<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1996.
1933 ACT REGISTRATION NO. 2-21789
1940 ACT REGISTRATION NO. 811-1236
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 50 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 50 [X]
</TABLE>
(Check appropriate box or boxes)
------------------
KEMPER TOTAL RETURN FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
Philip J. Collora, Vice President and With a copy to:
Secretary
Kemper Total Return Fund Cathy G. O'Kelly
222 South Riverside Plaza David A. Sturms
Chicago, Illinois 60606 Vedder, Price, Kaufman & Kammholz
(Name and Address of Agent for Service) 222 North LaSalle Street
Chicago, Illinois 60601
</TABLE>
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's fiscal year ended October 31,
1996 was filed on or about December 16, 1996.
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 31, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE* FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of beneficial
interest, without par
value..................... $8,975,661 $12.51 $330,000 $100
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
* The fee is calculated in accordance with Rule 24e-2(b)(2) 62,268,946; (b)(3)
53,319,664; (b)(4) 8,949,282.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
KEMPER TOTAL RETURN FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER
OF FORM N-1A LOCATION IN PROSPECTUS
<S> <C> <C>
1. Cover Page.............................. Cover Page
2. Synopsis................................ Summary; Summary of Expenses; Supplement to
Prospectus
3. Condensed Financial Information......... Financial Highlights; Performance; Supplement
to Prospectus
4. General Description of Registrant....... Summary; Investment Objectives, Policies and
Risk Factors; Capital Structure
5. Management of the Fund.................. Summary; Investment Manager and Underwriter
5A. Management's Discussion of Fund
Performance............................. Performance
6. Capital Stock and Other Securities...... Summary; Dividends and Taxes; Purchase of
Shares; Capital Structure
7. Purchase of Securities Being Offered.... Summary; Investment Manager and Underwriter;
Net Asset Value; Purchase of Shares; Special
Features; Supplement to Prospectus
8. Redemption or Repurchase................ Summary; Redemption or Repurchase of Shares
9. Pending Legal Proceedings............... Inapplicable
</TABLE>
<PAGE> 3
KEMPER EQUITY FUNDS
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 31, 1996
CLASS I SHARES
KEMPER AGGRESSIVE GROWTH FUND
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER QUANTITATIVE EQUITY FUND
KEMPER SMALL CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH FUND
Kemper Aggressive Growth Fund ("Aggressive Growth Fund"), Kemper Blue Chip Fund
(the "Blue Chip Fund"), Kemper Growth Fund (the "Growth Fund"), Kemper
Quantitative Equity Fund (the "Quantitative Fund"), Kemper Small Capitalization
Equity Fund (the "Small Cap Fund"), Kemper Technology Fund (the "Technology
Fund"), Kemper Total Return Fund (the "Total Return Fund") and Kemper
Value+Growth Fund (the "Value+Growth" Fund) (collectively, the "Funds")
currently offer four classes of shares to provide investors with different
purchasing options. These are Class A, Class B and Class C shares, which are
described in the prospectus, and Class I shares, which are described in the
prospectus as supplemented hereby.
Class I shares are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Zurich Kemper Investments, Inc.
("ZKI") and its affiliates; and (b) the following investment advisory clients of
ZKI and its investment advisory affiliates that invest at least $1 million in a
Fund: (1) unaffiliated benefit plans, such as qualified retirement plans (other
than individual retirement accounts and self-directed retirement plans); (2)
unaffiliated banks and insurance companies purchasing for their own accounts;
and (3) endowment funds of unaffiliated non-profit organizations. Class I shares
currently are available for purchase only from Kemper Distributors, Inc.,
principal underwriter for the Funds. Share certificates are not available for
Class I shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will be higher for
Class I shares than for Class A, Class B and Class C shares.
The following information supplements the indicated sections of the prospectus.
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO ALL FUNDS) CLASS I
- ----------------------------------------------------------------------------------------- -------
<S> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering price).................................................... None
Maximum Sales Charge on Reinvested Dividends............................................. None
Redemption Fees.......................................................................... None
Exchange Fee............................................................................. None
Deferred Sales Charge (as a percentage of redemption proceeds)........................... None
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ANNUAL FUND
OPERATING EXPENSES AGGRESSIVE BLUE SMALL TOTAL VALUE+
(AS A PERCENTAGE OF AVERAGE GROWTH CHIP GROWTH QUANTITATIVE CAP TECHNOLOGY RETURN GROWTH
NET ASSETS) FUND FUND FUND FUND FUND FUND FUND FUND
---------- ---- ------ ------------ ----- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees............... .65% .58% .54% .58% .52% .56% .54% .72%
12b-1 Fees.................... None None None None None None None None
Other Expenses................ .30% .73% .10% .15% .14% .20% .07% .15%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses...... .95% 1.31% .64% .73% .66% .76% .72% .87%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------- ------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on a Aggressive Growth $ 10 $30 -- --
$1,000
investment, assuming (1) 5% annual return and Blue Chip $ 13 $42 $72 $158
(2) redemption at the end of each time period: Growth $ 7 $20 $36 $ 80
Quantitative $ 7 $23 -- --
Small Cap $ 7 $21 $37 $ 82
Technology $ 8 $24 $42 $ 94
Total Return $ 7 $23 $40 $ 89
Value+Growth $ 9 $28 -- --
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in Class I shares of a Fund will
bear directly or indirectly. The base management fee for the Aggressive Growth
Fund and the Small Cap Fund is .65%. The base management fee is subject to an
upward or downward performance adjustment whereby the management fee will be
between .45% and .85% for the Aggressive Growth Fund and between .35% and .95%
for the Small Cap Fund. For the Small Cap Fund, the table reflects the base
management fee for the prior fiscal year after such adjustment. The Aggressive
Growth Fund will commence operations on or about December 31, 1996; thus,
"Management Fees" reflects the base management fee and "Other Expenses" shown
above for Class I shares is an estimate for the current fiscal year and the
expenses shown in the Example are for only the one and three year periods. Since
no Class I shares for the Value+Growth Fund had been issued as of the Fund's
fiscal year end, "Other Expenses" shown above is an estimate. See "Investment
Manager and Underwriter" in the prospectus.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE> 5
FINANCIAL HIGHLIGHTS
KEMPER BLUE CHIP FUND
<TABLE>
<CAPTION>
NOVEMBER 22,
1995 TO
OCTOBER 31,
1996
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $15.30
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .36
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.96
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.32
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.20
- ------------------------------------------------------------------------------------------------------------------------
Total dividends 1.44
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.18
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 21.89%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.31%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 1.33%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
KEMPER GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 3 TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 16.09 14.80
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .03
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.74 1.26
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.93 1.29
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .08 --
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.68 --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends 1.76 --
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.26 16.09
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 20.19% 8.72
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .64% .59
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 1.08% .92
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
KEMPER QUANTITATIVE EQUITY FUND
<TABLE>
<CAPTION>
SEPTEMBER 9
TO NOVEMBER
30,
1996
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.67
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss --
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.47
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.47
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.14
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.20%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.08%
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (.05)%
- ------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.23%
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.20)%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
KEMPER SMALL CAPITALIZATION EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 3 TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.15 6.27
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .01 --
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .94 .88
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .95 .88
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.05 --
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.05 7.15
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 16.76% 14.04
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .66% .79
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .16% (.14)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 7
KEMPER TECHNOLOGY FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 3 TO
OCTOBER 31, OCTOBER 31,
1996 1995
----------- -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.64 12.72
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.07) (.02)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .76 1.94
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .69 1.92
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain 2.13 --
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.20 14.64
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 8.06% 15.09
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .76% .65
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (.49)% (.33)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
KEMPER TOTAL RETURN FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 3 TO
OCTOBER 31, OCTOBER 31,
1996 1995
----------- -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.61 10.07
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .32 .10
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.23 .52
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.55 .62
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .39 .08
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .50 --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .89 .08
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.27 10.61
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.64% 6.21
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .72% .61
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 3.09% 2.97
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
No financial information is presented for Class I shares of the Value+Growth
Fund since no Class I shares had been issued as of the Fund's fiscal year end.
The Aggressive Growth Fund will commence operations on or about December 31,
1996.
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Kemper Money Funds-- Kemper Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of ZKI and its affiliates and (ii) Class I shares of any other
"Kemper Mutual Fund" listed under "Special Features--Class A Shares--Combined
Purchases" in the prospectus. Conversely, shareholders of Kemper Money
Funds--Kemper Money Market Fund who have purchased shares because they are
participants in tax-exempt retirement plans of ZKI and its affiliates may
exchange their shares for Class I shares of "Kemper Mutual Funds" to the extent
that they are available through their plan. Exchanges will be made at the
relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
December 31, 1996
KEF - 1 (12/96)
6
<PAGE> 9
<TABLE>
<S> <C>
TABLE OF CONTENTS
- -----------------------------------------------
Summary 1
- -----------------------------------------------
Summary of Expenses 3
- -----------------------------------------------
Financial Highlights 6
- -----------------------------------------------
Investment Objectives, Policies and Risk
Factors 13
- -----------------------------------------------
Investment Manager and Underwriter 27
- -----------------------------------------------
Dividends and Taxes 31
- -----------------------------------------------
Net Asset Value 33
- -----------------------------------------------
Purchase of Shares 33
- -----------------------------------------------
Redemption or Repurchase of Shares 39
- -----------------------------------------------
Special Features 43
- -----------------------------------------------
Performance 47
- -----------------------------------------------
Capital Structure 48
- -----------------------------------------------
</TABLE>
This combined prospectus of the Kemper Equity Funds contains information about
each of the Funds that you should know before investing and should be retained
for future reference. A Statement of Additional Information dated December 31,
1996, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. It is available upon request without charge
from the Funds at the address or telephone number on this cover or the firm from
which this prospectus was obtained. Kemper Value+Growth Fund is also known as
Kemper Value Plus Growth Fund.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN A
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
KEMPER FUNDS LOGO
KEMPER
EQUITY
FUNDS
PROSPECTUS DECEMBER 31, 1996
KEMPER EQUITY FUNDS
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes a choice of eight equity and balanced mutual funds
managed by Zurich Kemper Investments, Inc.
KEMPER AGGRESSIVE GROWTH FUND
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER QUANTITATIVE EQUITY FUND
KEMPER SMALL CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH FUND
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 10
KEMPER EQUITY FUNDS
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The eight open-end, management investment companies (the
"Funds") covered in this combined prospectus are as follows:
KEMPER AGGRESSIVE GROWTH FUND (the "Aggressive Growth Fund") seeks capital
appreciation through the use of aggressive investment techniques.
KEMPER BLUE CHIP FUND (the "Blue Chip Fund") seeks growth of capital and of
income.
KEMPER GROWTH FUND (the "Growth Fund") seeks growth of capital through
professional management and diversification of investment securities having
potential for capital appreciation.
KEMPER QUANTITATIVE EQUITY FUND (the "Quantitative Fund") seeks growth of
capital and reduction of risk through professional management of a diversified
portfolio of equity securities.
KEMPER SMALL CAPITALIZATION EQUITY FUND (the "Small Cap Fund") seeks maximum
appreciation of investors' capital.
KEMPER TECHNOLOGY FUND (the "Technology Fund") seeks growth of capital.
KEMPER TOTAL RETURN FUND (the "Total Return Fund") seeks to obtain the highest
total return, a combination of income and capital appreciation, consistent with
reasonable risk.
KEMPER VALUE+GROWTH FUND (the "Value+Growth Fund") seeks growth of capital
through professional management of a portfolio of growth and value stocks.
Each Fund, except the Aggressive Growth Fund, is a diversified investment
company. The Aggressive Growth Fund is a non-diversified investment company. The
Funds may purchase put and call options, engage in financial futures
transactions, invest in foreign securities, engage in related foreign currency
transactions and lend portfolio securities. The Aggressive Growth, Technology
and Quantitative Funds may also write (sell) put and call options. The Funds may
invest up to 25% of total assets in foreign securities. See "Investment
Objectives, Policies and Risk Factors."
RISK FACTORS. There is no assurance that the investment objective of any Fund
will be achieved and investment in each Fund includes risks that vary in kind
and degree depending upon the investment policies of that Fund. The returns and
net asset value of each Fund will fluctuate. Investment by the Small Cap Fund
primarily in smaller companies and the Technology Fund in smaller emerging
growth technology companies involve greater risk than investment in larger, more
established companies. The flexible investment strategy employed by the
Aggressive Growth Fund and its non-diversified status involve greater risk than
typical diversified equity mutual funds. Foreign investments by the Funds
involve risk and opportunity considerations not typically associated with
investing in U.S. companies. The U.S. Dollar value of a foreign security tends
to decrease when the value of the U.S. Dollar rises against the foreign currency
in which the security is denominated and tends to increase when the value of the
U.S. Dollar falls against such currency. Thus, the U.S. Dollar value of foreign
securities in a Fund's portfolio, and the Fund's net asset value, may change in
response to changes in currency exchange rates even though the value of the
foreign securities in local currency terms may not have changed. While a Fund's
investments in foreign securities will principally be in developed countries,
the Fund may invest a portion of its assets in developing or "emerging" markets,
which involve exposure to economic structures that are generally less diverse
and mature than in the United States, and to political systems that may be less
stable. A portion of the assets of the Total Return Fund may be invested in
lower rated or unrated high yield bonds which entail greater risk of loss of
principal and interest than higher rated fixed income securities. There are
special risks associated with options, financial futures and foreign currency
transactions and other derivatives and there is no assurance that use of those
investment techniques will be successful. See "Investment Objectives, Policies
and Risk Factors."
1
<PAGE> 11
PURCHASES AND REDEMPTIONS. Each Fund provides investors with the option of
purchasing shares in the following ways:
Class A Shares........... Offered at net asset value plus a maximum sales
charge of 5.75% of the offering price. Reduced sales
charges apply to purchases of $50,000 or more. Class
A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge if redeemed within
one year of purchase and a .50% contingent deferred
sales charge if redeemed during the second year of
purchase.
Class B Shares........... Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales
charge that declines from 4% to zero on certain
redemptions made within six years of purchase. Class
B shares automatically convert into Class A shares
(which have lower ongoing expenses) six years after
purchase.
Class C Shares........... Offered at net asset value without an initial sales
charge, but subject to a Rule 12b-1 distribution fee
and a 1% contingent deferred sales charge on
redemptions made within one year of purchase. Class C
shares do not convert into another class.
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment is $1,000 and investments thereafter
must be at least $100. Shares are redeemable at net asset value, which may be
more or less than original cost, subject to any applicable contingent deferred
sales charge. See "Purchase of Shares" and "Redemption or Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Zurich Kemper Investments, Inc. ("ZKI")
serves as investment manager for each Fund. ZKI is paid an investment management
fee by each Fund based upon average daily net assets of that Fund at an
effective annual rate that differs for each Fund. Zurich Investment Management
("ZIML"), an affiliate of ZKI, is a sub-adviser for each Fund and is paid by ZKI
a fee, payable monthly at the annual rate of .35% of the portion of the average
daily net assets of each Fund allocated by ZKI to ZIML for management. Dreman
Value Advisors, Inc. ("DVA"), a wholly owned subsidiary of ZKI, is also a
sub-adviser for the Value+Growth Fund and is paid a fee of .25% of average daily
net assets of that Fund by ZKI. Kemper Distributors, Inc. ("KDI"), a wholly
owned subsidiary of ZKI, is principal underwriter and administrator for each
Fund. For Class B shares and Class C shares, KDI receives a Rule 12b-1
distribution fee of .75% of average daily net assets. KDI also receives the
amount of any contingent deferred sales charges paid on the redemption of
shares. Administrative services are provided to shareholders under
administrative services agreements with KDI. Each Fund pays an administrative
services fee at the annual rate of up to .25% of average daily net assets of
Class A, B and C shares of the Fund, which KDI pays to financial services firms.
See "Investment Manager and Underwriter."
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Aggressive Growth, Growth, Quantitative, Small Cap,
Technology and Value+Growth Funds; semi-annually for the Blue Chip Fund; and
quarterly for the Total Return Fund. Each Fund distributes any net realized
short-term and long-term capital gains at least annually. Income and capital
gain dividends of a Fund are automatically reinvested in additional shares of
that Fund, without a sales charge, unless the shareholder makes a different
election. See "Dividends and Taxes."
GENERAL. In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined prospectus may make each Fund liable for any
misstatement or omission in this prospectus regardless of the particular Fund to
which it pertains.
2
<PAGE> 12
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO ALL FUNDS)(1) Class A Class B Class C
------- ------------------------ -------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a
percentage of offering price)................ 5.75%(2) None None
Maximum Sales Charge on Reinvested Dividends... None None None
Redemption Fees................................ None None None
Exchange Fee................................... None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)......................... None(3) 4% during the first 1% during the
year, 3% during the first year
second and third years,
2% during the fourth and
fifth years and 1% in
the sixth year
</TABLE>
- -------------------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares -- Initial Sales Charge Alternative -- Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% the first year and .50% the second year. See "Purchase of
Shares -- Initial Sales Charge Alternative -- Class A Shares."
3
<PAGE> 13
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
AGGRESSIVE TOTAL VALUE+
GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH
FUND FUND FUND FUND FUND FUND FUND FUND
---------- --------- -------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Management Fees....... .65% .58% .54% .58% .52% .56% .54% .72%
12b-1 Fees............ None None None None None None None None
Other Expenses(6)..... .80% .68% .53% .90% .56% .33% .51% .87%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses............ 1.45% 1.26% 1.07% 1.48% 1.08% .89% 1.05% 1.59%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE TOTAL VALUE+
GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH
FUND FUND FUND FUND FUND FUND FUND FUND
---------- --------- -------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Management Fees....... .65% .58% .54% .58% .52% .56% .54% .72%
12b-1 Fees(4)......... .75% .75% .75% .75% .75% .75% .75% .75%
Other Expenses(6)..... .93% .75% .76% .93% .88% .56% .70% .97%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses............ 2.33% 2.08% 2.05% 2.26% 2.15% 1.87% 1.99% 2.44%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE TOTAL VALUE+
GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH
FUND FUND FUND FUND FUND FUND FUND FUND
---------- --------- -------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Management Fees....... .65% .58% .54% .58% .52% .56% .54% .72%
12b-1 Fees(5)......... .75% .75% .75% .75% .75% .75% .75% .75%
Other Expenses(6)..... .90% .72% .66% .90% .88% .51% .60% .88%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses............ 2.30% 2.05% 1.95% 2.23% 2.15% 1.82% 1.89% 2.35%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- -------------------------
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, although KDI believes that is unlikely because of the
automatic conversion feature described under "Purchase of Shares -- Deferred
Sales Charge Alternative -- Class B Shares."
(5) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
(6) Other Expenses have been estimated for the Aggressive Growth Fund for the
current fiscal year.
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
You would pay the following expenses on a Aggressive Growth $71 $101 -- --
$1,000 investment, assuming (1) 5% annual Blue Chip $70 $95 $123 $201
return and (2) redemption at the end of Growth $68 $90 $113 $181
each time period: Quantitative $72 $102 -- --
Small Cap $68 $90 $114 $182
Technology $66 $84 $104 $161
Total Return $68 $89 $112 $178
Value+Growth $73 $105 -- --
</TABLE>
4
<PAGE> 14
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES(7)
You would pay the following expenses on Aggressive Growth $54 $93 -- --
a $1,000 investment, assuming (1) 5% Blue Chip $51 $85 $122 $201
annual return and (2) redemption at the Growth $51 $84 $120 $189
end of each time period: Quantitative $53 $91 -- --
Small Cap $52 $87 $125 $196
Technology $49 $79 $111 $170
Total Return $50 $82 $117 $185
Value+Growth $55 $96 -- --
You would pay the following expenses on Aggressive Growth $24 $73 -- --
the same investment, assuming no Blue Chip $21 $65 $112 $201
redemption: Growth $21 $64 $110 $189
Quantitative $23 $71 -- --
Small Cap $22 $67 $115 $196
Technology $19 $59 $101 $170
Total Return $20 $62 $107 $185
Value+Growth $25 $76 -- --
CLASS C SHARES(8)
You would pay the following expenses on Aggressive Growth $23 $72 -- --
a $1,000 investment, assuming (1) 5% Blue Chip $21 $64 $110 $238
annual return and (2) redemption at the Growth $20 $61 $105 $227
end of each time period: Quantitative $23 $70 -- --
Small Cap $22 $67 $115 $248
Technology $18 $57 $99 $214
Total Return $19 $59 $102 $221
Value+Growth $24 $73 -- --
</TABLE>
- -------------------------
(7) Assumes conversion to Class A shares six years after purchase and was
calculated based upon the assumption that the shareholder was an owner of
the shares on the first day of the first year and the contingent deferred
sales charge was applied as follows: 1 year (3%), 3 years (2%), 5 years (1%)
and 10 years (0%). See "Redemption or Repurchase of Shares -- Contingent
Deferred Sales Charge -- Class B Shares" for more information regarding the
calculation of the contingent deferred sales charge.
(8) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge was not applicable for any of
the periods shown. See "Redemption or Repurchase of Shares -- Contingent
Deferred Sales Charge -- Class C Shares."
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
base management fee for the Aggressive Growth Fund and the Small Cap Fund is
.65%. The base management is subject to a maximum upward or downward performance
adjustment whereby the management fee will be between .45% and .85% for the
Aggressive Growth Fund and between .35% and .95% for the Small Cap Fund. For the
Small Cap Fund, the table reflects the base management fee for the prior fiscal
year after such adjustment. The Aggressive Growth Fund will commence operations
on December 31, 1996, thus "Management Fees" reflects the base management fee
and "Other Expenses" is an estimate for the current fiscal year and expenses are
shown for only the one and three year periods.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE> 15
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Fund, except the Aggressive
Growth Fund, expressed in terms of one share outstanding throughout the period.
The information in the tables for each Fund is covered by the report of the
Fund's independent auditors. The report for each Fund is contained in its
Registration Statement and is available from that Fund. The financial statements
contained in each Fund's 1996 Annual Report to Shareholders are incorporated
herein by reference and may be obtained by writing or calling that Fund.
BLUE CHIP FUND
<TABLE>
<CAPTION>
NOV. 23,
1987 TO
YEAR ENDED OCTOBER 31, OCT. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $14.87 12.33 13.88 12.72 13.24 9.65 10.07 8.41 9.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .19 .19 .18 .18 .11 .13 .18 .35
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.45 2.57 (.71) 1.13 .41 3.63 (.45) 1.78 (.80)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.67 2.76 (.52) 1.31 .59 3.74 (.32) 1.96 (.45)
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .20 .20 .19 .15 .14 .15 .10 .30 .14
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.20 .02 .84 -- .97 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.40 .22 1.03 .15 1.11 .15 .10 .30 .14
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.14 14.87 12.33 13.88 12.72 13.24 9.65 10.07 8.41
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 26.72% 22.74 (3.82) 10.35 4.76 39.19 (3.23) 24.08 (4.99)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 1.26% 1.30 1.48 1.25 1.46 1.66 1.91 2.08 1.83
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.40% 1.47 1.50 1.28 1.63 .88 1.28 1.99 4.47
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------- -----------------------------------
YEAR ENDED MAY 31 TO YEAR ENDED MAY 31 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994 1996 1995 1994
------- ----- ----------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.82 12.29 12.30 14.88 12.32 12.30
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .10 .09 .06 .10 .07 .09
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.45 2.56 (.01) 3.45 2.62 (.01)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.55 2.65 .05 3.55 2.69 .08
- --------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .08 .10 .06 .08 .11 .06
- --------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.20 .02 -- 1.20 .02 --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.28 .12 .06 1.28 .13 .06
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 17.09 14.82 12.29 17.15 14.88 12.32
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 25.82% 21.76 .42 25.75 22.04 .67
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 2.08% 2.06 2.43 2.05 2.01 2.33
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income .58% .71 .33 .61 .76 .43
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOV. 23, 1987
YEAR ENDED OCTOBER 31, TO OCT. 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
---------------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of
period
(in thousands) $256,172 168,266 153,172 196,327 182,553 61,146 32,172 26,164 20,421
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 166% 117 131 222 178 162 93 89 326
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
October 31, 1996 was $.0587.
