 0 $ 112,200
Lewis A. Burnham..... $ 1,700 $5,000 $ 2,700 $3,000 $4,900 $0 $ 0 $ 90,100
Donald L. Dunaway*... $ 2,000 $6,100 $ 3,500 $3,900 $6,200 $0 $ 0 $ 115,400
Robert B. Hoffman.... $ 1,700 $4,800 $ 2,600 $2,900 $4,800 $0 $ 0 $ 87,400
Donald R. Jones...... $ 1,800 $5,200 $ 2,900 $3,100 $5,100 $0 $ 0 $ 94,300
Shirley D.
Peterson***........ $ 0 $ 0 $ 0 $ 0 $ 0 $0 $ 0 $ 0
William P. Sommers... $ 1,600 $4,700 $ 2,600 $2,800 $4,600 $0 $ 0 $ 84,100
</TABLE>
- ---------------
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Market Fund -- Money
Market Portfolio. Total deferred amounts and interest accrued through
December 31, 1994 are $7,500, $42,100, $27,000, $39,400 and $50,600 for Mr.
Belin and $8,400, $33,800, $19,900, $28,800 and $41,200 for Mr. Dunaway from
the Blue Chip, Growth, Small Cap, Tech and Total Return Funds, respectively.
** Includes compensation for service as a trustee on twenty-four fund boards
(including two funds no longer in existence). Also includes amounts for new
funds estimated as if they had existed at the beginning of the year, except
that no amounts are included for Value+Growth Fund since no fee schedule has
been established for that Fund.
*** No amounts are included for Ms. Peterson because she was elected a trustee
on June 15, 1995.
As of September 22, 1995, the officers and trustees of the Funds, as a group,
owned less than 1% of the then outstanding shares of each Fund and no person
owned of record 5% or more of the outstanding shares of any class of any Fund,
except the persons indicated in the chart below and KFS owned all the shares of
Value+Growth Fund.
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
- -------------------------------------------------------------------- ------- ------------- -----
<S> <C> <C> <C>
Harriet Rust Brown, Trustee......................................... 5.67% Total Return C
645 Constitution Avenue, N.E.
Washington, D.C.
Alex. Brown & Sons Incorporated..................................... 5.30% Total Return C
P.O. Box 1346
Baltimore, MD
Grinnell Screw Products Inc. ....................................... 10.04% Technology C
401(k) Accounts
22955 Industrial Drive
St. Clair, MI
Tube Methods, JP Products........................................... 5.43% Technology C
401(k) Accounts
P.O. Box 460
Bridgeport, PA
Farmers Supply Sales Inc. .......................................... 5.37% Technology C
401(k) Accounts 15.02% Blue Chip C
P.O. Box 1205
Kalona, IA
Sunrest Health Facilities Inc. ..................................... 18.41% Blue Chip C
401(k) Accounts
70 North Country Road
Port Jefferson, NY
</TABLE>
B-38
<PAGE> 40
SHAREHOLDER RIGHTS
The Funds generally are not required to hold meetings of their shareholders.
Under the Agreement and Declaration of Trust of each Fund ("Declaration of
Trust"), however, shareholder meetings will be held in connection with the
following matters: (a) the election or removal of trustees if a meeting is
called for such purpose; (b) the adoption of any contract for which shareholder
approval is required by the Investment Company Act of 1940 ("1940 Act"); (c) any
termination of the Fund or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); and (e) such additional matters as may be required by law,
the Declaration of Trust, the By-laws of the Fund, or any registration of the
Fund with the Securities and Exchange Commission or any state, or as the
trustees may consider necessary or desirable. The shareholders also would vote
upon changes in fundamental investment objectives, policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) each Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of a Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, each
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
Each Fund's Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares entitled to vote on
a matter shall constitute a quorum. Thus, a meeting of shareholders of a Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
auditors. Some matters requiring a larger vote under the Declaration of Trust,
such as termination or reorganization of a Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
Each Fund's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any Portfolio or class by notice to the shareholders
without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of each Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by a
Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of a Fund and each Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by KFS remote and not
material, since it is limited to circumstances in which a disclaimer is
inoperative and such Fund itself is unable to meet its obligations.
B-39
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper Value+Growth Fund
We have audited the accompanying statement of net assets of Kemper Value Plus
Growth Fund (doing business as Kemper Value+Growth Fund) as of September 20,
1995. This statement of net assets is the responsibility of the Trust's
management. Our responsibility is to express an opinion on this statement of net
assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper Value+Growth Fund at
September 20, 1995 in conformity with generally accepted accounting principles.
Chicago, Illinois
September 20, 1995
B-40
<PAGE> 42
KEMPER VALUE+GROWTH FUND
STATEMENT OF NET ASSETS--SEPTEMBER 20, 1995
<TABLE>
<S> <C>
ASSETS
Cash.................................................................................. $100,000
========
NET ASSETS
Net assets, applicable to shares of beneficial interest (unlimited number of shares
authorized, no par value) outstanding as follows:
Class A--3,508.772
Class B--3,508.772
Class C--3,508.772.................................................................. $100,000
========
THE PRICING OF SHARES
Net asset value and redemption price per share
Class A............................................................................. $ 9.50
Class B*............................................................................ $ 9.50
Class C............................................................................. $ 9.50
Maximum offering price per share
Class A (net asset value, plus 6.10% of net asset value or 5.75% of offering
price)........................................................................... $ 10.08
Class B (net asset value)........................................................... $ 9.50
Class C (net asset value)........................................................... $ 9.50
</TABLE>
- ---------------
* Subject to contingent deferred sales charge.
NOTES:
Kemper Value Plus Growth Fund doing business as Kemper Value+Growth Fund (the
"Trust"), was organized as a business trust under the laws of The Commonwealth
of Massachusetts on June 12, 1995; All Class A, Class B and Class C shares of
beneficial interest of the Trust were issued to Kemper Financial Services, Inc.
("KFS"), the investment manager for such series, on September 20, 1995. The
Trust may establish multiple series; currently one series has been established.
The costs of organization of the Fund will be paid by KFS.
B-41
<PAGE> 43
APPENDIX--RATINGS OF FIXED INCOME INVESTMENTS
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
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<PAGE> 44
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
B-43