- --------------------------------------------------------------------------------
6
<PAGE> 16
GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $16.07 12.93 15.33 13.09 13.14 9.00 9.79 7.61 13.73 13.07
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .12 .05 .01 .01 .03 .06 .18 .17 .23 .20
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.74 3.27 (1.41) 2.29 .71 4.57 (.79) 2.24 (2.83) 4.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.86 3.32 (1.40) 2.30 .74 4.63 (.61) 2.41 (2.60) 4.33
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .04 -- -- .03 .05 .11 .18 .23 .21 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.68 .18 1.00 .03 .74 .38 -- -- 3.31 3.57
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.72 .18 1.00 .06 .79 .49 .18 .23 3.52 3.67
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $17.21 16.07 12.93 15.33 13.09 13.14 9.00 9.79 7.61 13.73
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 19.62% 26.07 (9.39) 17.60 5.55 54.13 (6.37) 32.60 (15.15) 44.69
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.07% 1.17 1.09 1.00 1.03 1.04 .89 .83 .82 .80
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .65% .43 .24 .06 .32 .59 1.84 2.11 3.38 1.67
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------------- -------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, MAY 31 TO SEPTEMBER 30, MAY 31 TO
----------------- SEPTEMBER 30, --------------- SEPTEMBER 30,
1996 1995 1994 1996 1995 1994
------- ----- ------------- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 15.85 12.88 13.10 15.87 12.88 13.09
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.09) (.08) (.03) (.06) (.07) (.02)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.74 3.23 (.19) 2.74 3.24 (.19)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.65 3.15 (.22) 2.68 3.17 (.21)
- -------------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.68 .18 -- 1.68 .18 --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.82 15.85 12.88 16.87 15.87 12.88
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.47% 24.83 (1.68) 18.65 24.99 (1.60)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 2.05% 2.17 2.11 1.95 2.03 2.09
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.33)% (.57) (.76) (.23) (.43) (.67)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $2,738,303 2,503,301 2,255,977 1,826,961 1,419,292 613,245 307,555 335,998 285,485 376,045
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate 150% 67 115 139 83 143 194 160 61 247
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transaction for the year ended
September 30, 1996 was $.0560
- --------------------------------------------------------------------------------
7
<PAGE> 17
QUANTITATIVE FUND
February 15, 1996 (commencement of operations) to November 30, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
----------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.50 9.50 9.50
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.04) (.04)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.62 1.58 1.59
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.62 1.54 1.55
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.12 11.04 11.05
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.05 % 16.21 16.32
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses absorbed by the Fund 1.48 % 2.32 2.33
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (.16)% (1.00) (1.01)
- ----------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 2.26 % 3.15 3.12
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (.94)% (1.83) (1.80)
- ----------------------------------------------------------------------------------------------------------------------------
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of period $4,596,000
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 72%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the period
ended November 30, 1996 was $.0555.
- --------------------------------------------------------------------------------
8
<PAGE> 18
SMALL CAP FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996(A) 1995(A) 1994 1993 1992(A) 1991 1990 1989 1988 1987
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 7.14 5.81 6.45 5.25 5.35 3.79 4.71 3.66 6.69 5.80
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.02) (.01) (.01) (.02) (.02) .02 .05 .10 .05 .09
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .94 1.68 (.27) 1.71 .40 1.89 (.86) 1.00 (1.45) 1.82
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .92 1.67 (.28) 1.69 .38 1.91 (.81) 1.10 (1.40) 1.91
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- -- .01 .06 .11 .05 .13 --
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.05 .34 .36 .49 .47 .29 -- -- 1.50 1.02
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.05 .34 .36 .49 .48 .35 .11 .05 1.63 1.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 7.01 7.14 5.81 6.45 5.25 5.35 3.79 4.71 3.66 6.69
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 16.33% 30.88 (4.31) 34.11 7.02 55.16 (17.52) 30.58 (17.34) 39.40
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.08% 1.14 1.34 1.03 1.28 1.25 .86 .64 .72 .53
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.26)% (.18) (.76) (.43) (.43) .27 1.22 2.55 1.42 1.62
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------------- -------------------------------------
YEAR ENDED MAY 31 TO YEAR ENDED MAY 31 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1994 1996 1995 1994
------- ------ ------------- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.03 5.78 5.65 7.02 5.77 5.65
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.09) (.07) (.02) (.09) (.07) (.03)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .92 1.66 .15 .92 1.66 .15
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .83 1.59 .13 .83 1.59 .12
- -------------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.05 .34 -- 1.05 .34 --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.81 7.03 5.78 6.80 7.02 5.77
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.13% 29.59 2.30 15.16 29.65 2.12
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Expenses 2.15% 2.17 2.29 2.15 2.10 2.10
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.33)% (1.21) (1.38) (1.33) (1.14) (1.21)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year (in
thousands) $934,075 839,905 631,607 510,060 329,116 289,345 179,092 286,411 284,426 353,111
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 85% 102 58 82 73 126 107 100 90 115
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
September 30, 1996 was $.0557.
- --------------------------------------------------------------------------------
9
<PAGE> 19
TECHNOLOGY FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993(A) 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $14.63 11.50 10.68 9.95 12.42 9.37 10.19 9.39 11.76 13.82
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.08) (.03) -- (.01) .01 .13 .22 .26 .18 .19
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .74 4.66 1.49 2.03 .04 3.35 (.45) 1.28 .07 .56
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .66 4.63 1.49 2.02 .05 3.48 (.23) 1.54 .25 .75
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- -- .03 .20 .29 .23 .12 .13
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 2.13 1.50 .67 1.29 2.49 .23 .30 .51 2.50 2.68
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 2.13 1.50 .67 1.29 2.52 .43 .59 .74 2.62 2.81
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $13.16 14.63 11.50 10.68 9.95 12.42 9.37 10.19 9.39 11.76
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 7.83% 47.30 14.95 21.76 .32 38.58 (2.51) 18.19 3.84 6.32
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .89% .88 .89 .81 .82 .81 .71 .69 .69 .63
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.62)% (.23) .05 (.06) .07 1.24 2.23 2.92 2.26 1.17
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------------------------- ---------------------------------------------
YEAR ENDED MAY 31, TO YEAR ENDED MAY 31, TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period $ 14.39 11.45 9.99 14.45 11.45 9.99
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (.19) (.15) (.05) (.18) (.15) (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain .70 4.59 1.51 .71 4.65 1.51
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .51 4.44 1.46 .53 4.50 1.46
- ---------------------------------------------------------------------------------------------------------------------------------
Less distribution from net
realized gain 2.13 1.50 -- 2.13 1.50 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 12.77 14.39 11.45 12.85 14.45 11.45
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT
ANNUALIZED) 6.76% 45.65 14.61 6.88 46.23 14.61
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Expenses 1.87% 1.82 1.99 1.82 1.76 1.83
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.60)% (1.17) (1.08) (1.55) (1.11) (.92)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of year
(in thousands) $1,062,813 1,017,955 713,654 612,604 559,279 606,295 472,992 532,760 513,800 566,241
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 121% 105 81 95 95 81 25 39 11 41
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
October 31, 1996 was $.0558.
- --------------------------------------------------------------------------------
10
<PAGE> 20
TOTAL RETURN FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $10.60 9.10 11.23 10.07 10.07 7.78 8.34 7.34 7.24 8.78
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .28 .29 .19 .30 .22 .36 .46 .37 .36 .27
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 1.24 1.46 (1.01) 1.54 .37 2.42 (.64) 1.04 .23 (.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.52 1.75 (.82) 1.84 .59 2.78 (.18) 1.41 .59 (.28)
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .34 .25 .23 .24 .29 .49 .38 .41 .29 .28
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .50 -- 1.08 .44 .30 -- -- -- .20 .98
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .84 .25 1.31 .68 .59 .49 .38 .41 .49 1.26
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $11.28 10.60 9.10 11.23 10.07 10.07 7.78 8.34 7.34 7.24
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 15.34% 19.46 (7.92) 19.08 6.09 37.20 (2.31) 20.00 8.75 (4.18)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.05% 1.12 1.13 1.02 1.06 1.03 .87 .79 .78 .72
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.76% 3.00 2.34 2.94 2.23 3.96 5.87 4.76 5.10 3.05
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------- ---------------------------------
YEAR ENDED MAY 31 TO YEAR ENDED MAY 31 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.59 9.09 9.24 10.61 9.09 9.24
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .20 .06 .20 .21 .06
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.23 1.46 (.16) 1.22 1.48 (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.42 1.66 (.10) 1.42 1.69 (.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24 .16 .05 .25 .17 .05
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .50 -- -- .50 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .74 .16 .05 .75 .17 .05
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.27 10.59 9.09 11.28 10.61 9.09
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.28% 18.42 (1.06) 14.31 18.76 (1.05)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 1.99% 2.05 2.03 1.89 1.86 2.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.82% 2.07 1.57 1.92 2.26 1.60
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
ALL CLASSES
SUPPLEMENTAL
DATA:
Net assets at end
of year (in
thousands) $3,020,798 2,926,542 2,864,322 1,509,687 1,212,896 998,465 781,417 937,804 976,972 1,077,369
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio
turnover rate 85% 142 121 180 150 157 157 130 187 171
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
October 31, 1996 was $.0580.
- --------------------------------------------------------------------------------
11
<PAGE> 21
VALUE+GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ---------------------------
OCTOBER 16 OCTOBER 16 OCTOBER 16
YEAR ENDED TO YEAR ENDED TO YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $10.02 9.50 10.02 9.50 10.01 9.50
- ------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .05 .02 (.04) .02 (.04) .01
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain 2.88 .50 2.85 .50 2.87 .50
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.93 .52 2.81 .52 2.83 .51
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.95 10.02 12.83 10.02 12.84 10.01
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 29.24% 5.47 28.04 5.47 28.27 5.37
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Expenses absorbed by the Fund 1.47% 1.35 2.27 2.10 2.22 2.07
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .43% 2.25 (.37) 1.50 (.32) 1.53
- ------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Expenses 1.59% -- 2.44 -- 2.35 --
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .31% -- (.54) -- (.45) --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 16
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
ALL CLASSES
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $ 39,092 5,851
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 82% --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
November 30, 1996 was $.0571.
- --------------------------------------------------------------------------------
Notes:
(a) Per share data were determined based on average shares outstanding.
(b) For Quantitative Equity Fund and Value+Growth Fund, the investment manager
agreed to temporarily waive or absorb certain operating expenses of the
Funds. The other ratios to average net assets are computed without this
expense waiver or absorption.
Total return does not reflect the effect of any sales charges. The Funds are
organized as separate Massachusetts business trusts.
12
<PAGE> 22
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objective and
policies. Each Fund's returns and net asset value will fluctuate and there is no
assurance that any Fund will meet its objective.
AGGRESSIVE GROWTH FUND. The Aggressive Growth Fund is a non-diversified
investment company that seeks capital appreciation through the use of aggressive
investment techniques. In seeking to achieve its objective, the Fund invests
primarily in equity securities of U.S. companies that the investment manager
believes offer the best opportunities for capital appreciation at any given
time. The investment manager pursues a flexible investment strategy in the
selection of securities, not limited to any particular investment sector,
industry or company size; and it may, depending upon market circumstances,
emphasize the securities of small, medium or large-sized companies from time to
time. The Fund may invest a significant portion of its assets in initial public
offerings ("IPOs"), which are typically securities of small, unseasoned issuers.
In addition, since the Fund is a non-diversified investment company, when
attractive investments are identified, the investment manager may establish
relatively large individual positions, sometimes representing more than 5% of
total assets. See "Special Risk Factors--Non-Diversified" below. Therefore, the
Fund has broader latitude in its selection of securities than a typical equity
mutual fund. There is no assurance that the management strategy for the Fund
will be successful or that the Fund will achieve its objective.
The investment manager uses a disciplined approach to stock selection and
fundamental research to help it identify quality "growth" companies whose stocks
are selling at reasonable prices. Growth stocks are stocks of companies whose
earnings per share are expected by the investment manager to grow faster than
the market average. Growth stocks tend to trade at higher price to earnings
(P/E) ratios than the general market, but the investment manager believes that
the potential of such stocks for above average earnings more than justifies
their price. The investment manager relies heavily upon the fundamental analysis
and research of its large research staff, and will generally seek to invest in
growth companies whose value may not be fully recognized by the market at large.
Such companies may be:
- - Expected to achieve accelerating earnings growth, perhaps due to strong demand
for their products or services;
- - Undervalued, based upon price/earnings ratios, price/book value ratios and
other measures;
- - Undergoing financial restructuring;
- - Involved in takeover or arbitrage situations;
- - Expected to benefit from evolving market cycles or changing economic
conditions; or
- - Representing special situations, such as changes in management or favorable
regulatory developments.
Because of the flexible nature of the Fund's investment policies, the Fund may
have a higher portfolio turnover than a typical equity mutual fund. See
"Additional Investment Information" below. To some extent, the Fund may trade in
securities for the short term. In addition, the investment manager may use
market volatility in an attempt to capitalize on apparently unwarranted price
fluctuations, both to purchase or increase undervalued positions and to sell or
reduce overvalued holdings. For example, during market declines, the Fund may
add to positions in favored securities, while becoming more aggressive as it
gradually reduces the number of companies represented in its portfolio.
Conversely, in rising markets, the Fund may reduce or eliminate fully valued
positions, while becoming more conservative as it gradually increases the number
of companies in its portfolio.
Although the Fund will not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest 25% or more of its total assets in
one or more market sectors, such as the technology sector. If the Fund
concentrates its investments in a market sector, financial, economic, business
and other developments affecting issuers in that sector may have a greater
effect on the Fund than if it had not concentrated its assets in that sector.
13
<PAGE> 23
Under normal conditions, the Fund will invest at least 65%, and may invest up to
100%, of its total assets in equity securities. Equity securities include common
stocks, preferred stocks, securities convertible into or exchangeable for common
or preferred stocks, equity investments in partnerships, joint ventures and
other forms of non-corporate investment and warrants and rights exercisable for
equity securities.
The Fund may also purchase and write options, engage in financial futures
transactions, purchase foreign securities and engage in related foreign currency
transactions and lend its portfolio securities. See "Special Risk
Factors--Foreign Securities" and "Additional Investment Information" below. The
Fund may engage in short sales against-the-box, although it is the Fund's
current intention that no more than 5% of its net assets will be at risk. When a
defensive position is deemed advisable, all or a significant portion of the
Fund's assets may be held temporarily in cash or defensive type securities, such
as high-grade debt securities, securities of the U.S. Government or its agencies
and high quality money market instruments, including repurchase agreements.
BLUE CHIP FUND. The Blue Chip Fund seeks growth of capital and of income. In
seeking to achieve its objective, the Fund will invest primarily in common
stocks of well capitalized, established companies that the Fund's investment
manager believes to have the potential for growth of capital, earnings and
dividends. Under normal market conditions, the Fund will, as a fundamental
policy, invest at least 65%, and may invest up to 100%, of its total assets in
the common stocks of companies with a market capitalization of at least $1
billion at the time of investment.
In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known, high quality companies. Companies of this general type are
often referred to as "Blue Chip" companies. "Blue Chip" companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. "Blue Chip" companies are believed to generally exhibit
less investment risk and less price volatility than companies lacking these high
quality characteristics, such as smaller, less seasoned companies. In addition,
the large market of publicly held shares for such companies and the generally
high trading volume in those shares results in a relatively high degree of
liquidity for such investments. The characteristics of high quality and high
liquidity of "Blue Chip" investments should make the market for such stocks
attractive to investors both within and outside the United States. The Fund will
generally attempt to avoid speculative securities or those with significant
speculative characteristics.
Examples of "Blue Chip" companies currently eligible for investment by the Fund
include, but are not limited to, companies such as Pfizer Inc., Merck & Co.,
Inc., Hewlett-Packard Company, AT&T Company, General Reinsurance, J.P. Morgan &
Co., Union Pacific Corporation and PepsiCo. Inc. While the Fund's portfolio will
not be limited to the examples noted and need not contain any specific security,
companies of this general quality comprise a relatively small, select group. In
general, the Fund will seek to invest in those established, high quality
companies whose industries are experiencing favorable secular or cyclical
change. Thus, the Fund in seeking its objective will endeavor to select its
investments from among high quality companies operating in the more attractive
industries.
As indicated above, the Fund's investment portfolio will normally consist
primarily of common stocks. The Fund may invest to a more limited extent in
preferred stocks, debt securities and securities convertible into or
exchangeable for common stocks, including warrants and rights, when they are
believed to offer opportunities for growth of capital and of income. The Fund
may also purchase options, engage in financial futures transactions, purchase
foreign securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors--Foreign Securities" and
"Additional Investment Information" below. The Fund may engage in short sales
against-the-box, although it is the Fund's current intention that no more than
5% of its net assets will be at risk. When, as a result of market conditions
affecting "Blue Chip" companies, a defensive position is deemed advisable to
help preserve capital, the Fund may temporarily invest without limit in
high-grade debt securities, securities of the U.S. Government and its agencies,
and high quality money market instruments, including repurchase agreements, or
retain cash.
14
<PAGE> 24
The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
There are risks inherent in the investment in any security, including shares of
the Fund. The investment manager attempts to reduce risk through diversification
of the Fund's portfolio and fundamental research; however, there is no guarantee
that such efforts will be successful. The investment manager believes that there
are opportunities for growth of capital and growth of dividends from investments
in "Blue Chip" companies over time. The Fund's shares are intended for long-term
investment.
GROWTH FUND. The Growth Fund seeks growth of capital through professional
management and diversification of investments in securities it believes to have
potential for capital appreciation. In seeking to obtain capital appreciation,
the Fund may trade in securities for the short-term. To this extent, the Fund
will be engaged in trading operations based on short-term market considerations
as distinct from long-term investment based upon fundamental valuation of
securities. However, the Fund will emphasize fundamental research in attempting
to identify under-valued situations that it hopes will appreciate over the
longer term. The Fund's investment policy may involve a somewhat greater risk
than is inherent in the ordinary investment security. Since any income received
from such securities will be entirely incidental, an investor should not
consider a purchase of Fund shares as equivalent to a complete investment
program.
In seeking to achieve its objective, it will be the Fund's policy to invest
primarily in securities that it believes offer the potential for increasing the
Fund's total asset value. While it is anticipated that most investments will be
in common stocks of companies with above-average growth prospects, investments
may also be made to a limited degree in other common stocks and in convertible
securities (including warrants), such as bonds and preferred stocks. The Fund
may also purchase options, engage in financial futures transactions, purchase
foreign securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors--Foreign Securities" and
"Additional Investment Information" below. There may also be times when a
significant portion of the Fund's assets may be held temporarily in cash or
defensive type securities, such as high-grade debt securities, securities of the
U.S. Government or its agencies and high quality money market instruments,
including repurchase agreements, depending upon the investment manager's
analysis of business and economic conditions and the outlook for security
prices.
Some of the factors the Fund's management will consider in making its
investments are patterns of increasing growth in sales and earnings, the
development of new or improved products or services, favorable outlooks for
growth in the industry, the probability of increased operating efficiencies,
emphasis on research and development, cyclical conditions, or other signs that a
company is expected to show greater than average capital appreciation and
earnings growth.
QUANTITATIVE FUND. The Quantitative Fund seeks growth of capital and reduction
of risk through professional management of a diversified portfolio of equity
securities. In seeking to achieve the Fund's objectives, the investment manager
will emphasize the use of fundamental research and advanced quantitative
technology. There is no assurance that the management strategy for the Fund will
be successful or that the Fund will achieve its objectives.
The investment manager uses a disciplined approach to stock selection and
fundamental research to help it identify quality "growth" companies, whose
stocks are selling at reasonable prices based upon their earnings potential and
whose earnings are growing faster than the market average. Those stocks that are
believed by the investment manager to have superior price appreciation potential
are considered as eligible for investment by the Fund. Thus, a list of eligible
investments is developed by the investment manager through a regimented review
process that applies the results of research generated by the investment
manager's analytical staff to well defined quantitative factors (e.g., return on
equity, earnings per share growth) and qualitative factors (e.g., industry
growth, market share). As described below, the Fund's portfolio is structured by
the investment manager from eligible investments by using advanced quantitative
technology with a view to reducing the
15
<PAGE> 25
degree by which the volatility of the portfolio differs from the volatility of
the market for growth stocks generally.
The investment manager believes that there are identifiable macro-economic
factors that are major contributors to the volatility of the stock market.
Examples of these factors include: economic growth, the direction of long-term
interest rates and the credit spread, which is the spread between Treasury and
corporate fixed income securities. In selecting among the growth stocks
identified as being eligible for inclusion in the Fund's portfolio, the
investment manager applies advanced quantitative techniques to help structure
the portfolio so that normally it is neutrally weighted to these macro-economic
factors. These techniques involve the use of computer modeling to help select a
portfolio of securities believed to be attractive while simultaneously
maintaining a neutral macroeconomic posture. Neutral weighting means that the
exposure of the Fund's portfolio to the effect of these macro-economic factors
is, in the view of the investment manager, generally the same as the exposure of
the market for growth stocks as a whole. The purpose of this process is to
reduce the degree by which the volatility of the portfolio differs from the
volatility of the market for growth stocks and to increase the importance of
fundamental research and stock selection in the management process.
Depending upon economic and market conditions, the investment manager may at
times under- or overweight the portfolio with respect to certain macro-economic
factors. In those circumstances, the return potential as well as the risk
profile of the Fund's portfolio may be increased relative to the market for
growth stocks generally. However, a primary goal of portfolio structuring for
the Fund is to reduce those risks and the investment manager would normally not
be expected to so weight the portfolio.
Under normal conditions, the Fund will invest at least 65%, and may invest up to
100%, of its total assets in equity securities. Equity securities include common
stocks, preferred stocks, securities convertible into or exchangeable for common
or preferred stocks, equity investments in partnerships, joint ventures and
other forms of non-corporate investment and warrants and rights exercisable for
equity securities. Normally, the Fund's primary investments will be common
stocks of large, well capitalized companies. The Fund currently does not intend
to invest more than 5% of its net assets in debt securities (including
convertible debt securities) during the current year (except for defensive
investments described below).
The Fund may also purchase and write options, engage in financial futures
transactions, purchase foreign securities and engage in related foreign currency
transactions and lend its portfolio securities. See "Special Risk
Factors--Foreign Securities" and "Additional Investment Information" below. When
a defensive position is deemed advisable, all or a significant portion of the
Fund's assets may be held temporarily in cash or defensive type securities, such
as high-grade debt securities, securities of the U.S. Government or its agencies
and high quality money market instruments, including repurchase agreements.
The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
SMALL CAP FUND. The Small Cap Fund seeks maximum appreciation of investors'
capital. Current income will not be a significant factor. The Fund is designed
primarily for investors with substantial resources and the investment experience
to consider their shares as a long-term investment involving financial risk
commensurate with potential substantial gains.
The Fund seeks attractive areas for investment opportunity arising from such
factors as technological advances, new marketing methods, and changes in the
economy and population. Currently, the investment manager believes that such
investment opportunities may be found among the following: (a) companies engaged
in high technology fields such as electronics, medical technology, computer
software and specialty retailing; (b) companies having a significantly improved
earnings outlook as the result of a changed economic environment, acquisitions,
mergers, new management, changed corporate strategy or product innovation; (c)
companies supplying new or rapidly growing services to consumers and businesses
in such fields as
16
<PAGE> 26
automation, data processing, communications, marketing and finance; and (d)
companies having innovative concepts or ideas.
As a non-fundamental policy, at least 65% of the Fund's total assets normally
will be invested in the equity securities of smaller companies, i.e., those
having a market capitalization of $1 billion or less at the time of investment,
many of which would be in the early stages of their life cycle. The investment
manager currently believes that investment in such companies may offer greater
opportunities for growth of capital than larger, more established companies, but
also involves certain special risks. Smaller companies often have limited
product lines, markets, or financial resources, and they may be dependent upon
one or a few key people for management. The securities of such companies
generally are subject to more abrupt or erratic market movements and may be less
liquid than securities of larger, more established companies or the market
averages in general.
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed by the investment manager to
offer opportunities for capital growth. The Fund may also purchase options,
engage in financial futures transactions, purchase foreign securities, engage in
related foreign currency transactions and lend its portfolio securities. See
"Special Risk Factors--Foreign Securities" and "Additional Investment
Information" below. When a defensive position is deemed advisable, it may,
without limit, invest in high-grade senior securities and securities of the U.S.
Government and its instrumentalities or retain cash or cash equivalents,
including repurchase agreements.
In the selection of investments, long-term capital appreciation will take
precedence over short range market fluctuations. The Fund does not intend to
engage actively in trading for short-term profits, although it may occasionally
make investments for short-term capital appreciation when such action is
believed to be desirable and consistent with sound investment procedure.
Generally, the Fund will make long-term rather than short-term investments.
Nevertheless, it may dispose of such investments at any time it may be deemed
advisable because of a subsequent change in the circumstances of a particular
company or industry or in general market or economic conditions. For example, a
security initially purchased for long-term growth potential may be sold at any
time when it is determined that future growth may not be at an acceptable rate
or that there is a risk of substantial decline in market price. The rate of
portfolio turnover is not a limiting factor when changes in investments are
deemed appropriate. In addition, market conditions, cash requirements for
redemption and repurchase of Fund shares or other factors could affect the
portfolio turnover rate.
Since many of the securities in the Fund's portfolio may be considered
speculative in nature by traditional investment standards, substantially greater
than average market volatility and investment risk may be involved. There can be
no assurance that the Fund's shareholders will be protected from the risk of
loss inherent in security ownership.
TECHNOLOGY FUND. The Technology Fund seeks growth of capital. In seeking to
achieve its objective, the Fund will invest primarily in securities of companies
which the investment manager expects to benefit from technological advances and
improvements ("technology companies") with an emphasis on the securities of
companies that the investment manager believes have potential for long-term
capital growth. Receipt of income from such securities will be entirely
incidental. Technology companies include those whose processes, products or
services, in the judgment of the investment manager, are or may be expected to
be significantly benefited by scientific developments and the application of
technical advances in industry, manufacturing and commerce resulting from
improving technology in such fields as, for example, aerospace, chemistry,
electronics, genetic engineering, geology, information sciences (including
computers and computer software), metallurgy, medicine (including pharmacology,
biotechnology and biophysics) and oceanography. This investment policy permits
the investment manager to seek stocks having superior growth potential in
virtually any industry in which they may be found. The above objective and
policies may not be changed without shareholder approval.
17
<PAGE> 27
The investment manager currently believes that investments in smaller emerging
growth technology companies may offer greater opportunities for growth of
capital than investments in larger, more established technology companies.
However, such investments also involve certain special risks. Smaller companies
often have limited product lines, markets, or financial resources; and they may
be dependent upon one or a few persons for management. The securities of such
companies generally are subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. Thus, investment by the Fund in smaller emerging growth technology
companies may expose investors to greater than average financial and market
risk. There is no assurance that the Fund's objective will be achieved.
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed to offer opportunities for
capital growth. The Fund may also purchase and write options, engage in
financial futures transactions, purchase foreign securities, engage in related
foreign currency transactions and lend its portfolio securities. See "Special
Risk Factors--Foreign Securities" and "Additional Investment Information" below.
When a defensive position is deemed advisable, the Fund may, without limit,
invest in high-grade senior securities and securities of the U.S. Government and
its instrumentalities or retain cash or cash equivalents, such as high quality
money market instruments, including repurchase agreements. The Fund's shares are
intended for long-term investment.
The Fund may invest up to 10% of its total assets in entities, such as limited
partnerships or trusts, that invest primarily in the securities of technology
companies. The investment manager believes that the flexibility to make limited
indirect investment in technology companies through entities such as limited
partnerships and trusts will provide the Fund with increased opportunities for
growth of capital. However, there is no assurance that such investments will be
profitable. Entities that invest in the securities of technology companies
normally have management fees and other costs that are in addition to those of
the Fund. Such fees and costs will reduce any returns directly attributable to
the underlying technology companies. The effect of these fees will be considered
by the investment manager in connection with any decision to invest in such
entities. Securities issued by these entities are normally privately placed,
restricted and illiquid.
The Fund purchases securities for long-term investment, but it is the investment
manager's belief that a sound investment program must be flexible in order to
meet changing conditions, and changes in holdings will be made whenever deemed
advisable.
TOTAL RETURN FUND. The Total Return Fund seeks the highest total return, a
combination of income and capital appreciation, consistent with reasonable risk.
The Fund will emphasize liberal current income in seeking its objective. The
Fund's investments will normally consist of domestic and foreign fixed income
and equity securities. Fixed income securities will include bonds and other debt
securities (such as U.S. and foreign Government securities and investment grade
and high yield corporate obligations) and preferred stocks, some of which may
have a call on common stocks through attached warrants or a conversion
privilege. The percentage of assets invested in specific categories of fixed
income and equity securities will vary from time to time depending upon the
judgment of management as to general market and economic conditions, trends in
yields and interest rates and changes in fiscal or monetary policies. The Fund
may also purchase options, engage in financial futures transactions, engage in
foreign currency transactions and lend its portfolio securities. See "Special
Risk Factors--Foreign Securities" and "Additional Investment Information" below.
As noted above, the Fund may invest in high yield fixed income securities which
are in the lower rating categories and those which are unrated. Thus, the Fund
could invest in some instruments considered by the rating services to have
predominantly speculative characteristics. Investments in lower rated or
non-rated securities, while generally providing greater income and opportunity
for gain than investments in higher rated securities, entail greater risk of
loss of income and principal. Currently, it is anticipated that the Fund would
invest less than 35% of its total assets in high yield bonds. For a discussion
of lower rated and non-rated securities and related risks, see "Special Risk
Factors--High Yield (High Risk) Bonds" below.
18
<PAGE> 28
The Fund does not make investments for short-term profits, but it is not
restricted in policy with regard to portfolio turnover and will make changes in
its investment portfolio from time to time as business and economic conditions
and market prices may dictate and as its investment policy may require.
VALUE+GROWTH FUND. The Value+Growth Fund seeks growth of capital through
professional management of a portfolio of growth and value stocks. These stocks
include stocks of large established companies, as well as stocks of small
companies. A secondary objective is the reduction of risk over a full market
cycle compared to a portfolio of only growth stocks or only value stocks.
Growth stocks are stocks of companies whose earnings per share are expected by
the investment manager to grow faster than the market average. Growth stocks
tend to trade at higher price to earnings (P/E) ratios than the general market,
but the investment manager believes that the potential of such stocks for above
average earnings more than justifies their price. Value stocks are considered
"bargain stocks" because they are perceived as undervalued, i.e., attractively
priced in relation to their earnings potential (low P/E ratios). Value stocks
typically have dividend yields higher than the average of the companies
represented in the Standard & Poor's 500 Stock Index.
The allocation between growth and value stocks in the Fund's portfolio will be
made by the investment manager's Quantitative Research Department with the help
of a proprietary model that evaluates macro-economic factors such as the
strength of the economy, interest rates and special factors concerning growth
and value stocks. Historically, the performance of growth and value stocks has
tended to be counter-cyclical, i.e., when one was in favor, the other was out of
favor relative to the equity market in general. Through the allocation process,
the investment manager will seek to weight the portfolio more heavily in the
type of stocks that are believed to present greater return opportunities at the
time. The neutral allocation between growth and value stocks would be 50%/50%.
Although allocations in favor of growth or value normally would not be expected
to exceed 60%, the allocation to growth or value may be up to 75% at any time.
Allocation decisions are normally based upon long-term considerations and
changes would normally be expected to be gradual. There is no assurance that the
allocation process will improve investment results.
ZKI manages the growth portion of the Fund. In managing the growth portion of
the portfolio, ZKI emphasizes stock selection and fundamental research in
seeking to enhance long-term performance potential. ZKI considers a number of
quantitative and qualitative factors in considering whether to invest in a stock
including high return on equity and earnings growth rate, low level of debt,
strong balance sheet, good management and industry leadership. DVA manages the
value portion of the Fund. DVA seeks stocks it believes to be undervalued. The
principal factor considered is P/E ratios. Typically stocks of both types will
have a market capitalization in excess of $1 billion. In selecting among stocks
with low P/E ratios, DVA considers other factors such as financial strength,
book to market value, earnings and dividend growth rates, return on equity and
earnings estimates.
Although it is anticipated that the Fund will invest primarily in common stocks
of domestic companies, the Fund may also purchase convertible securities, such
as bonds and preferred stocks (including warrants and rights). The Fund may also
purchase options, engage in financial futures transactions, purchase foreign
securities, engage in related foreign currency transactions and lend its
portfolio securities. See "Special Risk Factors-- Foreign Securities" and
"Additional Investment Information" below. When a defensive position is deemed
advisable, all or a significant portion of the Fund's assets may be held
temporarily in cash or defensive type securities, such as high-grade debt
securities, securities of the U.S. Government or its agencies and high quality
money market instruments, including repurchase agreements.
The Fund does not generally make investments for short-term profits, but it is
not restricted in policy with regard to portfolio turnover and will make changes
in its investment portfolio from time to time as business and economic
conditions and market prices may dictate and as its investment policy may
require.
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SPECIAL RISK FACTORS--NON-DIVERSIFIED. The Investment Company Act of 1940 (the
"1940 Act") classifies investment companies as either "diversified" or
"non-diversified." All the Funds, except the Aggressive Growth Fund, are
diversified funds under the 1940 Act. As a non-diversified fund, the Aggressive
Growth Fund may invest a greater proportion of its assets in the obligations of
a small number of issuers, and may be subject to greater risk and substantial
losses as a result of changes in the financial condition or the market's
assessment of the issuers. While not limited by the 1940 Act as to the
proportion of its assets that it may invest in obligations of a single issuer,
the Aggressive Growth Fund will comply with the diversification requirements
imposed by the Internal Revenue Code for qualification as a regulated investment
company. Accordingly, the Aggressive Growth Fund will not, as a fundamental
policy: (i) purchase more than 10% of any class of voting securities of any
issuer; (ii) with respect to 50% of its total assets, purchase securities of any
issuer (other than U.S. Government Securities) if, as a result, more than 5% of
the total value of the Fund's assets would be invested in securities of that
issuer; and (iii) invest more than 25% of its total assets in a single issuer
(other than U.S. Government Securities). After the Aggressive Growth Fund's
initial start up period of six months, the Fund does not currently expect that
it would invest more than 10% of its total assets in a single issuer (other than
U.S. Government Securities).
SPECIAL RISK FACTORS--FOREIGN SECURITIES. The Funds invest primarily in
securities that are publicly traded in the United States; but, they have
discretion to invest a portion of their assets in foreign securities that are
traded principally in securities markets outside the United States. The Funds
currently limit investment in foreign securities not publicly traded in the
United States to 25% of their total assets. The Funds may also invest without
limit in U.S. Dollar denominated American Depository Receipts ("ADRs"), which
are bought and sold in the United States and are not subject to the preceding
limitation. In connection with their foreign securities investments, the Funds
may, to a limited extent, engage in foreign currency exchange, options and
futures transactions as a hedge and not for speculation. Additional information
concerning foreign securities and related techniques is contained under
"Additional Investment Information" below and "Investment Policies and
Techniques" in the Statement of Additional Information.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.
EMERGING MARKETS. While each Fund's investments in foreign securities will be
principally in developed countries, a Fund may make investments in developing or
"emerging" countries, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems that may be less stable. A developing or emerging market country can be
considered to be a country that is in the initial stages of its
industrialization cycle. Currently, emerging markets generally include every
country in the world other than the United States, Canada, Japan, Australia, New
Zealand, Hong Kong, Singapore and
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<PAGE> 30
most Western European countries. Currently, investing in many emerging markets
may not be desirable or feasible because of the lack of adequate custody
arrangements for a Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or other reasons. As opportunities to invest in securities in
emerging markets develop, a Fund may expand and further broaden the group of
emerging markets in which it invests. In the past, markets of developing or
emerging market countries have been more volatile than the markets of developed
countries; however, such markets often have provided higher rates of return to
investors. The investment manager believes that these characteristics can be
expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Certain emerging
markets may lack clearing facilities equivalent to those in developed countries.
Accordingly, settlements can pose additional risks in such markets and
ultimately can expose the Fund to the risk of losses resulting from a Fund's
inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. A Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
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FIXED INCOME. Since most foreign fixed income securities are not rated, a Fund
(principally the Total Return Fund) will invest in foreign fixed income
securities based on the investment manager's analysis without relying on
published ratings. Since such investments will be based upon the investment
manager's analysis rather than upon published ratings, achievement of a Fund's
goals may depend more upon the abilities of the investment manager than would
otherwise be the case.
The value of the foreign fixed income securities held by a Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which a Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Fund's investments
in foreign fixed income securities, and the extent to which a Fund hedges its
interest rate, credit and currency exchange rate risks. Many of the foreign
fixed income obligations in which a Fund will invest will have long maturities.
A longer average maturity generally is associated with a higher level of
volatility in the market value of such securities in response to changes in
market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to other debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Fund may be unable to
collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceed of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Fund. A significant
portion of the sovereign debt in which a Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
PRIVATIZED ENTERPRISES. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or controlled company or enterprise that has not
yet conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as a Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatization will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which a Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
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Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Fund may invest
enjoy the protection of and receive preferential treatment from the respective
sovereigns that own or control them. After making an initial equity offering
these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
DEPOSITORY RECEIPTS. For many foreign securities, there are U.S. Dollar
denominated ADRs, which are bought and sold in the United States and are issued
by domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in the domestic bank or a correspondent bank. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. The Funds may also
invest in European Depository Receipts ("EDRs"), which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and are designed
for use in the European securities markets. EDRs are not necessarily denominated
in the currency of the underlying security.
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As stated above, the Total
Return Fund may invest a portion of its assets in fixed income securities that
are in the lower rating categories (below the fourth category) of recognized
rating agencies or are non-rated. These lower rated and non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories. Lower rated and non-rated securities, which are
commonly referred to as "junk bonds," have widely varying characteristics and
quality. The market values of such securities tend to reflect individual
corporate developments to a greater extent than do those of higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower rated securities also are more sensitive to economic
conditions than are higher rated securities. Adverse publicity and investor
perceptions regarding lower rated bonds, whether or not based upon fundamental
analysis, may depress the prices for such securities. These and other factors
adversely affecting the market value of high yield securities will adversely
affect the Fund's net asset value. Although some risk is inherent in all
securities ownership, holders of fixed income securities have a claim on the
assets of the issuer prior to the holders of common stock. Therefore, an
investment in fixed income securities generally entails less risk than an
investment in common stock of the same issuer. The Fund may have difficulty
disposing of certain high yield securities because they may have a thin trading
market. The lack of a liquid secondary market may have an adverse effect on
market price and the Fund's ability to dispose of particular issues and may also
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing these assets. Additional information concerning high yield
securities appears under "Investment Policies and Techniques--Other
Considerations--High Yield (High Risk) Bonds" and "Appendix--Ratings of Fixed
Income Investments" in the Statement of Additional Information.
ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates for the Funds
(other than the Aggressive Growth Fund) are listed under "Financial Highlights."
It is anticipated that, under normal circumstances, the portfolio turnover rate
for the Aggressive Growth Fund will not exceed 250%. Higher portfolio turnover
involves correspondingly greater brokerage commissions or other transaction
costs. Higher portfolio turnover (100% or more) may result in the realization of
greater net short-term capital gains. In order to continue to
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qualify as a regulated investment company for federal income tax purposes, less
than 30% of the annual gross income of a Fund must be derived from the sale or
other disposition of securities and certain other investments held by a Fund for
less than three months. See "Dividends and Taxes" in the Statement of Additional
Information.
The Aggressive Growth and Blue Chip Funds each may not borrow money except as a
temporary measure for extraordinary or emergency purposes and not for leverage
purposes, and then only in an amount up to one-third of the value of its total
assets in order to meet redemption requests without immediately selling any
portfolio securities or other assets. (If, for any reason, the current value of
a 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 Blue Chip Fund may pledge up to 15% of its total assets to
secure any such borrowings. The Growth, Quantitative, Small Cap, Technology,
Total Return and Value+Growth Funds each may not borrow money except for
temporary or emergency purposes (but not for the purchase of investments) and
then only in an amount not to exceed 5% of its net assets, and may not pledge
their assets in an amount exceeding the amount of the borrowings secured by such
pledge. The Aggressive Growth Fund may not pledge its assets except to secure
permitted borrowings.
A Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities. If a Fund holds a material percentage of its assets in illiquid
securities, there may be a question concerning the ability of the Fund to make
payment within seven days of the date its shares are tendered for redemption.
SEC guidelines provide that the usual limit on aggregate holdings by an open-end
investment company of illiquid assets is 15% of its net assets. See "Investment
Policies and Techniques--Over-the-Counter Options" in the Statement of
Additional Information for a description of the extent to which over-the-counter
traded options are in effect considered as illiquid for purposes of the limit on
illiquid securities for the Funds. Each Fund may invest in securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933. This rule
permits otherwise restricted securities to be sold to certain institutional
buyers, such as the Funds. Such securities may be illiquid and subject to the
Fund's limitation on illiquid securities. A "Rule 144A" security may be treated
as liquid, however, if so determined pursuant to procedures adopted by the Board
of Trustees. Investing in Rule 144A securities could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
securities.
Each Fund has adopted certain fundamental investment restrictions, which are
presented in the Statement of Additional Information and which, together with
the investment objective and policies of a Fund (other than policies that are
not fundamental), cannot be changed without approval by holders of a majority of
its outstanding voting shares. As defined in the 1940 Act, this means the lesser
of the vote of (a) 67% of the shares of a Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy; or (b)
more than 50% of the outstanding shares of a Fund. Policies of the Aggressive
Growth, Blue Chip, Quantitative and Value+Growth Funds that are neither
designated as fundamental nor incorporated into any of the fundamental
investment restrictions referred to in the first sentence of this paragraph are
not fundamental and may be changed by the Board of Trustees of the Fund without
shareholder approval.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. The Funds may each deal in options
on securities, securities indexes and foreign currencies, which options may be
listed for trading on a national securities exchange or traded over-the-counter.
The Aggressive Growth, Quantitative and Technology Funds may write (sell)
covered call and secured put options on up to 25% of net assets and each Fund
may purchase put and call options provided that no more than 5% of its net
assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security or
other asset at the exercise price
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during or at the end of the option period. The writer of a covered call owns
securities or other assets that are acceptable for escrow and the writer of a
secured put invests an amount not less than the exercise price in eligible
securities or other assets to the extent that it is obligated as a writer. If a
call written by a Fund is exercised, the Fund foregoes any possible profit from
an increase in the market price of the underlying security or other asset over
the exercise price plus the premium received. In writing puts, there is a risk
that a Fund may be required to take delivery of the underlying security or other
asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
a Fund may experience material losses. However, in writing options (for the
Aggressive Growth, Quantitative and Technology Funds) the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities or other assets, and a wider range of expiration dates and exercise
prices, than for exchange traded options.
Each Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future
period at a specified price. A Fund will "cover" futures contracts sold by the
Fund and maintain in a segregated account certain liquid assets in connection
with futures contracts purchased by the Fund as described under "Investment
Policies and Techniques" in the Statement of Additional Information. In
connection with their foreign securities investments, the Funds may also engage
in foreign currency financial futures transactions. A Fund will not enter into
any futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the total assets of the Fund.
The Funds may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, when the near-term
market view is bearish but the portfolio composition is judged satisfactory for
the longer term, exposure to temporary declines in the market may be reduced by
entering into futures contracts to sell securities or the cash value of a
securities index. Conversely, where the near-term view is bullish, but the Fund
is believed to be well positioned for the longer term with a high cash position,
the Fund can hedge against market increases by entering into futures contracts
to buy securities or the cash value of a securities index. In either case, the
use of futures contracts would tend to reduce portfolio turnover and facilitate
the Fund's pursuit of its investment objective.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. If participants
in the futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures market could result. Price
distortions also could result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators,
margin requirements in the futures market are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager still may not result in a successful hedging
transaction. If any of these events should occur, a Fund could lose money on the
financial futures contracts and also on the value of its portfolio assets. The
costs incurred in connection with futures transactions could reduce a Fund's
return.
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<PAGE> 35
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium paid therefor.
A Fund may engage in futures transactions only on commodities exchanges or
boards of trade. A Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
FOREIGN CURRENCY TRANSACTIONS. The Funds may invest a portion of their assets in
securities denominated in foreign currencies. The Funds may engage in foreign
currency transactions in connection with their investments in foreign securities
but will not speculate in foreign currency exchange.
The value of the foreign securities investments of a Fund measured in U.S.
Dollars (including ADRs) may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies. A
Fund will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the Fund is able to protect itself against a
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. Dollar and such foreign currency.
However, this tends to limit potential gains that might result from a positive
change in such currency relationships. A Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions.
When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. The forecasting of short-term currency market movement is extremely
difficult and whether such a short-term hedging strategy will be successful is
highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
A Fund will not speculate in foreign currency exchange. A Fund will not enter
into such forward contracts or maintain a net exposure in such contracts where
the Fund would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's securities or other assets denominated in that
currency. The Funds do not intend to enter into such forward contracts if they
would have more than 15% of the value of their total assets committed to forward
contracts for the purchase of a foreign currency. A Fund segregates cash or
liquid securities to the extent required by applicable regulation in connection
with forward foreign currency exchange contracts entered into for the purchase
of a foreign currency. A Fund generally does not enter into a forward contract
with a term longer than one year.
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DERIVATIVES. In addition to options, financial futures and foreign currency
transactions, consistent with its objective, each Fund may invest in a broad
array of financial instruments and securities in which the value of the
instrument or security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate or a currency
("derivatives"). Derivatives are most often used in an effort to manage
investment risk, to increase or decrease exposure to an asset class or benchmark
(as a hedge or to enhance return), or to create an investment position
indirectly (often because it is more efficient or less costly than direct
investment). There is no guarantee that these results can be achieved through
the use of derivatives. The types of derivatives used by each Fund and the
techniques employed by the investment manager may change over time as new
derivatives and strategies are developed or regulatory changes occur.
SPECIAL RISK FACTORS--OPTIONS, FUTURES, FOREIGN CURRENCIES AND OTHER
DERIVATIVES. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures contracts or other derivatives and
movements in the prices of the securities or currencies hedged, used for cover
or that the derivative intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; (e) the possible need to defer closing
out certain options, futures or other derivatives contracts in order to continue
to qualify for beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code; and (f) the possible non-performance
of the counter-party to the derivative contract.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Funds may lend securities (principally to broker-dealers)
without limit where such loans are callable at any time and are continuously
secured by segregated collateral (cash or U.S. Government securities) equal to
no less than the market value, determined daily, of the securities loaned. The
Funds will receive amounts equal to dividends or interest on the securities
loaned. The Funds will also earn income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term money market
instruments. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the investment manager to be of good standing, and when the investment
manager believes the potential earnings justify the attendant risk. Management
will limit such lending to not more than one-third of the value of a Fund's
total assets.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the investment manager of each Fund and
provides each Fund with continuous professional investment supervision. Dreman
Value Advisors, Inc. ("DVA") is the sub-adviser for the Value+Growth Fund. See
"Value+Growth Fund" below for information about DVA. ZKI is one of the largest
investment managers in the country and has been engaged in the management of
investment funds for more than forty-eight years. ZKI and its affiliates provide
investment advice and manage investment portfolios for the Kemper Funds,
affiliated insurance companies and other corporate, pension, profit-sharing and
individual accounts representing approximately $76 billion under management. ZKI
acts as investment manager for 31 open-end and seven closed-end investment
companies, with 78 separate investment portfolios, representing more than 2.5
million shareholder accounts. ZKI is an indirect subsidiary of Zurich Insurance
Company, an internationally recognized company providing services in life and
non-life insurance, reinsurance and asset management.
Responsibility for overall management of each Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by ZKI.
The investment management agreements provide that ZKI shall act as each Fund's
investment adviser, manage its investments and provide it with various services
and facilities. Zurich Investment Management Limited ("ZIML"), 1 Fleet Place,
London, U.K. EC4M 7RQ, an affiliate of
27
<PAGE> 37
ZKI, is a sub-adviser for the Funds. ZIML is an indirect subsidiary of Zurich
Insurance Company and has served as sub-adviser for mutual funds since December,
1996 and investment adviser for certain institutional accounts since August,
1988. Under the terms of each Sub-Advisory Agreement between ZIML and ZKI, ZIML
renders investment advisory and management services with regard to that portion
of the Fund's portfolio as may be allocated to ZIML by ZKI from time to time for
management of foreign securities, including foreign currency transactions and
related investments. ZKI pays ZIML for its services a sub-advisory fee, payable
monthly at the annual rate of .35% of the portion of the average daily net
assets of the Funds allocated by ZKI to ZIML for management.
Tracy McCormick Chester has been the portfolio manager of the Blue Chip Fund
since September, 1994 when she joined ZKI. She is a vice president of the Blue
Chip Fund and senior vice president of ZKI. Prior to coming to ZKI, she was a
senior vice president and portfolio manager of an investment management company;
and prior thereto, she managed private accounts. She received a B.A. and an
M.B.A. in Finance from Michigan State University, East Lansing, Michigan.
Patrick S. Adams has been the portfolio manager of the Growth Fund since June,
1996 and the portfolio manager of the Aggressive Growth Fund since it commenced
operations on December 31, 1996. Mr. Adams joined ZKI in June, 1996 and is a
Senior Vice President of ZKI. Immediately prior to joining ZKI, he served as a
portfolio manager with an unaffiliated investment management firm from March of
1993 and, prior thereto, he served as a portfolio manager with another
unaffiliated investment management firm. Mr. Adams received an M.B.A. from
Xavier University, Cincinnati, Ohio and a B.S. in Business Administration from
Ohio State University, Columbus, Ohio.
Frank D. Korth is the portfolio manager of the Technology Fund and has served as
such, or as co-manager, since January, 1994. Mr. Korth joined ZKI in March, 1990
and is currently a senior vice president of ZKI and a vice president of the
Fund. Prior to coming to ZKI, Mr. Korth was president and portfolio manager of a
mutual fund investing primarily in equity securities. He received a B.A. in Math
from Mankato State University, Mankato, Minnesota and an M.B.A. in Finance from
Bernard Baruch College, New York, New York. Mr. Korth is a Chartered Financial
Analyst.
Gary A. Langbaum has been the portfolio manager of the Total Return Fund since
February, 1995 and the portfolio manager of the Small Cap Fund since January,
1996. He is assisted by investment personnel who specialize in certain areas.
Mr. Langbaum joined ZKI in 1988 and is an executive vice president of ZKI. He
received a B.A. in Finance from the University of Maryland, College Park,
Maryland.
Daniel J. Bukowski has been the portfolio manager of the Quantitative Fund since
it commenced operations in February, 1996 and has been a portfolio manager or
co-manager of the Value+Growth Fund since October, 1995. Mr. Bukowski joined ZKI
in 1989 and is a senior vice president and Director of Quantitative Research of
ZKI and a vice president of the Quantitative Fund and the Value+Growth Fund. Mr.
Bukowski received a B.A. in Statistics and an M.B.A. in Finance from the
University of Chicago, Chicago, Illinois.
William M. Knapp has been a co-manager of the Value+Growth Fund since December,
1996. Mr. Knapp joined ZKI in 1992 and is a first vice president of ZKI.
Immediately prior to joining ZKI, he served as an officer with an unaffiliated
investment management firm from September, 1988.
The Funds (other than the Aggressive Growth Fund and the Small Cap Fund) pay ZKI
investment management fees, payable monthly, at the annual rates shown below.
The Aggressive Growth Fund and the Small Cap Fund each pay a base annual
management fee, payable monthly, at the annual rate of .65% 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 compared with the performance of the Standard & Poor's 500 Stock Index
as described in the Statement of Additional Information. After the effect of the
adjustment, the
28
<PAGE> 38
management fee rate for the Aggressive Growth Fund may range between .45% and
.85% and the management fee rate for the Small Cap Fund may range between .35%
and .95%.
<TABLE>
<CAPTION>
BLUE CHIP,
GROWTH,
QUANTITATIVE,
TECHNOLOGY
AND TOTAL VALUE+
AVERAGE DAILY NET ASSETS RETURN FUNDS GROWTH FUND
- ----------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
$0 - $250 million...................................................... .58% .72%
$250 million - $1 billion.............................................. .55 .69
$1 billion - $2.5 billion.............................................. .53 .66
$2.5 billion - $5 billion.............................................. .51 .64
$5 billion - $7.5 billion.............................................. .48 .60
$7.5 billion - $10 billion............................................. .46 .58
$10 billion - $12.5 billion............................................ .44 .56
Over $12.5 billion..................................................... .42 .54
</TABLE>
VALUE+GROWTH FUND. As mentioned above, DVA is the sub-adviser for the
Value+Growth Fund. Under the terms of the Sub-Advisory Agreement, DVA will
manage the value portion of the Fund and will provide such other investment
advice, research and assistance as ZKI may, from time to time, reasonably
request. DVA, which was formed in October, 1994, has served as investment
manager for mutual funds and certain institutional accounts since August, 1995
when it acquired substantially all the assets of Dreman Value Management, L.P.
DVA is a wholly-owned subsidiary of ZKI and is located at 280 Park Avenue, New
York, New York 10017. ZKI pays DVA for its services a sub-advisory fee, payable
monthly at the annual rate of .25% of average daily net assets of the Fund.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of
ZKI, is the principal underwriter and distributor of each Fund's shares and acts
as agent of each Fund in the sale of its shares. KDI bears all its expenses of
providing services pursuant to the distribution agreement, including the payment
of any commissions. KDI provides for the preparation of advertising or sales
literature and bears the cost of printing and mailing prospectuses to persons
other than shareholders. KDI bears the cost of qualifying and maintaining the
qualification of Fund shares for sale under the securities laws of the various
states and each Fund bears the expense of registering its shares with the
Securities and Exchange Commission. KDI may enter into related selling group
agreements with various broker-dealers, including affiliates of KDI, that
provide distribution services to investors. KDI also may provide some of the
distribution services.
CLASS A SHARES. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares.
CLASS B SHARES. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of each Fund attributable to Class B shares. This fee is
accrued daily as an expense of Class B shares. KDI also receives any contingent
deferred sales charges. See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Class B Shares." KDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.
29
<PAGE> 39
CLASS C SHARES. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of each Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares. KDI currently advances to firms
the first year distribution fee at a rate of .75% of the purchase price of Class
C shares. For periods after the first year, KDI currently pays firms for sales
of Class C shares a distribution fee, payable quarterly, at an annual rate of
.75% of net assets attributable to Class C shares maintained and serviced by the
firm and the fee continues until terminated by KDI or a Fund. KDI also receives
any contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charges--Class C Shares".
RULE 12B-1 PLAN. Since each distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the 1940 Act, which regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares. The table below shows amounts paid in connection with
each Fund's Rule 12b-1 Plan during its 1996 fiscal year (except the Aggressive
Growth Fund which will commence operations December 31, 1996).
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CONTINGENT DEFERRED
INCURRED BY DISTRIBUTION FEES PAID SALES CHARGES PAID
UNDERWRITER BY FUND TO UNDERWRITER TO UNDERWRITER
--------------------- ---------------------- --------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B CLASS C
- ------------------------------- ---------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip...................... $1,041,000 67,000 233,000 12,000 41,000 0
Growth......................... $7,151,000 240,000 6,149,000 57,000 1,494,000 0
Quantitative*.................. $ 34,000 29,000 3,000(a) 3,000(a) 0 0
Small Cap...................... $3,074,000 149,000 1,743,000 35,000 389,600 0
Technology..................... $2,195,000 146,000 413,000 21,000 102,000 1,000
Total Return................... $7,693,000 244,000 8,464,000 60,000 2,089,000 0
Value+Growth................... $ 656,000 55,000 65,000(a) 2,000(a) 4,000 0
</TABLE>
- ---------------
*For the period February 15, 1996 to November 30, 1996.
(a)Amounts shown are after expense waiver.
If a Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of a Fund to make payments to KDI pursuant to the Plan will cease
and the Fund will not be required to make any payments past the termination
date. Thus, there is no legal obligation for the Fund to pay any expenses
incurred by KDI in excess of its fees under a Plan, if for any reason the Plan
is terminated in accordance with its terms. Future fees under a Plan may or may
not be sufficient to reimburse KDI for its expenses incurred.
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of each Fund pursuant to administrative services
agreements ("administrative agreements"). KDI may enter into related
arrangements with various financial services firms, such as broker-dealer firms
or banks ("firms"), that provide services and facilities for their customers or
clients who are shareholders of the Funds. Such administrative services and
assistance may include, but are not limited to, establishing and maintaining
shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding each Fund and its special
features, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. KDI bears all its expenses
of providing services pursuant to the administrative agreement, including the
payment of any service fees. For services under the administrative agreements,
each Fund pays KDI a fee, payable monthly, at the annual rate of up to .25% of
average daily net assets of Class A, B and C shares of such Fund. KDI then pays
each firm a service fee at an annual rate of up to .25% of net assets of Class
A, B and C shares maintained and serviced by the firm. Firms to which service
fees may be paid include broker-dealers affiliated with KDI.
30
<PAGE> 40
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the Fund accounts maintained and serviced by the firm
commencing in the month following the month of purchase and the fee continues
until terminated by KDI or the Fund. The fees are calculated monthly and paid
quarterly.
CLASS B AND CLASS C SHARES. KDI currently advances to firms the first-year
service fee at a rate of up to .25% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms a service fee
at a rate of up to .25% (calculated monthly and paid quarterly) of the net
assets attributable to Class B and Class C shares maintained and serviced by the
firm. After the first year, a firm becomes eligible for the quarterly service
fee and the fee continues until terminated by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for each Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on a Fund's records and it is intended
that KDI will pay all the administrative services fee that it receives from each
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of each Fund while this procedure is
in effect will depend upon the proportion of Fund assets that is in accounts for
which there is a firm of record. In addition, KDI may, from time to time, from
its own resources pay certain firms additional amounts for ongoing
administrative services and assistance provided to their customers and clients
who are shareholders of the Funds.
CUSTODIAN, TRANSFER AGENT 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, Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of each Fund held outside the United States. IFTC also is
the Funds' transfer agent and dividend-paying agent. Pursuant to a services
agreement with IFTC, Kemper Service Company, an affiliate of ZKI, serves as
"Shareholder Service Agent" of the Funds and, as such, performs all of IFTC's
duties as transfer agent and dividend-paying agent. For a description of
transfer agent and shareholder service agent fees payable to IFTC and the
Shareholder Service Agent, see "Investment Manager and Underwriter" in the
Statement of Additional Information.
PORTFOLIO TRANSACTIONS. ZKI places all orders for purchases and sales of a
Fund's securities (except that DVA places all orders for the value portion of
the Value+Growth Fund and ZIML places certain orders for purchases and sales of
a Fund's foreign securities and related transactions). Subject to seeking best
execution of orders, they may consider sales of shares of a Fund and other funds
managed by ZKI or its affiliates as a factor in selecting broker-dealers. See
"Portfolio Transactions" in the Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. Each Fund normally distributes dividends of net investment income as
follows: annually for the Aggressive Growth, Growth, Quantitative, Small Cap,
Technology and Value+Growth Funds; semi-annually for the Blue Chip Fund; and
quarterly for the Total Return Fund. Each Fund distributes any net realized
short-term and long-term capital gains at least annually. The quarterly
distribution to shareholders of the Total Return Fund may include short-term
capital gains.
Dividends paid by a Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
31
<PAGE> 41
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Funds will reinvest dividend checks (and future
dividends) in shares of that same Fund and class if checks are returned as
undeliverable. Dividends and other distributions of a Fund in the aggregate
amount of $10 or less are automatically reinvested in shares of the Fund unless
the shareholder requests that such policy not be applied to the shareholder's
account.
TAXES. Each Fund intends to continue to qualify (or for the Aggressive Growth
Fund, that intends to qualify) as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code") and, if so qualified,
will not be liable for federal income taxes to the extent its earnings are
distributed. Dividends derived from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income and long-term
capital gain dividends are taxable to shareholders as long-term capital gain
regardless of how long the shares have been held and whether received in cash or
shares. Long-term capital gain dividends received by individual shareholders are
taxed at a maximum rate of 28%. Dividends declared in October, November or
December to shareholders of record as of a date in one of those months and paid
during the following January are treated as paid on December 31 of the calendar
year declared. A portion of the dividends paid by the Funds may qualify for the
dividends received deduction available to corporate shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
Each Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over". The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
(IRAs) or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes,
including, when appropriate, information regarding any foreign taxes and
credits, will be provided after the end of the calendar year. Shareholders are
encouraged to retain copies of their account confirmation statements or year-end
statements for tax reporting purposes. However, those who have incomplete
records may obtain historical account transaction information at a reasonable
fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and
32
<PAGE> 42
communications may be eliminated. Similarly, account statements to be sent to
such shareholders may be combined in the same mailing package or consolidated
into a single statement. However, a shareholder may request that the foregoing
policies not be applied to the shareholder's account.
NET ASSET VALUE
The net asset value per share of a Fund is determined separately for each class
by dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a Fund will generally be lower than that of the
Class A shares of the Fund because of the higher expenses borne by Class B and
Class C shares. Portfolio securities that are primarily traded on a domestic
securities exchange or securities listed on the NASDAQ National Market are
valued at the last sale price on the exchange or market where primarily traded
or listed or, if there is no recent sale price available, at the last current
bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security by the Board
of Trustees or its delegates. Securities not so traded or listed are valued at
the last current bid quotation if market quotations are available. Fixed income
securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Equity options are valued at the last sale price unless the bid
price is higher or the asked price is lower, in which event such bid or asked
priced is used. Exchange traded fixed income options are valued at the
settlement price established each day by the board of trade or exchange on which
they are traded. Over-the-counter traded options are valued based upon current
prices provided by market makers. Financial futures and options thereon are
valued at the settlement price established each day by the board of trade or
exchange on which they are traded. Other securities and assets are valued at
fair value as determined in good faith by the Board of Trustees. Because of the
need to obtain prices as of the close of trading on various exchanges throughout
the world, the calculation of net asset value of a Fund investing in foreign
securities does not necessarily take place contemporaneously with the
determination of the prices of a Fund's foreign securities, which may be made
prior to the determination of net asset value. For purposes of determining the
Fund's net asset value of a Fund investing in foreign securities, all assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. Dollar values at the mean between the bid and offered quotations of
such currencies against U.S. Dollars as last quoted by a recognized dealer. If
an event were to occur, after the value of a security was so established but
before the net asset value per share was determined, which was likely to
materially change the net asset value, then that security would be valued using
fair value determinations by the Board of Trustees or its delegates. On each day
the New York Stock Exchange (the "Exchange") is open for trading, the net asset
value is determined as of the earlier of 3:00 p.m. Chicago time or the close of
the Exchange.
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each
33
<PAGE> 43
class has distinct advantages and disadvantages for different investors, and
investors may choose the class that best suits their circumstances and
objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
--------------------------------- ------------------------ ---------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived or
5.75% of the public offering reduced for certain purchases
price
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
----------------------------------------
ALLOWED
TO
DEALERS
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING ASSET OFFERING
AMOUNT OF PURCHASE PRICE VALUE* PRICE
------ ------ ------
<S> <C> <C> <C>
Less than $50,000..................................... 5.75 % 6.10 % 5.20 %
$50,000 but less than $100,000........................ 4.50 4.71 4.00
$100,000 but less than $250,000....................... 3.50 3.63 3.00
$250,000 but less than $500,000....................... 2.60 2.67 2.25
$500,000 but less than $1 million..................... 2.00 2.04 1.75
$1 million and over................................... .00 ** .00 ** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow up to the full applicable sales charge, as
shown in the
34
<PAGE> 44
above table, during periods and for transactions specified in such notice and
such reallowances may be based upon attainment of minimum sales levels. During
periods when 90% or more of the sales charge is reallowed, such dealers may be
deemed to be underwriters as that term is defined in the Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which ZKI or an affiliate does not serve as investment manager
("non-Kemper Fund") provided that: (a) the investor has previously paid either
an initial sales charge in connection with the purchase of the non-Kemper Fund
shares redeemed or a contingent deferred sales charge in connection with the
redemption of the non-Kemper Fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the investor or the investor's dealer must, at the time of
purchase, submit a request that the purchase be processed at net asset value
pursuant to this privilege. KDI may in its discretion compensate firms for sales
of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased. The redemption of the shares of the
non-Kemper Fund is, for Federal income tax purposes, a sale upon which a gain or
loss may be realized.
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a), a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in a Fund and other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases,"
including purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above. The privilege of purchasing
Class A shares of a Fund at net asset value under the Large Order NAV Purchase
Privilege is not available if another net asset value purchase privilege is also
applicable.
Effective on February 1, 1996, Class A shares of a Fund or any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be purchased at net asset value in any amount by members of the plaintiff
class in the proceeding known as HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER
SHORT-TERM GLOBAL INCOME FUND, ET AL., Case No. 93 C 5231 (N.D. IL). This
privilege is generally non-transferrable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement,
dated August 31, 1995, issued
35
<PAGE> 45
in connection with the aforementioned court proceeding. For sales of Fund shares
at net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to .25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
a Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Funds,
for themselves or their spouses or dependent children; (c) shareholders who
owned shares of Kemper-Dreman Fund, Inc. ("KDF") on September 8, 1995, and have
continuously owned shares of KDF (or a Kemper Fund acquired by exchange of KDF
shares) since that date, for themselves or members of their families; and (d)
any trust, pension, profit-sharing or other benefit plan for only such persons.
Class A shares may be sold at net asset value in any amount to selected
employees (including their spouses and dependent children) of banks and other
financial services firms that provide administrative services related to order
placement and payment to facilitate transactions in shares of the Funds for
their clients pursuant to an agreement with KDI or one of its affiliates. Only
those employees of such banks and other firms who as part of their usual duties
provide services related to transactions in Fund shares may purchase Fund Class
A shares at net asset value hereunder. Class A shares may be sold at net asset
value in any amount to unit investment trusts sponsored by Ranson & Associates,
Inc. In addition, unitholders of unit investment trusts sponsored by Ranson &
Associates, Inc. or its predecessors may purchase a Fund's Class A shares at net
asset value through reinvestment programs described in the prospectuses of such
trusts that have such programs. Class A shares of a Fund may be sold at net
asset value through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms that adhere to certain
standards established by KDI, including a requirement that such shares be sold
for the benefit of their clients participating in an investment advisory program
under which such clients pay a fee to the investment adviser or other firm for
portfolio management and other services. Such shares are sold for investment
purposes and on the condition that they will not be resold except through
redemption or repurchase by the Funds. The Funds may also issue Class A shares
at net asset value in connection with the acquisition of the assets of or merger
or consolidation with another investment company, or to shareholders in
connection with the investment or reinvestment of income and capital gain
dividends.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment
36
<PAGE> 46
will be invested in Class B shares for his or her account. A contingent deferred
sales charge may be imposed upon redemption of Class B shares. See "Redemption
or Repurchase of Shares--Contingent Deferred Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share. Class B shareholders of the Funds who originally acquired their
shares as Initial Shares of Kemper Portfolios, formerly known as Kemper
Investment Portfolios ("KIP"), hold them subject to the same conversion period
schedule as that of their KIP Portfolio. Class B shares representing Initial
Shares of a former KIP Portfolio will automatically convert to Class A shares of
the applicable Fund six years after issuance of the Initial Shares for shares
issued on or after February 1, 1991 and seven years after issuance of the
Initial Shares for shares issued before February 1, 1991. The purpose of the
conversion feature is to relieve holders of Class B shares from the distribution
services fee when they have been outstanding long enough for KDI to have been
compensated for distribution related expenses. For purposes of conversion to
Class A shares, shares purchased through the reinvestment of dividends and other
distributions paid with respect to Class B shares in a shareholder's Fund
account will be converted to Class A shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of .75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of .75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the three sales arrangements, consult your
financial representative or the Shareholder Service Agent. Financial services
firms may receive different compensation depending upon which class of shares
they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described
37
<PAGE> 47
above and may be required to register as dealers pursuant to state law. If
banking firms were prohibited from acting in any capacity or providing any of
the described services, management would consider what action, if any, would be
appropriate. KDI does not believe that termination of a relationship with a bank
would result in any material adverse consequences to a Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Funds. Non cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the
Funds, or other funds underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). The Funds reserve the right to determine the net asset value more
frequently than once a day if deemed desirable. Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take
significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Funds through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
Fund may temporarily suspend the offering of any class of its shares to new
investors. During the period of such suspension, persons who are already
shareholders of such
38
<PAGE> 48
class of such Fund normally are permitted to continue to purchase additional
shares of such class and to have dividends reinvested.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Funds' transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet received
good payment (i.e., purchases by check, Express-Transfer or Bank Direct
Deposit), it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by a Fund of the purchase
amount. The redemption within two years of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"), the redemption of Class B shares within six years
may be subject to a contingent deferred sales charge (see "Contingent Deferred
Sales Charge--Class B Shares" below), and the redemption of Class C shares
within the first year following purchase may be subject to a contingent deferred
sales charge (see "Contingent Deferred Sales Charge--Class C Shares" below).
Because of the high cost of maintaining small accounts, the Funds reserve the
right to redeem an account (and impose any applicable contingent deferred sales
charge) that falls below the minimum investment level, currently $1,000, as a
result of redemptions. Currently, Individual Retirement Accounts and employee
benefit plan accounts are not subject to this procedure. A shareholder will be
notified in writing and will be allowed 60 days to make additional purchases to
bring the account value up to the minimum investment level before a Fund redeems
the shareholder's account. The investment required to reach that level may be
made at net asset value (without any initial sales charge in the case of Class A
shares).
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its
39
<PAGE> 49
agents reasonably believe, based upon reasonable verification procedures, that
the telephonic instructions are genuine. The SHAREHOLDER WILL BEAR THE RISK OF
LOSS, including loss resulting from fraudulent or unauthorized transactions, so
long as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Funds reserve the right to terminate or modify
this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by the Fund for up to seven days
if ZKI deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Funds are not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Funds currently do not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through
40
<PAGE> 50
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this privilege to redeem shares held in certificated form. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the expedited wire transfer redemption privilege. The
Funds reserve the right to terminate or modify this privilege at any time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES
YEAR OF REDEMPTION AFTER PURCHASE CHARGE
------------------------------------------------------------------------ ----------
<S> <C>
First................................................................... 4%
Second.................................................................. 3%
Third................................................................... 3%
Fourth.................................................................. 2%
Fifth................................................................... 2%
Sixth................................................................... 1%
</TABLE>
41
<PAGE> 51
Class B shareholders who originally acquired their shares as Initial Shares of
Kemper Portfolios, formerly known as Kemper Investment Portfolios, hold them
subject to the same CDSC schedule that applied when those shares were purchased,
as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR OF ----------------------------------------------------------------------------------------
REDEMPTION SHARES PURCHASED ON OR AFTER
AFTER SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1991 AND BEFORE SHARES PURCHASED BEFORE
PURCHASE MARCH 1, 1993 MARCH 1, 1993 FEBRUARY 1, 1991
------------------------ ----------------------------- ----------------------------- ------------------------
<S> <C> <C> <C>
First................... 4% 3% 5%
Second.................. 3% 3% 4%
Third................... 3% 2% 3%
Fourth.................. 2% 2% 2%
Fifth................... 2% 1% 2%
Sixth................... 1% 1% 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts) and (f) for any participant-directed
redemption of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent.
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of a Fund's Class B
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shares and that 16 months later the value of the shares has grown by $1,000
through reinvested dividends and by an additional $1,000 of share appreciation
to a total of $12,000. If the investor were then to redeem the entire $12,000 in
share value, the contingent deferred sales charge would be payable only with
respect to $10,000 because neither the $1,000 of reinvested dividends nor the
$1,000 of share appreciation is subject to the charge. The charge would be at
the rate of 3% ($300) because it was in the second year after the purchase was
made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Mutual Funds. A shareholder of a Fund or
other Kemper Mutual Fund who redeems Class A shares purchased under the Large
Order NAV Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative-- Class A Shares") or Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in Class A shares, Class B
shares or Class C shares, as the case may be, of a Fund or of other Kemper
Mutual Funds. The amount of any contingent deferred sales charge also will be
reinvested. These reinvested shares will retain their original cost and purchase
date for purposes of the contingent deferred sales charge. Also, a holder of
Class B shares who has redeemed shares may reinvest up to the full amount
redeemed, less any applicable contingent deferred sales charge that may have
been imposed upon the redemption of such shares, at net asset value in Class A
shares of a Fund or of the other Kemper Mutual Funds listed under "Special
Features--Class A Shares--Combined Purchases." Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Mutual
Funds available for sale in the shareholder's state of residence as listed under
"Special Features--Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of shares of a
Fund, the reinvestment in shares of a Fund may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. The reinvestment
privilege may be terminated or modified at any time.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Fund, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value+Growth
Fund, Kemper-Dreman Fund, Inc., Kemper Quantitative Equity Fund, Kemper Horizon
Fund, Kemper Europe Fund, Kemper Asian Growth Fund and Kemper Aggressive Growth
Fund ("Kemper Mutual Funds"). Except as noted below,
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there is no combined purchase credit for direct purchases of shares of Kemper
Money Funds, Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash
Account Trust, Tax-Exempt New York Money Market Fund or Investors Cash Trust
("Money Market Funds"), which are not considered "Kemper Mutual Funds" for
purposes hereof. For purposes of the Combined Purchases feature described above
as well as for the Letter of Intent and Cumulative Discount features described
below, employer sponsored employee benefit plans using the subaccount record
keeping system made available through the Shareholder Service Agent may include:
(a) Money Market Funds as "Kemper Mutual Funds", (b) all classes of shares of
any Kemper Mutual Fund and (c) the value of any other plan investment, such as
guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares are included in this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Tax-Exempt New York
Money Market Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Mutual Fund or a Money
Market Fund under the exchange privilege
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described above without paying any contingent deferred sales charge at the time
of exchange. If the Class A shares received on exchange are redeemed thereafter,
a contingent deferred sales charge may be imposed in accordance with the
foregoing requirements provided that the shares redeemed will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge.
CLASS B SHARES. Class B shares of a Fund and Class B shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of the contingent deferred sales charge
that may be imposed upon the redemption of the Class B shares received on
exchange, amounts exchanged retain their original cost and purchase date.
CLASS C SHARES. Class C shares of a Fund and Class C shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For determining whether there is a contingent deferred
sales charge that may be imposed upon the redemption of the Class C shares
received by exchange, they retain the cost and purchase date of the shares that
were originally purchased and exchanged.
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15-Day Hold Policy"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, discretion or
advice, including without limitation accounts administered by a financial
services firm offering market timing, asset allocation or similar services. The
total value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis of such shares. Shareholders interested in exercising the exchange
privilege may obtain prospectuses of the other funds from dealers, other firms
or KDI. Exchanges may be accomplished by a written request to Kemper Service
Company, Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Redemption or Repurchase of Shares--General." Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Exchanges may
only be made for funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Tax-Exempt New York Money Market Fund is available
for sale only in New York, Connecticut, New Jersey and Pennsylvania. Except as
otherwise permitted by applicable regulations, 60 days' prior written notice of
any termination or material change will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," except that the $1,000 minimum
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investment requirement for the Kemper Fund acquired on exchange is not
applicable. This privilege may not be used for the exchange of shares held in
certificated form.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from ANY PERSON to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048 Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable time to act upon the request.
EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination by a shareholder will become effective
within thirty days after the Shareholder Service Agent has received the request.
A Fund may immediately terminate a shareholder's Plan in the event that any item
is unpaid by the shareholder's financial institution. The Funds may terminate or
modify this privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be redeemed
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in their first year following the purchase) under a systematic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
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The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or the Funds.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- - Individual Retirement Accounts ("IRAs") with IFTC as custodian. This includes
Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents.
- - 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from the Shareholder Service Agent upon request. The
brochures for plans with IFTC as custodian describe the current fees payable to
IFTC for its services as custodian. Investors should consult with their own tax
advisers before establishing a retirement plan.
PERFORMANCE
The Funds may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B and Class C shares.
Each of these figures is based upon historical results and is not representative
of the future performance of any class of the Funds.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity indexes including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Russell 1000(R)
Index, the Russell 1000(R) Growth Index, the Wilshire Large Company Growth
Index, the Wilshire 750 Mid Cap Company Growth Index, the Standard &
Poor's/Barra Value Index, Standard & Poor's/Barra Growth Index and the Russell
1000(R) Value Index. The performance of a Fund such as the Total Return Fund may
also be compared to the combined performance of two indexes, such as a 60%/40%
combination of the Standard & Poor's 500 Stock Index and the Lehman Brothers
Government/Corporate Bond Index or for the Value+Growth Fund to a 50%/50%
combination of the Russell 1000(R) Growth Index and the Russell 1000(R) Value
Index. The performance of a Fund may also be compared to the performance of
other mutual funds or mutual fund indexes with similar objectives and policies
as reported by independent mutual fund reporting services such as Lipper
Analytical Services, Inc. ("Lipper"). Lipper performance calculations are
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based upon changes in net asset value with all dividends reinvested and do not
include the effect of any sales charges.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National IndexTM or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things, the
IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R), reporting
services on money market funds. Performance of U.S. Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes. Certain of
these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured.
A Fund may depict the historical performance of the securities in which the Fund
may invest over periods reflecting a variety of market or economic conditions
either alone or in comparison with alternative investments, performance indexes
of those investments or economic indicators. A Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund. The relative performance of growth stocks versus
value stocks may also be discussed.
Each Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included. Class B shares and Class C shares are sold at net
asset value. Redemptions of Class B shares within the first six years after
purchase may be subject to a contingent deferred sales charge that ranges from
4% during the first year to 0% after six years. Redemption of Class C shares
within the first year after purchase may be subject to a 1% contingent deferred
sales charge. Average annual total return figures do, and total return figures
may, include the effect of the contingent deferred sales charge for the Class B
shares and Class C shares that may be imposed at the end of the period in
question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included.
Each Fund's returns and net asset value will fluctuate. Shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information concerning each Fund's performance appears in the Statement of
Additional Information. Additional information about each Fund's performance
also appears in its Annual Report to Shareholders, which is available without
charge from the Fund.
CAPITAL STRUCTURE
The Funds are open-end management investment companies, organized as separate
business trusts under the laws of Massachusetts. The Aggressive Growth Fund was
organized as a business trust under the laws of Massachusetts on October 3,
1996. The Blue Chip Fund was organized as a business trust under the laws of
Massachusetts on May 28, 1987. The Growth Fund was organized as a business trust
under the laws of Massachusetts on October 24, 1985 and, effective January 31,
1986, that Fund pursuant to a reorganization succeeded to the assets and
liabilities of Kemper Growth Fund, Inc., a Maryland corporation organized in
1965. The Quantitative Fund was organized as a business trust under the laws of
Massachusetts on June 12, 1995. The Small Cap Fund was organized as a business
trust under the laws of Massachusetts on October 24, 1985 and, effective January
31, 1986, that Fund pursuant to a reorganization succeeded to the assets and
liabilities of Kemper Summit Fund, Inc., a Maryland corporation organized in
1968. Prior to February 1, 1992, the Small Cap Fund was known as "Kemper Summit
Fund." The Technology Fund was organized as a business trust
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under the laws of Massachusetts on October 24, 1985 as Technology Fund and
changed its name to Kemper Technology Fund effective February 1, 1988. Effective
January 31, 1986, Technology Fund pursuant to a reorganization succeeded to the
assets and liabilities of Technology Fund, Inc., a Maryland corporation
originally organized as a Delaware corporation in 1948. Technology Fund was
known as Television Fund, Inc. until 1950 and as Television-Electronics Fund,
Inc. until 1968. The Total Return Fund was organized as a business trust under
the laws of Massachusetts on October 24, 1985 and, effective January 31, 1986,
that Fund pursuant to a reorganization succeeded to the assets and liabilities
of Kemper Total Return Fund, Inc., a Maryland corporation organized in 1963. The
Total Return Fund was known as Balanced Income Fund, Inc. until 1972 and as
Supervised Investors Income Fund, Inc. until 1977. The Value+Growth Fund was
organized as a business trust under the laws of Massachusetts on June 14, 1995
under the name Kemper Value Plus Growth Fund and does business as Kemper
Value+Growth Fund. The investment manager invested the "seed money" as the sole
shareholder of the Aggressive Growth Fund before the public offering of its
shares and, therefore, controlled that Fund as of November 29, 1996. As of
December 2, 1996, ZKI owned more than 25% of the outstanding shares of the
Quantitative Fund and, therefore, controlled that Fund as of that date.
Each Fund may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having no par value, which may be divided by
the Board of Trustees into classes of shares. Currently, each Fund offers four
classes of shares. These are Class A, Class B and Class C shares, as well as
Class I shares, which have different expenses, which may affect performance, and
that are available for purchase exclusively by the following investors: (a)
tax-exempt retirement plans of ZKI and its affiliates; and (b) the following
investment advisory clients of ZKI and its investment advisory affiliates that
invest at least $1 million in a Fund: (1) unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and
self-directed retirement plans); (2) unaffiliated banks and insurance companies
purchasing for their own accounts; and (3) endowment funds of unaffiliated
non-profit organizations. The Board of Trustees of a Fund may authorize the
issuance of additional classes and additional Portfolios if deemed desirable,
each with its own investment objectives, policies and restrictions. Since the
Funds may offer multiple Portfolios, each is known as a "series company." Shares
of a Fund have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to each Fund's
Rule 12b-1 Plan. Shares of each class also have equal rights with respect to
dividends, assets and liquidation of such Fund subject to any preferences (such
as resulting from different Rule 12b-1 distribution fees), rights or privileges
of any classes of shares of the Fund. Shares of each Fund are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Funds are not required to hold annual
shareholder meetings and do not intend to do so. However, they will hold special
meetings as required or deemed desirable for such purposes as electing trustees,
changing fundamental policies or approving an investment management agreement.
Subject to the Agreement and Declaration of Trust of each Fund, shareholders may
remove trustees. If shares of more than one Portfolio for any Fund are
outstanding, shareholders will vote by Portfolio and not in the aggregate or by
class except when voting in the aggregate is required, under the 1940 Act, such
as for the election of trustees or when voting by class is appropriate.
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KEMPER KEMPER
EQUITY
FUNDS
DECEMBER 31, 1996
KEMPER AGGRESSIVE GROWTH FUND
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER QUANTITATIVE EQUITY FUND
KEMPER SMALL CAPITALIZATION EQUITY FUND
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
KEMPER VALUE+GROWTH FUND
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606-5808
KEF-1 12/96 (LOGO)printed on recycled paper [KEMPER FUNDS LOGO]
<PAGE> 60
KEMPER TOTAL RETURN FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Investment Restrictions; Investment Policies
and Techniques; Appendix--Ratings of
Fixed Income Investments
14. Management of the Fund................... Investment Manager and Underwriter;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Manager and Underwriter;
Officers and Trustees
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions
18. Capital Stock and Other Securities....... Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares
20. Tax Status............................... Dividends and Taxes
21. Underwriters............................. Investment Manager and Underwriter
22. Calculation of Performance Data.......... Performance
23. Financial Statements..................... Financial Statements
</TABLE>
<PAGE> 61
KEMPER EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 31, 1996
KEMPER AGGRESSIVE GROWTH FUND ("AGGRESSIVE GROWTH FUND")
KEMPER BLUE CHIP FUND ("BLUE CHIP FUND")
KEMPER GROWTH FUND ("GROWTH FUND")
KEMPER QUANTITATIVE EQUITY FUND ("QUANTITATIVE 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")
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
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 December 31, 1996. The prospectus may be obtained without charge
from the Funds.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Investment Restrictions................................................. B-1
Investment Policies and Techniques...................................... B-10
Portfolio Transactions.................................................. B-16
Investment Manager and Underwriter...................................... B-18
Purchase and Redemption of Shares....................................... B-25
Dividends and Taxes..................................................... B-26
Performance............................................................. B-28
Officers and Trustees................................................... B-42
Shareholder Rights...................................................... B-47
Aggressive Growth Fund -- Report of Independent Auditors (November 29,
1996)................................................................. B-48
Aggressive Growth Fund -- Statement of Net Assets (November 29, 1996)... B-49
Appendix -- Ratings of Fixed Income Investments......................... B-50
</TABLE>
The financial statements appearing in each Fund's 1996 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. (The foregoing is not applicable to the Aggressive Growth Fund,
which will commence operations on December 31, 1996.)
KEF-13 12/96 (LOGO) printed on recycled paper
<PAGE> 62
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 AGGRESSIVE GROWTH FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) With respect to 50% of its total assets, 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) Invest more than 25% of its total assets in a single issuer (other than
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities).
(4) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objectives and policies.
(5) 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.
(6) Pledge, hypothecate, mortgage or otherwise encumber its assets except to
secure borrowings permitted by restriction number 5 above. (The collateral
arrangements with respect to options, financial futures, foreign currency
transactions and delayed delivery transactions and any margin payments in
connection therewith are not deemed to be pledges or other encumbrances.)
(7) 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.
(8) 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.
(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, although it may invest in
securities that are secured by real estate and securities of issuers that 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.
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
B-1
<PAGE> 63
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund has
adopted the following non-fundamental restrictions, which may be changed by the
Board of Trustees without shareholder approval. The Aggressive Growth Fund may
not:
(i) Invest for the purpose of exercising control or management of another
issuer.
(ii) Purchase more than 3% of the stock of another investment company or
purchase stock of other investment companies equal to more than 5% of the Fund's
total assets (valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at time of purchase) in the
case of all other investment companies in the aggregate. Any such purchases are
to be made in the open market where no profit to a sponsor or dealer results
from the purchase, other than the customary broker's commission, except for
securities acquired as part of a merger, consolidation or acquisition of assets.
(iii) Invest more than 15% of its net assets in illiquid securities.
(iv) 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.
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.
B-2
<PAGE> 64
(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.
(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
B-3
<PAGE> 65
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.
(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) Invest 25% or more of its total 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
B-4
<PAGE> 66
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.
(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
B-5
<PAGE> 67
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) Invest 25% or more of its total 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 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.
B-6
<PAGE> 68
(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 QUANTITATIVE FUND AND THE TECHNOLOGY 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.
(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 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) Invest 25% or more of its total 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
Technology Fund did not borrow money as permitted by investment restriction
number 4 in the latest fiscal year
B-7
<PAGE> 69
and neither Fund has a present intention of borrowing during the current year.
The Quantitative Fund and the Technology Fund adopted the following
non-fundamental restrictions, which may be changed by the Board of Trustees
without shareholder approval. These Funds 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, acquisition or reorganization, or by purchase in the
open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by it, (ii) 5% of
its total assets would be invested in any one such company, and (iii) 10% of
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).
(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 Quantitative Fund currently does not intend to invest
more than 5% of its net 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.
B-8
<PAGE> 70
(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) Invest 25% or more of its total 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.
(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.
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(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 Aggressive Growth, Quantitative and Technology Funds 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 for the Fund 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 Aggressive Growth, Quantitative and Technology Funds
may write (sell) "covered" call options on securities as long as the Fund 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 or other liquid
securities ("eligible securities") to the extent required by applicable
regulation in connection with the optioned securities. The Aggressive Growth,
Quantitative and Technology Funds 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 or at
the end of 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 or at the end of the option period. The 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
Quantitative and Technology Funds) 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
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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 eligible securities that
have been segregated. 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 eligible securities that have been segregated.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives, Policies and Risk Factors"), 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 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
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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 Aggressive Growth,
Quantitative and Technology Funds) 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 Aggressive Growth, Quantitative and Technology Funds anticipate entering
into agreements with dealers to which the Fund sells OTC options. Under these
agreements either 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
either 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 Aggressive Growth, Quantitative and
Technology Funds 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 Aggressive Growth, Quantitative or Technology Fund writes an option on
a securities index, it will segregate, and mark-to-market, eligible securities
to the extent required by applicable regulations. In addition, where a 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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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
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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 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 applicable
regulation, when purchasing a futures contract, writing a put option or entering
into a forward currency exchange purchase, a Fund will maintain eligible
securities in a segregated account. 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 that 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
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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
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 eligible securities to the
extent required by applicable regulation in connection with forward foreign
currency exchange contracts entered into for the purchase of a foreign currency.
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 Aggressive Growth and Blue Chip Funds 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 a 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. A 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. Each 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
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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, 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
Zurich Kemper Investments ("ZKI") and its affiliates furnish investment
management services for the Kemper Funds and other clients including affiliated
insurance companies. Zurich Investment Management Limited ("ZIML") is a
sub-advisor for the Funds and, for the Value+Growth Fund, Dreman Value Advisors,
Inc. ("DVA") is also a sub-adviser. ZKI and its affiliates share some common
research and trading facilities. ZIML is a sub-adviser for other Kemper Funds.
DVA is a sub-adviser for the Value+Growth Fund and an investment manager or
sub-adviser for other Kemper Funds. 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 ZKI or its affiliates. When two or more of such
clients are simultaneously engaged in the purchase or sale of the same security
through the same trading facility, the transactions are allocated as to amount
and price in a manner considered equitable to each.
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.
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<PAGE> 78
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 ZKI's, ZIML's and DVA's organizations
outweigh any limitations that may arise from simultaneous transactions or
position limitations.
ZKI, ZIML 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. ZKI, ZIML 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, financial responsibility,
responsiveness clearance procedures, wire service quotations and statistical and
other research information provided to a Fund and ZKI and its affiliates.
Subject to the policy of seeking best execution of an order, brokerage is
allocated on the basis of all services provided. Any research benefits derived
are available for all clients, including clients of ZKI and its affiliates. In
selecting among firms believed to meet the criteria for handling a particular
transaction, ZKI, ZIML and DVA may give consideration to those firms that have
sold or are selling shares of the Funds and of other funds managed by ZKI or its
affiliates, as well as to those firms that provide market, statistical and other
research information to a Fund and ZKI and its affiliates, although ZKI, ZIML
and DVA are not authorized to pay higher commissions to firms that provide such
services, except as described below.
ZKI, ZIML and DVA may in certain instances be permitted to pay higher brokerage
commissions solely for receipt of market, statistical and other research
services as defined in Section 28(e) of the Securities Exchange Act of 1934 and
interpretations thereunder. Such services may include, among other things:
economic, industry or company research reports or investment recommendations;
computerized databases; quotation and execution equipment and software; and
research or analytical computer software and services. Where products or
services have a "mixed use," a good faith effort is made to make a reasonable
allocation of the cost of the products or services in accordance with the
anticipated research and non-research uses and the cost attributable to
non-research use is paid by ZKI or one of its affiliates in cash. Subject to
Section 28(e) and procedures adopted by the Board of Trustees of each Fund, a
Fund could pay a firm that provides research services commissions for effecting
a securities transaction for the Fund in excess of the amount other firms would
have charged for the transaction if ZKI, ZIML or DVA determines in good faith
that the greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing firm viewed in terms
either of a particular transaction or ZKI's, ZIML's or DVA's overall
responsibilities to the Fund and 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 ZKI and its affiliates. The
investment management fee paid by a Fund to ZKI is not reduced because these
research services are received.
B-17
<PAGE> 79
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 (except for
the Aggressive Growth Fund, which will commence operations on December 31,
1996).
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH IN FISCAL
FUND FISCAL 1996 1996 FISCAL 1995 FISCAL 1994
- ------------------------------------------ ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Blue Chip................................. $ 1,661,000 63% $ 506,000 $ 565,000
Growth.................................... $ 9,535,000 91% $ 6,470,000 $ 7,110,000
Quantitative*............................. $ 9,000 97% N.A. N.A.
Small Cap................................. $ 6,362,000 70% $ 5,975,000 $ 2,782,000
Technology................................ $ 4,438,000 74% $ 3,504,000 $ 1,644,000
Total Return.............................. $ 6,335,000 72% $ 8,309,000 $ 7,705,000
Value+Growth.............................. $ 66,000 78% $ 6,000 N.A.
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is each Fund's investment manager. ZKI is wholly
owned by ZKI Holding Corp. ZKI Holding Corp. is a more than 90% owned subsidiary
of Zurich Holding Company of America, Inc., which is a wholly-owned subsidiary
of Zurich Insurance Company, an internationally recognized company providing
services in life and non-life insurance, reinsurance and asset management.
Pursuant to investment management agreements, ZKI 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 affiliated with officers or employees of ZKI),
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value, taxes and membership
dues. 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. ZKI has agreed to reimburse each Fund (except the Aggressive
Growth Fund) to the extent required by applicable state expense limitations
should all operating expenses of each Fund, including the investment management
fees of ZKI but excluding taxes, interest, distribution fees, extraordinary
expenses, brokerage commissions or transaction costs and any other properly
excludable expenses, exceed the applicable state expense limitations. Currently,
there are no state expense limitations in effect.
The investment management agreements provide that ZKI 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
ZKI 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
Aggressive Growth Fund has an initial term ending March 1, 1998. 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,
B-18
<PAGE> 80
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 Aggressive Growth Fund, which will not commence operations
until December 31, 1996).
<TABLE>
<CAPTION>
FUND FISCAL 1996 FISCAL 1995 FISCAL 1994
- ----------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Blue Chip............................................ $ 1,198,000 903,000 1,072,000
Growth............................................... $13,994,000 12,349,000 9,634,000
Quantitative......................................... $ 11,000(1) N.A. N.A.
Small Cap............................................ $ 4,418,000(2) 3,273,000(3) 3,746,000(5)
Technology........................................... $ 5,582,000 4,542,000 3,296,000
Total Return......................................... $15,825,000 15,147,000 10,997,000
Value+Growth*........................................ $ 131,000 1,000(4) N.A.
</TABLE>
- ---------------
* Amounts shown are after expense waiver.
(1) For the period February 15, 1996 to November 30, 1996.
(2) Fee was decreased $670,000 from $5,088,000 base fee.
(3) Fee was decreased $766,000 from $4,039,000 base fee.
(4) For the period October 16, 1995 to November 30, 1995.
(5) Fee was increased $499,000 from $3,247,000 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
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 ZKI. 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
B-19
<PAGE> 81
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.
The Aggressive Growth 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
Aggressive Growth Fund will pay an additional monthly fee at an annual rate of
.02% 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 .20% of the average daily
net assets. Conversely, the compensation payable by the Aggressive Growth Fund
will be reduced by an annual rate of .02% 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 falls below that of the Index, provided that such
reduction in the monthly fee shall not exceed 1/12 of .20% of the average net
assets. The total fee on an annual basis can range from .45% to .85% of average
daily net assets. The Aggressive Growth 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 Aggressive
Growth Fund's adjusted net asset value applicable to one Class A share went from
$10.00 to $11.50 (15% appreciation), and the Index, after adjustment, went from
100 to 104 (or only 4%), the entire incentive compensation would have been
earned by ZKI. On the other hand, if the Index rose from 100 to 115 (15%), no
incentive fee would have been payable. A rise in the Index from 100 to 125 (25%)
would have resulted in the minimum monthly fee of 1/12 of .45%. 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 Aggressive Growth
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.
For the first year under the investment management agreement, the Aggressive
Growth Fund will pay to ZKI an annual management fee computed by applying the
annual base fee described above to the average daily net assets of the Fund for
the year subject to upward or downward adjustment (at the annual rate described
above) on the basis of the investment performance of the Fund's Class A Shares
in relation to the investment record of the Index for such year. During the
first such year, the Fund will pay to ZKI on a monthly basis 1/12 of the minimum
annual fee that would be payable with any balance due for such year to be
payable at the end of such year.
VALUE+GROWTH FUND SUB-ADVISER. Dreman Value Advisors, Inc. ("DVA"), 280 Park
Avenue, New York, New York 10017, is the sub-adviser for the value portion of
the Value+Growth Fund. DVA is a wholly owned subsidiary of ZKI. DVA will act as
sub-adviser pursuant to the terms of a Sub-Advisory Agreement between it and
ZKI.
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 ZKI 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 ZKI a monthly fee at the
B-20
<PAGE> 82
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 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 upon 60 days' notice by ZKI, DVA or by the Board
of Trustees of the Fund or by majority vote of the outstanding shares of the
Fund, and will terminate automatically upon assignment or upon termination of
the Fund's investment management agreement.
The sub-adviser fees paid by ZKI to DVA for the Value+Growth Fund for the fiscal
year ended November 30, 1996 were $54,000 and for the period October 16, 1995 to
November 30, 1995 were $0.
FUND SUB-ADVISER. ZIML, 1 Fleet Place, London, U.K. EC4M 7RQ, a wholly-owned
subsidiary of ZKI, is the sub-adviser for the foreign securities portion of the
Funds. ZIML acts as sub-adviser pursuant to the terms of a Sub-Advisory
Agreement between it and ZKI for each Fund.
Under the terms of each Sub-Advisory Agreement, ZIML renders investment advisory
and management services with regard to that portion of a Fund's portfolio as may
be allocated to ZIML by ZKI from time to time for management of foreign
securities, including foreign currency transactions and related investments.
ZIML may, under the terms of each Sub-Advisory Agreement, render similar
services to others including other investment companies. For its services, ZIML
will receive from ZKI a monthly fee at the annual rate of .35% of the portion of
the average daily net assets of each Fund allocated by ZKI to ZIML for
management. ZIML permits any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
Each Sub-Advisory Agreement provides that ZIML will not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Sub-Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
ZIML in the performance of its duties or from reckless disregard by ZIML of its
obligations and duties under the Sub-Advisory Agreement.
Each Sub-Advisory Agreement is for an initial term ending March 1, 1998 and
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. Each
Sub-Advisory Agreement may be terminated at any time for a Fund upon 60 days
notice by ZKI, ZIML or the Board of Trustees, or by a majority vote of the
outstanding shares of the Fund, and will terminate automatically upon assignment
or upon the termination of the Fund's investment management agreement. If
additional Funds become subject to a Sub-Advisory Agreement, the provisions
concerning continuation, amendment and termination shall be on a Fund-by-Fund
basis. Additional Funds may be subject to a different agreement.
No sub-adviser fees were paid by ZKI to ZIML for each Fund's 1996 fiscal year,
although in prior fiscal years ZKI has paid ZIML for its services to ZKI with
respect to foreign securities investments of certain Funds.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), a wholly owned subsidiary of ZKI, 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,
B-21
<PAGE> 83
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.
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 Aggressive Growth Fund, which will not
commence operations until December 31, 1996).
<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.................... 1996 $ 72,000 424,000 11,000
1995 $ 33,000 225,000 29,000
1994 $ 64,000 398,000 68,000
Growth....................... 1996 $327,000 2,075,000 57,000
1995 $266,000 2,130,000 326,000
1994 $489,000 3,861,000 591,000
Quantitative................. 1996* $ 1,000 5,000 0
1995 N.A. N.A. N.A.
1994 N.A. N.A. N.A.
Small Cap.................... 1996 $130,000 849,000 16,000
1995 $105,000 798,000 133,000
1994 $182,000 1,264,000 243,000
Technology................... 1996 $198,000 869,000 37,000
1995 $116,000 840,000 218,000
1994 $ 43,000 218,000 38,000
Total Return................. 1996 $225,000 1,697,000 79,000
1995 $206,000 1,642,000 218,000
1994 $523,000 4,036,000 693,000
Value+Growth................. 1996 $ 33,000 238,000 15,000
1995** $ 0 48,000 3,000
1994 $ N.A. N.A. N.A.
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
** For the period October 16, 1995 to November 30, 1995.
B-22
<PAGE> 84
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 KDI in connection with the Rule 12b-1
Plans for the Class B and Class C Shares are set forth below (except for the
Aggressive Growth Fund, which will not commence operations until December 31,
1996). 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..... 1996 $ 233,000 41,000 521,000 3,000 117,000 10,000 232,000
1995 $ 59,000 29,000 183,000 25,000 18,000 6,000 77,000
Growth........ 1996 $ 6,149,000 1,494,000 3,522,000 53,000 1,020,000 88,000 2,049,000
1995 5,249,000 2,368,000 3,296,000 335,000 322,000 59,000 1,872,000
Quantitative*.. 1996 $ 3,000 -0- 4,000 -0- 7,000 1,000 17,000
1995 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Small Cap..... 1996 $ 1,743,000 389,000 1,370,000 18,000 384,000 34,000 781,000
1995 1,341,000 518,000 1,188,000 142,000 117,000 22,000 666,000
Technology.... 1996 $ 413,000 102,000 974,000 28,000 309,000 28,000 572,000
1995 168,000 56,000 654,000 151,000 53,000 14,000 239,000
Total
Return...... 1996 $ 8,464,000 2,089,000 3,572,000 64,000 1,100,000 100,000 2,139,000
1995 8,303,000 3,318,000 3,751,000 371,000 416,000 62,000 2,277,000
Value+........ 1996 $ 65,000 4,000 320,000 15,000 88,000 7,000 160,000
Growth 1995 1,000 0 75,000 2,000 2,000 0 9,000
<CAPTION>
OTHER DISTRIBUTION
EXPENSES PAID
BY UNDERWRITER
-------------------
MISC.
FUND CLASS B OPERATING INTEREST
SHARES EXPENSES EXPENSES
- -------------- --------- --------
<S> <C> <C>
Blue Chip..... 76,000 85,000
26,000 22,000
Growth........ 284,000 188,000
239,000 277,000
Quantitative*. 4,000 1,000
N.A. N.A.
Small Cap..... 125,000 380,000
98,000 317,000
Technology.... 121,000 191,000
55,000 54,000
Total
Return...... 344,000 438,000
277,000 809,000
Value+........ 41,000 40,000
Growth 3,000 1,000
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
<TABLE>
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID
TOTAL DISTRIBUTION BY UNDERWRITER
DISTRIBUTION CONTINGENT DISTRIBUTION FEES PAID ----------------------------------
FEES PAID DEFERRED SALES FEES PAID BY UNDERWRITER ADVERTISING MARKETING
BY FUND CHARGES BY UNDERWRITER TO AFFILIATED AND PROSPECTUS AND SALES
FUND CLASS C SHARES FISCAL YEAR TO UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS LITERATURE PRINTING EXPENSES
- -------------------- ----------- -------------- -------------- -------------- -------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip........... 1996 $ 12,000 -0- 18,000 -0- 14,000 1,000 28,000
1995 5,000 N.A. 5,000 -0- 3,000 1,000 13,000
Growth.............. 1996 $ 57,000 -0- 73,000 -0- 48,000 4,000 89,000
1995 23,000 N.A. 22,000 6,000 12,000 2,000 70,000
Quantitative*....... 1996 $ 3,000 -0- -0- -0- 7,000 -0- 15,000
1995 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Small Cap........... 1996 $ 35,000 -0- 42,000 -0- 30,000 3,000 60,000
1995 13,000 N.A. 13,000 4,000 6,000 1,000 36,000
Technology.......... 1996 $ 21,000 1,000 32,000 -0- 34,000 3,000 67,000
1995 5,000 N.A. 4,000 1,000 4,000 1,000 19,000
Total Return........ 1996 $ 60,000 -0- 69,000 -0- 49,000 4,000 97,000
1995 26,000 N.A. 25,000 5,000 13,000 2,000 72,000
Value+Growth........ 1996 $ 2,000 -0- 7,000 -0- 13,000 1,000 23,000
1995 -0- N.A. -0- -0- 1,000 -0- 1,000
<CAPTION>
OTHER DISTRIBUTION
EXPENSES PAID
BY UNDERWRITER
-------------------
MISC.
OPERATING INTEREST
FUND CLASS C SHARES EXPENSES EXPENSES
- -------------------- --------- --------
<S> <C> <C>
Blue Chip........... 1,000 5,000
8,000 2,000
Growth.............. 8,000 18,000
15,000 7,000
Quantitative*....... 6,000 1,000
N.A. N.A.
Small Cap........... 3,000 11,000
14,000 4,000
Technology.......... 2,000 8,000
10,000 2,000
Total Return........ 5,000 20,000
15,000 9,000
Value+Growth........ 8,000 3,000
1,000 -0-
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
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 average daily net assets of Class A, B and C shares of each
Fund.
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
B-23
<PAGE> 85
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. For Class
A shares, KDI pays each firm a service fee, payable quarterly, at an annual rate
of up to .25% of the net assets in Fund accounts that it maintains and services
attributable to Class A shares commencing with the month after investment. With
respect to Class B and Class C shares, KDI currently advances to firms the
first-year service fee at a rate of up to .25% of the purchase price of such
shares. For periods after the first year, KDI currently intends to pay firms a
service fee at an annual rate of up to .25% (calculated monthly and paid
quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm and the fee continues until terminated by
KDI or the Fund. Firms to which service fees may be paid include broker-dealers
affiliated with KDI.
The following information concerns the administrative services fee paid by each
Fund (except for the Aggressive Growth Fund, which will not commence operations
until December 31, 1996.
<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........ 1996 $ 415,000 78,000 4,000 512,000 15,000
1995 $ 361,000 19,000 2,000 386,000 69,000
1994* $ 407,000 2,000 -- 413,000 92,000
Growth........... 1996 $3,929,000 2,016,000 19,000 5,983,000 138,000
1995 $3,633,000 1,721,000 8,000 5,301,000 693,000
1994* $3,628,000 553,000 1,000 4,347,000 618,000
Quantitative..... 1996** 1,000 1,000 1,000 1,000 0
1995 N.A. N.A. N.A. N.A. N.A.
1994 N.A. N.A. N.A. N.A. N.A.
Small Cap........ 1996 $1,315,000 580,000 12,000 1,918,000 34,000
1995 $1,141,000 442,000 4,000 1,579,000 334,000
1994* $1,066,000 124,000 -- 1,212,000 321,000
Technology....... 1996 $1,460,000 138,000 7,000 1,607,000 15,000
1995 $1,187,000 56,000 2,000 1,269,000 116,000
1994* $ 873,000 1,000 -- 885,000 83,000
Total Return..... 1996 $4,252,000 2,772,000 20,000 7,049,000 194,000
1995 $4,047,000 2,710,000 9,000 6,685,000 1,010,000
1994* $3,635,000 1,212,000 1,000 5,063,000 959,000
Value+Growth..... 1996 22,000 25,000 2,000 57,000 2,000
1995*** $ 0 0 0 5,000 0
1994 N.A. N.A. N.A. N.A. N.A.
</TABLE>
- ---------------
* Class B and Class C shares were first offered on May 31, 1994.
** For the period February 15, 1996 to November 30, 1996.
*** For the period October 16, 1995 to November 30, 1995.
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.
B-24
<PAGE> 86
Certain trustees or officers of a Fund are also directors or officers of ZKI,
DVA or KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT 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, 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 ZKI, serves as
"Shareholder Service Agent" of each Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. 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 1996 fiscal year (except the
Aggressive Growth Fund), the shareholder service fees IFTC remitted to KSvC. As
noted previously, the Aggressive Growth Fund will not commence operations until
December 31, 1996.
<TABLE>
<CAPTION>
FEES IFTC
FUND PAID TO KSVC
------------
<S> <C>
Blue Chip........................................................................... $ 633,000
Growth.............................................................................. $ 7,394,000
Quantitative*....................................................................... $ 1,000
Small Cap........................................................................... $ 2,840,000
Technology.......................................................................... $ 984,000
Total Return........................................................................ $ 7,481,000
Value+Growth........................................................................ $ 52,000
</TABLE>
- ---------------
* For the period February 15, 1996 to November 30, 1996.
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.
B-25
<PAGE> 87
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 or Class C shares, by certain classes of persons or
through certain types of transactions as described in the prospectus, are
provided because of anticipated economies in sales and sales related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of 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
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 Aggressive Growth, Quantitative, 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 Aggressive 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.
B-26
<PAGE> 88
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.
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" (other
than shares of Kemper Cash Reserves Fund not acquired by exchange from another
Kemper Mutual Fund) may reinvest the amount redeemed at net asset value at the
time of the reinvestment in shares of 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 redeemed
shares were purchased after October 3, 1989 and were held less than 91 days,
then the lesser of (a) the sales charge waived on the reinvested shares, or (b)
the sales charge incurred on the redeemed shares, is included in the basis of
the reinvested shares and is not included in the basis of the redeemed shares.
If a shareholder realized a loss on the redemption or exchange of a Fund's
shares and reinvests in shares of the same Fund 30 days before or after the
redemption or exchange, the transactions may be subject to the wash sale rules
resulting in a postponement of the recognition of such loss for federal income
tax purposes. 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.
B-27
<PAGE> 89
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 or Class C 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 and prospectus. 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 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 and Class C shares may or may not
include the effect of the applicable contingent deferred sales charge that may
be imposed at the end of the period. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period. Total
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 and Class C 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 thereafter
and becomes zero after six years. Redemption of Class C shares may be subject to
a 1% contingent deferred sales charge in the first year following purchase.
Returns and net asset value will fluctuate. Factors affecting each Fund's
performance include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial services
firm would reduce the returns described in this section. Shares of each Fund are
redeemable at the then current net asset value, which may be more or less than
original cost.
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
Aggressive Growth Fund will not commence operations until December 31, 1996.
B-28
<PAGE> 90
BLUE CHIP FUND -- OCTOBER 31, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage
TOTAL $10,000 Capital Gain Dividends Ending Percentage Value Increase Dow Jones
RETURN Investment Dividends Reinvested Value Increase (unadjusted) (unadjusted) Industrial
TABLE (1) Reinvested (2) (adjusted)(1) (adjusted)(1) (1) (1) Average(3)
- -------------------- ---------- ------------ ---------- ------------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 17,947 2,411 5,518 25,876 158.8 27,458 174.6 337.7
Five Years 12,200 1,518 2,579 16,297 63.0 17,293 72.9 125.1
One Year 10,862 403 676 11,941 19.4 12,672 26.7 29.7
Year to Date 11,328 0 50 11,378 13.8 12,072 20.7 19.8
CLASS B SHARES
Life of Fund(++) 13,894 547 943 15,084 50.8 15,384 53.8 70.9
One Year 11,532 428 622 12,282 22.8 12,582 25.8 29.7
Year to Date 11,985 0 8 11,593 15.9 11,993 19.9 19.8
CLASS C SHARES
Life of Fund(++) 13,942 547 959 * * 15,448 54.5 70.9
One Year 11,526 426 623 * * 12,575 25.8 29.7
Year to Date 11,976 0 9 11,885 18.9 11,985 19.9 19.8
<CAPTION>
Russell Lipper U.S.
TOTAL Standard Consumer 1000(R) Growth Treasury
RETURN & Poor's Price Growth and Income Bill
TABLE 500(4) Index(5) Index(6) Fund(7) Index(8)
- -------------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Life of Fund(+) 302.4 36.7 313.1 252.3 64.1
Five Years 105.6 14.9 97.7 96.0 24.2
One Year 24.0 2.7 22.1 21.4 5.2
Year to Date 16.4 2.8 16.8 14.5 2.6
Life of Fund(++) 64.6 7.0 68.7 50.7 13.9
One Year 24.0 2.7 22.1 21.4 5.2
Year to Date 16.4 2.8 16.8 14.5 2.6
Life of Fund(++) 64.6 7.0 68.7 50.7 13.9
One Year 24.0 2.7 22.1 21.4 5.2
Year to Date 16.4 2.8 16.8 14.5 2.6
</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(+) 11.2 * * 18.0 16.9 3.6 17.3 15.1 5.7
Life of Fund(++) * 18.5 19.7 24.8 22.9 2.8 24.2 18.5 5.5
Five Years 10.3 * * 17.6 15.5 2.8 14.6 14.4 4.4
One Year 19.4 22.8 25.8 29.7 24.0 2.7 22.1 21.4 5.2
</TABLE>
- ---------------
(+) Since November 23, 1987 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-29
<PAGE> 91
GROWTH FUND -- SEPTEMBER 30, 1996
<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)
- ----------------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 32,168 237,921 109,598 379,687 3,696.9 403,040 3,930.4 2,155.7
Ten Years 12,408 17,235 7,909 37,552 275.5 39,851 298.5 356.9
Five Years 12,345 2,674 969 15,988 59.9 16,962 69.6 123.4
One Year 10,094 868 313 11,275 12.8 11,962 19.6 25.7
Year to Date 10,838 0 0 10,838 8.4 11,496 15.0 16.9
CLASS B SHARES
Life of Fund(++) 12,840 1,322 379 14,241 42.4 14,541 45.4 66.7
One Year 10,611 927 309 11,547 15.5 11,847 18.5 25.7
Year to Date 11,411 0 0 11,011 10.1 11,411 14.1 16.9
CLASS C SHARES
Life of Fund(++) 12,887 1,325 380 * * 14,592 45.9 66.7
One Year 10,630 926 309 * * 11,865 18.7 25.7
Year to Date 11,422 0 0 11,322 13.2 11,422 14.2 16.9
<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>
Life of Fund(+) 2,337.4 391.6 NA 2,046.1 665.3
Ten Years 302.3 43.2 316.3 251.0 73.7
Five Years 102.7 15.0 99.6 90.2 24.2
One Year 20.3 3.0 21.4 13.8 5.2
Year to Date 13.5 2.8 16.1 11.0 2.6
Life of Fund(++) 60.4 7.0 67.7 47.6 13.9
One Year 20.3 3.0 21.4 13.8 5.2
Year to Date 13.5 2.8 16.1 11.0 2.6
Life of Fund(++) 60.4 7.0 67.7 47.6 13.9
One Year 20.3 3.0 21.4 13.8 5.2
Year to Date 13.5 2.8 16.1 11.0 2.6
</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(+) 12.7 * * 10.8 11.0 5.4 NA 10.6
Life of
Fund(++) * 16.4 17.5 24.4 22.4 2.9 24.8 18.1
Ten Years 14.2 * * 16.4 14.9 3.7 15.3 13.4
Five Years 9.8 * * 17.4 15.2 2.8 14.8 13.7
One Year 12.8 15.5 18.7 25.7 20.3 3.0 21.4 13.8
<CAPTION>
U.S.
AVERAGE ANNUAL Treasury
TOTAL RETURN Bill
TABLE Index(8)
---------------- --------
<S> <C>
Life of Fund(+) 6.9
Life of
Fund(++) 5.7
Ten Years 5.7
Five Years 4.4
One Year 5.2
</TABLE>
- ---------------
(+) Since April 4, 1966 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-30
<PAGE> 92
QUANTITATIVE EQUITY FUND -- NOVEMBER 30, 1996
<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)
- ----------------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 11,032 0 0 11,032 10.3 11,705 17.1 22.9
CLASS B SHARES
Life of Fund(+) 11,621 0 0 11,221 12.2 11,621 16.2 22.9
CLASS C SHARES
Life of Fund(+) 11,632 0 0 11,532 15.3 11,632 16.3 22.9
<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> <C>
Life of Fund(+) 21.0 2.5 19.3 16.9 2.6
Life of Fund(+) 21.0 2.5 19.3 16.9 2.6
Life of Fund(+) 21.0 2.5 19.3 16.9 2.6
</TABLE>
<TABLE>
<CAPTION>
Dow Russell U.S.
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R) Lipper Treasury
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Growth Bill
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(9) Index(8)
- ---------------- ------- ------- ------- ---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 14.9 17.7 22.3 29.9 27.3 3.2 26.6 21.9 3.3
</TABLE>
- ---------------
(+) Since February 15, 1996 for Class A, B and C shares.
B-31
<PAGE> 93
SMALL CAP FUND -- SEPTEMBER 30, 1996
<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(+) 33,035 179,821 58,441 271,297 2,613.0 287,846 2,778.5 1,988.2
Ten Years 11,399 21,497 5,077 37,973 279.7 40,264 302.6 356.9
Five Years 12,341 6,210 1,143 19,694 96.9 20,909 109.1 123.4
One Year 9,249 1,335 374 10,958 9.6 11,633 16.3 25.7
Year to Date 11,005 0 0 11,005 10.1 11,683 16.8 16.9
CLASS B SHARES
Life of Fund(++) 12,054 2,680 530 14,964 49.6 15,264 52.6 66.7
One Year 9,687 1,426 400 11,222 12.2 11,513 15.1 25.7
Year to Date 11,582 0 0 11,182 11.8 11,582 15.8 16.9
CLASS C SHARES
Life of Fund(++) 12,035 2,681 531 * * 15,247 52.5 66.7
One Year 9,686 1,429 401 * * 11,516 15.2 25.7
Year to Date 11,584 0 0 11,484 14.8 11,584 15.8 16.9
<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(+) 1,927.7 340.8 NA NA
Ten Years 302.3 43.2 280.7 316.3
Five Years 102.7 15.0 130.0 99.6
One Year 20.3 3.0 15.4 21.4
Year to Date 13.5 2.8 13.2 16.1
CLASS B SHARES
Life of Fund(++) 60.4 7.0 64.0 67.7
One Year 20.3 3.0 15.4 21.4
Year to Date 13.5 2.8 13.2 16.1
CLASS C SHARES
Life of Fund(++) 60.4 7.0 64.0 67.7
One Year 20.3 3.0 15.4 21.4
Year to Date 13.5 2.8 13.2 16.1
</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(+) 12.7 * * 11.6 11.5 5.5 NA NA
Life of Fund(++) * 18.9 19.8 24.4 22.4 2.9 23.6 24.8
Ten Years 14.3 * * 16.4 14.9 3.7 14.3 15.3
Five Years 14.5 * * 17.4 15.2 2.8 18.1 14.8
One Year 9.6 12.2 15.2 25.7 20.3 3.0 15.4 21.4
</TABLE>
- ---------------
(+) Since February 20, 1969 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA--Not Available.
B-32
<PAGE> 94
TECHNOLOGY FUND -- OCTOBER 31, 1996
<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(+) 55,470 2,986,740 666,999 3,709,209 36,992.1 3,937,406 39,274.1
Ten Years 8,977 24,265 3,823 37,065 270.7 39,318 293.2
Five Years 9,985 9,816 1,215 21,016 110.2 22,302 123.0
One Year 8,479 1,131 554 10,164 1.6 10,783 7.8
Year to Date 10,639 0 0 10,639 6.4 11,286 12.9
CLASS B SHARES
Life of Fund(++) 12,782 4,051 989 17,522 75.2 17,822 78.2
One Year 8,874 1,210 592 10,410 4.1 10,676 6.8
Year to Date 11,192 0 0 10,792 7.9 11,192 11.9
CLASS C SHARES
Life of Fund(++) 12,863 4,062 989 * * 17,914 79.1
One Year 8,893 1,205 590 * * 10,688 6.9
Year to Date 11,193 0 0 11,093 10.9 11,193 11.9
<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(+) 26,811.4 30,825.6 544.1 NA
Ten Years 340.8 291.4 43.1 296.1
Five Years 125.1 105.6 14.9 97.7
One Year 29.7 24.0 2.7 22.1
Year to Date 19.8 16.4 2.8 16.8
CLASS B SHARES
Life of Fund(++) 70.9 64.6 7.0 68.7
One Year 29.7 24.0 2.7 22.1
Year to Date 19.8 16.4 2.8 16.8
CLASS C SHARES
Life of Fund(++) 70.9 64.6 7.0 68.7
One Year 29.7 24.0 2.7 22.1
Year to Date 19.8 16.4 2.8 16.8
</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(+) 13.1 * * 12.3 12.7 3.9 NA
Life of Fund(++) * 26.1 27.2 24.8 22.9 2.8 24.2
Ten Years 14.0 * * 16.0 14.6 3.7 14.8
Five Years 16.0 * * 17.6 15.5 2.8 14.6
One Year 1.6 4.1 6.9 29.7 24.0 2.7 22.1
</TABLE>
- ---------------
(+) Since September 7, 1948 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
NA--Not Available.
B-33
<PAGE> 95
TOTAL RETURN FUND -- OCTOBER 31, 1996
<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(+) 26,730 130,216 204,997 361,943 3,519.4 384,249 3,742.5 2,782.6
Ten Years 12,110 5,710 7,495 25,315 153.2 26,858 168.6 340.8
Five Years 10,562 2,390 2,160 15,112 51.1 16,028 60.3 125.1
One Year 10,027 389 452 10,868 8.7 11,534 15.3 29.7
Year to Date 10,386 0 197 10,583 5.8 11,224 12.2 19.8
CLASS B SHARES
Life of Fund(++) 12,198 484 708 13,090 30.9 13,390 33.9 70.9
One Year 10,642 413 373 11,128 11.3 11,428 14.3 29.7
Year to Date 11,016 0 132 10,745 7.5 11,148 11.5 19.8
CLASS C SHARES
Life of Fund(++) 12,208 485 739 * * 13,432 34.3 70.9
One Year 10,631 413 387 * * 11,431 14.3 29.7
Year to Date 11,005 0 140 11,045 10.5 11,145 11.5 19.8
<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(+) 2,970.9 410.7 NA 2,027.5 *
Ten Years 291.4 43.1 296.1 183.2 125.5
Five Years 105.6 14.9 97.7 69.2 46.6
One Year 24.0 2.7 22.1 14.5 5.4
Year to Date 16.4 2.8 16.8 9.3 2.2
CLASS B SHARES
Life of Fund(++) 64.6 7.0 68.7 36.6 22.6
One Year 24.0 2.7 22.1 14.5 5.4
Year to Date 16.4 2.8 16.8 9.3 2.2
CLASS C SHARES
Life of Fund(++) 64.6 7.0 68.7 36.6 22.6
One Year 24.0 2.7 22.1 14.5 5.4
Year to Date 16.4 2.8 16.8 9.3 2.2
</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(+) 11.6 * * 10.8 11.1 5.1 NA 9.8
Life of Fund(++) * 11.8 13.0 24.8 22.9 2.8 24.2 13.8
Ten Years 9.7 * * 16.0 14.6 3.7 14.8 11.0
Five Years 8.6 * * 17.6 15.5 2.8 14.6 11.1
One Year 8.7 11.3 14.3 29.7 24.0 2.7 22.1 14.5
<CAPTION>
AVERAGE
ANNUAL Lehman Bros.
TOTAL RETURN Gov't/Corp.
TABLE Index(12)
- ------------------ ------------
<S> <C>
Life of Fund(+) *
Life of Fund(++) 8.8
Ten Years 8.5
Five Years 8.0
One Year 5.4
</TABLE>
- ---------------
(+) Since March 2, 1964 for Class A shares.
(++) Since May 31, 1994 for Class B and Class C shares.
B-34
<PAGE> 96
VALUE+GROWTH FUND -- NOVEMBER 30, 1996
<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)
- ----------------- ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 12,847 0 0 12,847 28.5 13,632 36.3 39.3
CLASS B SHARES
Life of Fund(+) 13,105 0 0 13,205 32.1 13,505 35.1 39.3
CLASS C SHARES
Life of Fund(+) 13,516 0 0 * * 13,516 35.2 39.3
<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> <C>
Life of Fund(+) 32.5 3.3 31.2 22.7 5.2
Life of Fund(+) 32.5 3.3 31.2 22.7 5.2
Life of Fund(+) 32.5 3.3 31.2 22.7 5.2
</TABLE>
<TABLE>
<CAPTION>
Dow Russell U.S.
AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer 1000(R) Lipper Treasury
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Growth Growth Bill
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(9) Index(8)
- ---------------- ------- ------- ------- ---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 24.8 28.0 30.6 34.1 28.2 2.9 28.5 19.8 4.6
</TABLE>
- ---------------
(+) Since October 16, 1995 for Class A, B and 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. Amounts were adjusted
for Class C shares for the contingent deferred sales charge that may be imposed
for periods less than one year.
(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.
(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.
(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. SOURCE IS TOWERS DATA SYSTEMS.
(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.
SOURCE IS TOWERS DATA SYSTEMS.
(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. SOURCE IS TOWERS DATA SYSTEMS.
(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 Towers Data Systems.
B-35
<PAGE> 97
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-36
<PAGE> 98
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund (except the Aggressive Growth and Quantitative Funds), 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 November 30, 1996.
BLUE CHIP FUND (11/23/87)
<TABLE>
<CAPTION>
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
1995 1,201 714 14,932 4,497 2,006 21,435
11/30/96 105 0 19,214 5,908 2,581 27,703
</TABLE>
- --------------------------------------------------------------------------------
GROWTH FUND (4/4/66)
<TABLE>
<CAPTION>
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>
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
1995 8,987 24,887 27,981 95,333 206,954 330,268
11/30/96 0 0 32,860 111,954 243,036 387,850
</TABLE>
- --------------------------------------------------------------------------------
B-37
<PAGE> 99
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
QUANTITATIVE EQUITY (2/15/96)
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>
11/30/96 $ 0 $ 0 $ 11,032 $ 0 $ 0 $ 11,032
===========================================================================================
<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
1995 7,520 26,809 28,303 50,068 154,057 232,428
11/30/96 0 0 32,752 57,941 178,282 268,975
- -------------------------------------------------------------------------------------------
</TABLE>
B-38
<PAGE> 100
<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
1995 164,768 336,598 49,199 591,597 2,649,098 3,289,894
11/30/96 0 0 59,852 719,711 3,222,775 4,002,338
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-39
<PAGE> 101
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN FUND (3/2/64)
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
1995 12,811 11,545 24,265 179,922 118,210 322,467
11/30/96 6,338 0 28,128 215,720 137,027 380,875
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
VALUE+GROWTH FUND (10/16/95)
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>
1995 $ 0 $0 $ 10,030 $0 $0 $10,030
11/30/96 0 0 12,847 0 0 12,847
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes short-term capital gain dividends.
B-40
<PAGE> 102
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 11/30/96)............................................. 183 of 210
One Year (Period ended 11/30/96).............................................. 40 of 515
</TABLE>
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>
Ten Years (Period ended 11/30/96)............................................. 65 of 163
Five Years (Period ended 11/30/96)............................................ 237 of 253
One Year (Period ended 11/30/96).............................................. 474 of 653
</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>
Ten Years (Period ended 11/30/96)............................................. 20 of 46
Five Years (Period ended 11/30/96)............................................ 71 of 101
One Year (Period ended 11/30/96).............................................. 234 of 371
</TABLE>
The Lipper Small 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>
Ten Years (Period ended 11/30/96)............................................. 10 of 12
Five Years (Period ended 11/30/96)............................................ 11 of 14
One Year (Period ended 11/30/96).............................................. 17 of 38
</TABLE>
B-41
<PAGE> 103
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>
Ten Years (Period ended 11/30/96)............................................. 20 of 33
Five Years (Period ended 11/30/96)............................................ 55 of 73
One Year (Period ended 11/30/96).............................................. 67 of 269
</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%.
VALUE + GROWTH FUND
<TABLE>
<CAPTION>
Lipper Mutual Fund
Performance
Analysis
------------------
Growth & Income
------------------
<S> <C>
One Year (Period ended 11/30/96).............................................. 53 of 515
</TABLE>
The Lipper Growth & Income Fund category includes funds which combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
OFFICERS AND TRUSTEES
The officers and trustees of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with ZKI, 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 ZKI and its affiliates for which he or she holds similar positions.):
ALL FUNDS:
DAVID W. BELIN (6/20/28), Trustee (25), 2000 Financial Center, 7th and Walnut,
Des Moines, Iowa; Member, Belin Harris Lamson McCormick, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee (25), 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 (25), 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee (25), 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 (25), 23 Flagship Lane, Hilton Head, South
Carolina; Retired; Director, Motorola, Inc. (manufacturer of electronic
equipment and components); formerly, Executive Vice President and Chief
Financial Officer, Motorola, Inc.
DOMINIQUE P. MORAX (10/02/48), Trustee* (38), 222 South Riverside Plaza,
Chicago, Illinois; Member, Extended Corporate Executive Board, Zurich Insurance
Company, Director, ZKI.
B-42
<PAGE> 104
SHIRLEY D. PETERSON (9/3/41), Trustee (25), 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 (25), 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* (38), 222 South Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, KDI, DVA and LTV Corporation.
JOHN E. NEAL (3/9/50), Vice President* (38), 222 South Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI, DVA and
KDI.
CHARLES R. MANZONI, JR. (1/23/47), Vice President* (38), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI; Secretary, ZKI Holding Corp.; Secretary, ZKI Agency, Inc.;
formerly, Partner, Gardner, Carton & Douglas (attorneys).
STEVEN H. REYNOLDS (9/11/43), Vice President* (12), 222 South Riverside Plaza,
Chicago, Illinois; Executive Vice President and Chief Investment
Officer -- Equities, ZKI.
JEROME L. DUFFY (6/29/36), Treasurer* (38), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (38), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (30), 222 South Riverside
Plaza, Chicago, Illinois; Vice President, ZKI; Vice President and Director of
State Registrations, KDI.
AGGRESSIVE GROWTH FUND:
PATRICK S. ADAMS (10/3/60), Vice President* (2), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI; formerly, portfolio manager with
an unaffiliated investment management firm.
BLUE CHIP FUND:
TRACY McCORMICK CHESTER (9/27/54), Vice President* (3), 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, ZKI; formerly, Portfolio
Manager for Fiduciary Management; prior thereto, independent consultant managing
private accounts.
GROWTH FUND:
PATRICK S. ADAMS (10/3/60), Vice President* (2), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI; formerly, portfolio manager with
an unaffiliated investment management firm.
QUANTITATIVE FUND:
DANIEL J. BUKOWSKI (5/6/63), Vice President* (2), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President and Director of Quantitative Research,
ZKI.
B-43
<PAGE> 105
TECHNOLOGY FUND:
FRANK D. KORTH (7/11/45), Vice President* (1), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, ZKI.; formerly, President, Value Line
Fund.
TOTAL RETURN FUND:
GARY A. LANGBAUM (12/16/48), Vice President* (2), 222 South Riverside Plaza,
Chicago, Illinois; Executive Vice President, ZKI.
VALUE+GROWTH FUND:
DANIEL J. BUKOWSKI (5/6/63), Vice President* (2), 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President and Director of Quantitative Research,
ZKI.
* 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. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during
each Fund's 1996 fiscal year except that the information in the last column is
for calendar year 1995. The Aggressive Growth Fund has not yet adopted a trustee
compensation schedule.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM FUND FROM FUND AND
--------------------------------------------------------- KEMPER FUND
BLUE SMALL TOTAL VALUE+ COMPLEX
NAME OF TRUSTEE CHIP GROWTH QUANTITATIVE CAP TECH RETURN GROWTH PAID TO TRUSTEES**
- ---------------------------------------- ------ ------ ------------ ------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W. Belin*......................... $2,700 $8,300 $100 $5,400 $6,100 $9,100 $300 $149,700
Lewis A. Burnham........................ $2,100 $5,400 $100 $3,600 $3,700 $5,600 $300 $111,000
Donald L. Dunaway*...................... $2,900 $8,500 $100 $5,400 $5,800 $8,900 $300 $151,000
Robert B. Hoffman....................... $2,200 $5,700 $100 $3,800 $3,800 $5,800 $300 $105,500
Donald R. Jones......................... $2,200 $5,700 $100 $3,800 $3,800 $5,800 $300 $110,700
Shirley D. Peterson***.................. $2,100 $5,400 $100 $3,600 $3,700 $5,700 $300 $ 44,500
William P. Sommers...................... $2,100 $5,300 $100 $3,500 $3,600 $5,500 $300 $100,700
</TABLE>
- ---------------
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with Kemper funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Funds -- Kemper Money
Market Fund. Total deferred amounts and interest accrued through each Fund's
fiscal year are $12,200, $56,500, $100, $36,000, $50,300, $67,300, and $300
for Mr. Belin and $13,500, $48,200, $100, $28,700, $39,100, $57,800 and $300
for Mr. Dunaway for the Blue Chip, Growth, Quantitative, Small Cap,
Technology, Total Return and Value+Growth Funds, respectively.
** Includes compensation for service on the boards of 22 Kemper funds with 40
fund portfolios. Each trustee currently serves as a trustee of twenty-three
Kemper funds with 40 fund portfolios.
*** Appointed a trustee of certain Kemper funds on June 15, 1995.
B-44
<PAGE> 106
As of December 2, 1996, with the exception of Stephen B. Timbers who
beneficially owned 13.73% and 3.16% of the Class A shares of the Quantitative
Fund and Value+Growth Fund, respectively, 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 ZKI owned
all the shares of the Aggressive Growth Fund.
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
- ----------------------------------------------------------- ------- -------------- -----
<S> <C> <C> <C>
* Zurich Kemper Investments, Inc. 45.31 Quantitative A
Accounting Department
222 South Riverside Plaza
Chicago, IL 60606
** IFTC 6.23 Quantitative A
IRA A/C James F. McNamara
9328 Mountain Lake
Fort Worth, TX 76179
* Zurich Kemper Investments, Inc. 71.48 Quantitative B
Accounting Department
222 South Riverside Plaza
Chicago, IL 60606
** Merrill Lynch Pierce 5.75 Technology C
Fenner & Smith, Inc.
4800 Deer Lake Drive
Jacksonville, FL 32246
** Kenneth Mach 5.99 Total Return C
Tatham Euro RSCG Employee
P/S Plan
980 North Michigan Avenue
Chicago, IL 60611
* Alex Brown & Sons Incorporated 6.82 Total Return C
P.O. Box 1346
Baltimore, MD 21203
* Zurich Kemper Investments, Inc. 58.82 Quantitative C
Accounting Department
222 South Riverside Plaza
Chicago, IL 60606
** Zurich Kemper Investments, Inc. 20.39 Quantitative I
Group Plans
811 Main
Kansas City, MO 64105
* James C. and Susan J. Reid 6.72 Quantitative C
10960 South Tropical Trail
Merritt Island, FL 32952
</TABLE>
B-45
<PAGE> 107
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
- ----------------------------------------------------------- ------- -------------- -----
<S> <C> <C> <C>
** NFSC FBO 9.45 Blue Chip C
James C. and Ruth K. Lovig
31 McKinley Avenue
Geneva, IL 60134
** NFSC IRA R/O 12.70 Value+Growth C
Loren S. Basler
301 SE Morningside
Bartlesville, OK 74006
* Beate Becker 7.05 Value+Growth C
100 Forest Avenue
New Rochelle, NY 10804
** IFTC 8.88 Value+Growth C
IRA A/C Edgar Webb
P.O. Box 1652
Glen Burnie, MD 21060
* James C. and Susan J. Reid 5.75 Value+Growth C
10960 South Tropical Trail
Merritt Island, FL 32952
** Alex Brown & Sons Incorporated 11.33 Value+Growth C
P.O. Box 1346
Baltimore, MD 21203
* Zurich Kemper Investments, Inc. 10.26 Small Cap I
Retirement Plan 79.21 Quantitative I
811 Main
Kansas City, MO 64105
** Invest Financial Corp. 20.23 Blue Chip I
FBO Anita McNeil
2081 Backwater Trail
Palm Harbor, FL 34685
** Invest Financial Corp. 24.77 Blue Chip I
FBO Thomas S. Samalis
14922 Greeley Drive
Tampa, FL 33625
** Invest Financial Corp. 6.96 Blue Chip I
FBO Lisa M. Sacco
3272 San Bernadino Street
Clearwater, FL 34619
** Invest Financial Corp. 13.76 Blue Chip I
FBO Thomas E. Gunderson
4150 149th Avenue NW
Bismarck, ND 58501
</TABLE>
- ---------------
* Record and beneficial owner.
** Record owner only.
B-46
<PAGE> 108
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 ZKI 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-47
<PAGE> 109
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper Aggressive Growth Fund
We have audited the accompanying statement of net assets of Kemper Aggressive
Growth Fund as of November 29, 1996. This statement of net assets is the
responsibility of the Fund'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 Aggressive Growth
Fund at November 29, 1996 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
November 29, 1996
B-48
<PAGE> 110
KEMPER AGGRESSIVE GROWTH FUND
STATEMENT OF NET ASSETS--NOVEMBER 29, 1996
<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--3,508.773
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 ($33,333.34 / 3,508.773 shares outstanding)................................. $ 9.50
Class B* ($33,333.33 / 3,508.772 shares outstanding)................................ $ 9.50
Class C* ($33,333.33 / 3,508.772 shares outstanding)................................ $ 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 Aggressive Growth Fund (the "Trust"), was organized as a business trust
under the laws of The Commonwealth of Massachusetts on October 3, 1996. All
Class A, Class B and Class C shares of beneficial interest of the Trust were
issued to Zurich Kemper Investments, Inc. ("ZKI"), the investment manager for
the Trust, on November 29, 1996. The Trust may establish multiple series;
currently one series has been established.
The costs of organization of the Trust will be paid by ZKI.
B-49
<PAGE> 111
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.
B-50
<PAGE> 112
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-51
<PAGE> 113
KEMPER TOTAL RETURN FUND
Portfolio of Investments at October 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
U.S. TREASURY NOTES 8.75%, 2000 $ 4,300 $ 4,693
7.75%, 2000 14,000 14,733
7.75%, 2001 77,500 82,416
6.25%, 2003 12,500 12,549
7.25%, 2004 180,000 190,528
6.50%, 2005 20,800 21,041
-----------------------------------------------------------------------------
325,960
- ----------------------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS 10.75%, 2005 36,250 46,847
12.00%, 2013 8,200 11,811
12.50%, 2014 63,000 94,785
-----------------------------------------------------------------------------
153,443
- ----------------------------------------------------------------------------------------------------------------
PROVINCE OF QUEBEC, CANADA 8.625%, 2005 9,500 10,508
-----------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS--16.2%
(Cost: $483,609) 489,911
-----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
COMMON STOCKS NUMBER OF SHARES VALUE
BASIC INDUSTRIES--2.9% (a)AES Corporation, warrants expiring 2000 22,685 476
Air Products & Chemicals 308,700 18,522
Betz Laboratories 175,000 9,187
Cementos Mexicanos, S.A. de C.V., "B," ADR 192,700 693
Crown Cork & Seal Co. 108,500 5,208
W.R. Grace & Co. 213,800 11,331
Monsanto Co. 288,500 11,432
Pall Corp. 350,000 8,969
Praxair, Inc. 480,400 21,258
Rentokil Group PLC 93,000 625
Sumitomo Metal Industries 227,000 625
Toray Industries 105,000 634
-----------------------------------------------------------------------------
88,960
- ----------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--8.3% Boeing Co. 252,000 24,034
Emerson Electric Co. 282,600 25,151
Fluor Corp. 315,000 20,632
GM Hughes Electronics Corp. 335,000 17,881
General Electric Co. 635,000 61,436
B. F. Goodrich Co. 725,000 30,722
Illinois Tool Works 277,700 19,508
Mitsubishi Heavy Industries 82,000 631
Sundstrand Corp. 675,000 27,169
Technip S.A. 7,803 683
Westinghouse Electric Corp. 475,000 8,134
Xerox Corporation 295,900 13,722
-----------------------------------------------------------------------------
249,703
</TABLE>
11
PORTFOLIO OF INVESTMENTS
<PAGE> 114
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C> <C>
NUMBER OF SHARES VALUE
CONSUMER CYCLICALS--9.1% Burton Group PLC 316,483 $ 769
Carnival Corp. 900,000 27,112
(a)Circus Circus Enterprises 417,400 14,400
(a)Consolidated Stores Corporation 600,800 23,206
Walt Disney Company 500,000 32,937
(a)Federated Department Stores 520,000 17,160
Hilton Hotels 608,000 18,468
(a)Liberty Media Group, "A" 840,000 21,630
(a)Lone Star Steakhouse & Saloon 640,000 16,400
Lowes Companies 420,000 16,958
Marriott International 284,900 16,204
Melville Corp. 332,300 12,378
(a)Mirage Resorts, Inc. 960,000 21,120
(a)OfficeMax Inc. 756,900 10,218
Reed International PLC 40,357 751
(a)Thrifty Payless Holdings 32,775 701
Viacom International, "B" 405,000 13,213
Wendy's International 535,000 11,034
-----------------------------------------------------------------------------
274,659
- ----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--2.4% Brunswick Corp. 675,000 15,862
Honda Motor Co., Ltd. 29,000 694
Leggett & Platt Incorporated 860,200 25,698
Magna International Inc., "A" 608,900 30,521
-----------------------------------------------------------------------------
72,775
- ----------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--3.7% Dole Food Co. 395,000 15,405
Duracell International Inc. 150,000 10,012
Gillette Co. 210,000 15,697
Manpower, Inc. 320,000 9,080
Philip Morris Companies 285,200 26,417
Procter & Gamble Co. 355,900 35,234
Swire Pacific Ltd., "A" 88,000 777
-----------------------------------------------------------------------------
112,622
- ----------------------------------------------------------------------------------------------------------------
ENERGY--3.0% Amerada Hess Corp. 335,000 18,551
Enron Corp. 503,400 23,408
Mobil Corp. 137,000 15,995
Union Pacific Resources Group 127,041 3,494
Union Texas Petroleum Holdings 932,500 19,932
Unocal Corp. 250,000 9,156
-----------------------------------------------------------------------------
90,536
</TABLE>
12
PORTFOLIO OF INVESTMENTS
<PAGE> 115
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C> <C>
NUMBER OF SHARES VALUE
FINANCE--11.7% Allstate Corp. 640,000 $ 35,920
American International Group, Inc. 145,000 15,751
Bank of Boston 273,800 17,523
Bank of Ireland 110,758 915
CITIC Pacific Ltd. 187,000 909
Chase Manhattan Corp. 180,000 15,435
Cheung Kong Holdings Ltd. 101,000 810
(a)College Construction Loan Insurance
Association, "A," convertible preferred 534,189 6,336
Corestates Financial Corp. 200,000 9,725
Dean Witter Discover 345,000 20,312
Development Bank of Singapore 59,000 708
Federal National Mortgage Association 1,125,000 44,016
First Chicago NBD Corp. 370,000 18,870
First USA 329,900 18,969
Great Western Financial Corp. 600,000 16,800
ITT Hartford Group 390,000 24,570
Internationale Nederlanden Groep 26,280 820
KeyCorp 227,600 10,612
Krung Thai Bank Public Co. Ltd. 36,100 98
MBIA Inc. 200,900 17,805
MGIC Investment Corp. 236,800 16,250
Merrill Lynch & Co. 106,200 7,461
NationsBank 91,500 8,624
PNC Bank Corp. 410,000 14,863
Signet Banking Corp. 128,500 3,710
Travelers Group 445,000 24,141
-----------------------------------------------------------------------------
351,953
- ----------------------------------------------------------------------------------------------------------------
HEALTH CARE--10.1% Abbott Laboratories 525,000 26,578
American Home Products 440,000 26,950
(a)Amgen, Inc. 165,000 10,117
Astra AB 16,609 764
C. R. Bard 260,000 7,345
Baxter International 470,000 19,564
(a)Fresenius Medical AG, ADS 224,295 6,701
(a)HealthCare COMPARE Corp. 338,900 14,912
Johnson & Johnson 845,200 41,626
Eli Lilly & Co. 430,000 30,315
Merck & Co., Inc. 370,000 27,426
Omnicare, Inc. 340,500 9,279
Perkin-Elmer Corp. 440,000 23,595
Pharmacia & Upjohn 250,000 9,000
Roche Holding AG 180 686
(a)St. Jude Medical 325,000 12,838
Sandoz, Ltd. 288,800 16,642
(a)Steris Corp. 450,000 16,988
(a)Ventritex Inc. 216,000 4,928
-----------------------------------------------------------------------------
306,254
</TABLE>
13
PORTFOLIO OF INVESTMENTS
<PAGE> 116
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C> <C>
NUMBER OF SHARES VALUE
TECHNOLOGY--6.5% (a)Cadence Design Systems 280,600 $ 10,242
(a)Cimlinc Incorporated, "D," convertible
preferred 37,716 141
(a)Cisco Systems 390,400 24,157
(a)Computer Sciences Corporation 205,000 15,221
Electronic Data Systems 194,000 8,730
L.M. Ericsson Telephone Co., "B" 36,205 982
Harris Corp. 195,000 12,212
Intel Corp. 200,000 21,975
International Business Machines 135,000 17,415
Matsushita Electric Industrial Co., Ltd. 44,000 704
Murata Manufacturing 21,000 676
(a)Parametric Technology Corp. 196,800 9,619
(a)Sterling Commerce 320,000 9,000
(a)Sun Microsystems 260,000 15,860
(a)3Com Corporation 276,100 18,671
United Technologies 234,100 30,140
-----------------------------------------------------------------------------
195,745
- ----------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.2% Burlington Northern 175,000 14,416
Canadian National Railway Company 39,452 1,085
Nippon Express 21,000 171
Ryder System Inc. 1,076,100 32,014
Southwest Airlines Co. 262,100 5,897
Union Pacific Corp. 225,000 12,628
-----------------------------------------------------------------------------
66,211
- ----------------------------------------------------------------------------------------------------------------
UTILITIES--2.7% (a)Airtouch Communications 500,000 13,062
Ameritech Corp. 150,000 8,212
Cincinnati Bell 245,000 12,097
Iberdrola, S.A. 78,000 829
SBC Communications Inc. 350,000 17,019
Telefonica del Peru S.A., ADS 37,500 773
(a)WorldCom 1,215,600 29,630
-----------------------------------------------------------------------------
81,622
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--62.6%
(Cost: $1,563,480) 1,891,040
-----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE
BASIC INDUSTRIES--1.7% Boise Cascade Corp.
9.85%, 2002 $ 4,000 4,530
9.45%, 2009 5,500 6,352
Crown Paper, 11.00%, 2005 5,200 4,888
Euramax International, 11.25%, 2006 3,750 3,825
Owens-Illinois, Inc., 11.00%, 2003 13,590 14,932
Smurfit Capital Funding, 6.75%, 2005 9,500 9,311
Stone Container Corp., 11.875%, 2016 3,500 3,658
Stone Container Finance Corp., 11.50%, 2006 2,500 2,594
-----------------------------------------------------------------------------
50,090
- ----------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--.2% Nortek, Inc., 9.875%, 2004 5,220 5,103
</TABLE>
14
PORTFOLIO OF INVESTMENTS
<PAGE> 117
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
CONSUMER CYCLICALS--6.4% AMF Group
12.25%, 2006 $ 1,700 $ 1,045
10.875%, 2006 2,500 2,589
Adelphia Communications Corporation,
12.50%, 2002 1,870 1,851
American Radio System, 9.00%, 2006 5,740 5,453
Bally's Park Place Funding, 9.25%, 2004 8,200 8,979
CF Cable TV, Inc., 11.625%, 2005 1,060 1,227
Cablevision Industries Corporation, 10.75%,
2002 6,300 6,826
Cablevision Systems Corporation, 9.25%, 2005 8,200 7,728
Cinemark USA, Inc., 9.625%, 2008 7,000 6,860
Circus Circus Enterprises, 6.45%, 2006 5,000 4,756
(b)Comcast UK Cable Partners Limited, 11.20%,
2007 13,120 8,577
Delco Remy International, 10.625%, 2006 5,000 5,150
Federated Department Stores, 10.00%, 2001 9,500 10,397
Granite Broadcasting Corp., 9.375%, 2005 5,640 5,379
Hayes Wheels International, Inc., 11.00%, 2006 5,000 5,200
K-III Communications Corporation, 8.50%, 2006 4,250 3,990
News American Holdings, 9.25%, 2013 9,500 10,707
Paging Network, Inc., 10.125%, 2007 2,850 2,871
Pathmark Stores, Inc.
11.625%, 2002 3,700 3,816
9.625%, 2003 3,000 2,933
Rogers Cantel Mobile Inc., 11.125%, 2002 6,990 7,383
Royal Caribbean Cruises Ltd., 8.25%, 2005 9,500 10,165
Sears Roebuck Acceptance Corp., 6.75%, 2005 9,500 9,400
Sinclair Broadcasting Group, Inc., 10.00%, 2003 7,790 7,605
TCI Communications, 8.65%, 2004 4,750 4,722
(b)TeleWest Communications PLC, 11.00%, 2007 17,250 11,040
360 Communications, 7.125%, 2003 9,500 9,416
Time Warner Entertainment Company, L.P.,
8.875%, 2012 4,750 5,151
Time Warner Inc., 9.125%, 2013 4,750 5,207
Trump Atlantic City, 11.25%, 2006 8,200 7,770
Univision TV, 11.75%, 2001 7,000 7,368
(b)Videotron Holdings, 11.125%, 2004 2,800 2,275
-----------------------------------------------------------------------------
193,836
- ----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--.2% WestPoint Stevens, 9.375%, 2005 5,100 5,151
- ----------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.1% Nabisco Inc., 8.00%, 2000 4,500 4,676
- ----------------------------------------------------------------------------------------------------------------
ENERGY--1.6% BHP Finance USA, 7.875%, 2002 9,500 10,091
Gulf Canada Resources Limited, 9.25%, 2004 7,000 7,262
Parker & Parsley Petroleum, 8.25%, 2007 9,500 10,285
Petronas Dagangan Bhd, 7.75%, 2015 4,500 4,621
Repsol International Finance, 7.00%, 2005 5,000 5,054
USX Corporation, 9.375%, 2012 9,500 10,850
-----------------------------------------------------------------------------
48,163
</TABLE>
15
PORTFOLIO OF INVESTMENTS
<PAGE> 118
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
FINANCE--5.0% AB Spintab, 7.50%, 2049 $ 9,500 $ 9,616
ABN-AMRO Bank, 8.25%, 2009 9,500 10,190
Abbey National First Capital, 8.20%, 2004 3,200 3,457
Abbey National PLC, 7.35%, 2006 6,300 6,404
Associates Corp. N.A., 8.25%, 1999 9,500 10,011
BCH Cayman Islands Limited, 7.70%, 2006 5,500 5,692
Banco Central Hispano Americano, 7.50%, 2005 4,000 4,086
Bangkok Bank Ltd., 7.25%, 2005 9,500 9,335
Capital One Bank, 8.125%, 2000 9,500 9,899
Citicorp, 7.625%, 2005 4,000 4,175
ERAC USA Finance, 6.95%, 2006 9,500 9,292
Equitable Life, 6.95%, 2005 5,500 5,449
GMAC Medium Term Note, 8.50%, 2000 9,500 10,162
Lehman Brothers Holdings, 7.25%, 2003 9,500 9,621
Merita Bank Ltd., 6.50%, 2006 5,500 5,276
NationsBank Corp., 7.50%, 2006 9,500 9,832
Skandinaviska Enskilda Banken, 6.625%, 2049 6,000 5,912
Societe Generale New York, 7.40%, 2006 9,500 9,737
SunTrust Banks, Atlanta, 7.25%, 2006 9,500 9,723
UBS Securities, 7.25%, 2006 4,500 4,619
-----------------------------------------------------------------------------
152,488
- ----------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.0% Columbia/HCA Healthcare Corp., 7.25%, 2008 4,500 4,599
MedPartners, 7.375%, 2006 9,500 9,580
Ornda HealthCorp.
12.25%, 2002 6,560 7,027
11.375%, 2004 1,740 1,979
Tenet Healthcare Corporation
9.625%, 2002 580 635
10.125%, 2005 6,420 7,046
-----------------------------------------------------------------------------
30,866
- ----------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.7% Delta Airlines
9.875%, 2008 3,106 3,521
9.750%, 2021 9,250 11,138
United Airlines, 9.56%, 2018 4,750 5,365
-----------------------------------------------------------------------------
20,024
- ----------------------------------------------------------------------------------------------------------------
UTILITIES--1.2% (b)International CableTel Inc., 11.50%, 2006 13,000 7,897
(b)PanAmSat, L.P., 11.375%, 2003 8,200 7,524
Southwestern Bell Telephone, 6.625%, 2005 4,500 4,424
Tenaga Nasional Berhad, 7.875%, 2004 8,000 8,460
USA Mobile Communications, Inc., 9.50%, 2004 7,950 7,403
-----------------------------------------------------------------------------
35,708
-----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--18.1%
(Cost: $539,310) 546,105
-----------------------------------------------------------------------------
</TABLE>
16
PORTFOLIO OF INVESTMENTS
<PAGE> 119
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
MONEY MARKETS Yield--5.26% to 5.47%
INSTRUMENTS--3.5%
Due--November and December 1996
(Cost: $105,254) $ 105,400 $ 105,253
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--100.4%
(Cost: $2,691,653) 3,032,309
-----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER
ASSETS--(.4)% (11,511)
-----------------------------------------------------------------------------
NET ASSETS--100% $3,020,798
-----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
(b) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.
Based on the cost of investments of $2,691,653,000 for federal income tax
purposes at October 31, 1996, the gross unrealized appreciation was
$366,994,000, the gross unrealized depreciation was $26,338,000 and the net
unrealized appreciation on investments was $340,656,000.
See accompanying Notes to Financial Statements.
17
PORTFOLIO OF INVESTMENTS
<PAGE> 120
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TOTAL RETURN FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Total Return Fund as of
October 31, 1996, the related statements of operations for the year then ended
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal periods since 1992. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Total Return Fund at October 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the fiscal periods
since 1992, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 17, 1996
18
REPORT OF INDEPENDENT AUDITORS
<PAGE> 121
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
(in thousands)
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $2,691,653) $3,032,309
- -------------------------------------------------------------------------------------------------------
Cash 50
- -------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 7,927
- -------------------------------------------------------------------------------------------------------
Fund shares sold 998
- -------------------------------------------------------------------------------------------------------
Dividends and interest 23,410
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,064,694
- -------------------------------------------------------------------------------------------------------
</TABLE>
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Investments purchased 36,493
- -------------------------------------------------------------------------------------------------------
Fund shares redeemed 3,170
- -------------------------------------------------------------------------------------------------------
Management fee 1,354
- -------------------------------------------------------------------------------------------------------
Distribution services fee 718
- -------------------------------------------------------------------------------------------------------
Administrative services fee 639
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,397
- -------------------------------------------------------------------------------------------------------
Trustees' fees 125
- -------------------------------------------------------------------------------------------------------
Total liabilities 43,896
- -------------------------------------------------------------------------------------------------------
NET ASSETS $3,020,798
- -------------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $2,267,074
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 398,463
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 340,656
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 14,605
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,020,798
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE PRICING OF SHARES
<TABLE>
<S> <C>
CLASS A SHARES
Net asset value and redemption price per share
($1,865,933 / 165,455 shares outstanding) $11.28
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $11.97
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,132,718 / 100,551 shares outstanding) $11.27
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($11,067 / 981 shares outstanding) $11.28
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($11,080 / 983 shares outstanding) $11.27
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19
FINANCIAL STATEMENTS
<PAGE> 122
STATEMENT OF OPERATIONS
Year ended October 31, 1996
(in thousands)
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Interest $ 85,039
- -------------------------------------------------------------------------------------------------------
Dividends 27,187
- -------------------------------------------------------------------------------------------------------
Total investment income 112,226
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 15,825
- -------------------------------------------------------------------------------------------------------
Distribution services fee 8,524
- -------------------------------------------------------------------------------------------------------
Administrative services fee 7,044
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 9,393
- -------------------------------------------------------------------------------------------------------
Professional fees 92
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 512
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 119
- -------------------------------------------------------------------------------------------------------
Total expenses 41,509
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 70,717
- -------------------------------------------------------------------------------------------------------
</TABLE>
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments and foreign currency transactions 395,876
- -------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 232
- -------------------------------------------------------------------------------------------------------
Net realized gain 396,108
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (58,142)
- -------------------------------------------------------------------------------------------------------
Net gain on investments 337,966
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $408,683
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 70,717 74,278
- ---------------------------------------------------------------------------------------------------------
Net realized gain 396,108 166,489
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (58,142) 250,703
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 408,683 491,470
- ---------------------------------------------------------------------------------------------------------
Net equalization charges (2,799) (3,257)
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income (83,169) (61,461)
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain (136,617) --
- ---------------------------------------------------------------------------------------------------------
Total dividends to shareholders (219,786) (61,461)
- ---------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (91,842) (364,532)
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 94,256 62,220
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 2,926,542 2,864,322
- ---------------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$14,605 and $29,814, respectively) $3,020,798 2,926,542
- ---------------------------------------------------------------------------------------------------------
</TABLE>
20
FINANCIAL STATEMENTS
<PAGE> 123
- --------------------------------------------------------------------------------
1
DESCRIPTION OF THE
FUND Kemper Total Return Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund offers
four classes of shares. Class A shares are sold to
investors subject to an initial sales charge. Class
B shares are sold without an initial sales charge
but are subject to higher ongoing expenses than
Class A shares and a contingent deferred sales
charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares six
years after issuance. Class C shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and,
for shares sold on or after April 1, 1996, a
contingent deferred sales charge payable upon
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Class I shares are sold to a limited group of
investors, are not subject to initial or contingent
deferred sales charges and have lower ongoing
expenses than other classes. Differences in class
expenses will result in the payment of different
per share income dividends by class. All shares of
the Fund have equal rights with respect to voting,
dividends and assets, subject to class specific
preferences.
- --------------------------------------------------------------------------------
2
SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Exchange traded fixed
income options are valued at the last sale price
unless there is no sale price, in which event
prices provided by market makers are used.
Financial futures and options thereon are valued at
the settlement price established each day by the
board of trade or exchange on which they are
traded. Forward foreign currency contracts are
valued at the forward rates prevailing on the day
of valuation. Other securities and assets are
valued at fair value as determined in good faith by
the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
21
NOTES TO FINANCIAL STATEMENTS
<PAGE> 124
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income quarterly
and net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3
TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining to .42% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $15,825,000 for the
year ended October 31, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended
October 31, 1996 $ 225,000 1,697,000 79,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
22
NOTES TO FINANCIAL STATEMENTS
<PAGE> 125
Class B and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND DISTRIBUTION
FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC RECEIVED ------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
Year ended
October 31, 1996 $10,613,000 3,641,000 64,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ------------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended
October 31, 1996 $ 7,044,000 7,049,000 194,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of
$7,481,000 for the year ended October 31, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended October 31, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $52,000 to independent trustees.
- --------------------------------------------------------------------------------
4
INVESTMENT
TRANSACTIONS For the year ended October 31, 1996, investment
transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $2,584,854
Proceeds from sales 2,796,460
23
NOTES TO FINANCIAL STATEMENTS
<PAGE> 126
- --------------------------------------------------------------------------------
5
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------- -----------------------
SHARES 1996 AMOUNT SHARES 1995 AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 14,891 $ 157,710 14,502 $ 135,398
----------------------------------------------------------------------------
Class B 13,124 139,556 15,052 143,653
----------------------------------------------------------------------------
Class C 572 6,084 395 3,809
----------------------------------------------------------------------------
Class I 298 3,158 1,310 13,241
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 12,664 128,872 4,083 39,343
----------------------------------------------------------------------------
Class B 7,404 75,047 1,801 17,381
----------------------------------------------------------------------------
Class C 43 435 6 61
----------------------------------------------------------------------------
Class I 99 1,011 10 108
----------------------------------------------------------------------------
SHARES REDEEMED
Class A (34,314) (361,075) (47,282) (445,366)
----------------------------------------------------------------------------
Class B (22,191) (234,855) (28,454) (269,650)
----------------------------------------------------------------------------
Class C (139) (1,482) (110) (1,072)
----------------------------------------------------------------------------
Class I (596) (6,303) (138) (1,438)
----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 5,021 53,080 7,674 72,592
----------------------------------------------------------------------------
Class B (5,028) (53,080) (7,680) (72,592)
----------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL SHARE
TRANSACTIONS $ (91,842) $(364,532)
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded futures
contracts in order to help protect it from
anticipated market conditions and, as such, bears
the risk that arises from entering into these
contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and its broker as the market value
of the futures contract fluctuates. At October 31,
1996, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $646,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures positions
open at October 31, 1996 (in thousands):
<TABLE>
<CAPTION>
EXPIRATION LOSS AT
TYPE FACE AMOUNT MONTH 10/31/96
---------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Notes $16,007,500 December '96 $(656,000)
---------------------------------------------------------------------------
</TABLE>
24
NOTES TO FINANCIAL STATEMENTS
<PAGE> 127
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $10.60 9.10 11.23 10.07 10.07
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .28 .29 .19 .30 .22
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.24 1.46 (1.01) 1.54 .37
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.52 1.75 (.82) 1.84 .59
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .34 .25 .23 .24 .29
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .50 -- 1.08 .44 .30
- -------------------------------------------------------------------------------------------------------
Total dividends .84 .25 1.31 .68 .59
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $11.28 10.60 9.10 11.23 10.07
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN 15.34% 19.46 (7.92) 19.08 6.09
RATIOS TO AVERAGE NET ASSETS
Expenses 1.05% 1.12 1.13 1.02 1.06
- -------------------------------------------------------------------------------------------------------
Net investment income 2.76% 3.00 2.34 2.94 2.23
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
<S> <C> <C> <C>
YEAR ENDED MAY 31 TO
OCTOBER 31, OCTOBER 31,
1996 1995 1994
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.59 9.09 9.24
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .20 .06
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.23 1.46 (.16)
- ------------------------------------------------------------------------------------
Total from investment operations 1.42 1.66 (.10)
- ------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24 .16 .05
- ------------------------------------------------------------------------------------
Distribution from net realized gain .50 -- --
- ------------------------------------------------------------------------------------
Total dividends .74 .16 .05
- ------------------------------------------------------------------------------------
Net asset value, end of period $11.27 10.59 9.09
- ------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.28% 18.42 (1.06)
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.99% 2.05 2.03
- ------------------------------------------------------------------------------------
Net investment income 1.82% 2.07 1.57
- ------------------------------------------------------------------------------------
</TABLE>
25
FINANCIAL HIGHLIGHTS
<PAGE> 128
[CAPTION]
<TABLE>
<CAPTION>
CLASS C CLASS I
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31 TO YEAR ENDED JULY 3 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.61 9.09 9.24 10.61 10.07
- -------------------------------------------------------------------------- ----------------------------
Income from investment operations:
Net investment income .20 .21 .06 .32 .10
- -------------------------------------------------------------------------- ----------------------------
Net realized and unrealized gain (loss) 1.22 1.48 (.16) 1.23 .52
- -------------------------------------------------------------------------- ----------------------------
Total from investment operations 1.42 1.69 (.10) 1.55 .62
- -------------------------------------------------------------------------- ----------------------------
Less dividends:
Distribution from net investment income .25 .17 .05 .39 .08
- -------------------------------------------------------------------------- ----------------------------
Distribution from net realized gain .50 -- -- .50 --
- -------------------------------------------------------------------------- ----------------------------
Total dividends .75 .17 .05 .89 .08
- -------------------------------------------------------------------------- ----------------------------
Net asset value, end of period $11.28 10.61 9.09 11.27 10.61
- -------------------------------------------------------------------------- ----------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.31% 18.76 (1.05) 15.64 6.21
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.89% 1.86 2.00 .72 .61
- -------------------------------------------------------------------------- ----------------------------
Net investment income 1.92% 2.26 1.60 3.09 2.97
- -------------------------------------------------------------------------- ----------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $3,020,798 2,926,542 2,864,322 1,509,687 1,212,896
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 85% 142 121 180 150
- -----------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended October 31, 1996 was
$.0580.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
26
FINANCIAL HIGHLIGHTS
<PAGE> 129
KEMPER TOTAL RETURN FUND
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Financial statements included in Part A of the Registration
Statement: Financial Highlights.
(ii) Financial statements included in Part B of the Registration
Statement:
Statement of assets and liabilities--October 31, 1996.
Statement of operations for the year ended October 31, 1996.
Statement of changes in net assets for each of the two years in
the period ended October 31, 1996.
Portfolio of investments--October 31, 1996.
Notes to financial statements.
Schedules II, III, IV and V are omitted as the required information is
not present.
Schedule I has been omitted as the required information is presented in
the portfolio of investments at October 31, 1996.
(b) Exhibits
<TABLE>
<S> <C>
99.B1. Amended and Restated Agreement and Declaration of Trust.*
99.B2. By-Laws.*
99.B3. Inapplicable.
99.B4. (a) Text of Share Certificate.*
99.B4. (b) Written Instrument Establishing and Designating Separate Classes of
Shares.*
99.B4. (c) Amended and Restated Written Instrument Establishing and Designating
Separate Classes of Shares.
99.B5. (a) Investment Management Agreement.
99.B5. (b) Sub-Advisory Agreement.
99.B6. (a) Underwriting and Distribution Services Agreement.
99.B6. (b) Form of Selling Group Agreement.*
99.B6. (c) Addendum to Selling Group Agreement.
99.B7. Inapplicable.
99.B8. (a) Custody Agreement.*
99.B8. (b) Foreign Custody Agreement.*
99.B9. (a) Agency Agreement.*
99.B9. (b) Supplement to Agency Agreement.
99.B9. (c) Administrative Services Agreement.*
99.B9. (d) Amendment to Administrative Services Agreement.*
99.B9. (e) Assignment and Assumption (ASA).*
99.B10. Legal Opinion and Consent.
99.B11. Report and Consent of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14.(a) Kemper Retirement Plan Prototype.*
99.B14.(b) Model Individual Retirement Account.*
99.B15. See 6(a) above (Class B and Class C shares).
99.B16. Performance Calculations.*
99.B18. Multi-Distribution System Plan.
</TABLE>
C-1
<PAGE> 130
<TABLE>
<S> <C>
99.B24. Powers of Attorney.
27. Financial Data Schedule.
485(B) Representation of Counsel (Rule 485).
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's Registration
Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
- ----------------------------------------------------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4(a), 4(b), 6(b), 8(a), 8(b), 9(a), 9(b), 9(c), 49 1-30-96
9(d), 9(e), 14(a), 14(b), and 16
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 2, 1996, there were holders of record of the sole series of
shares of Registrant as follows: 165,342 Class A; 145,899 Class B; 3,770 Class C
and 2,936 Class I.
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-2
<PAGE> 131
ITEM 28(a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment advisers is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Manager and Underwriter"
and to the section of the Statement of Additional Information
captioned "Investment Manager and Underwriter."
Zurich Kemper Investments, Inc., investment adviser of the Registrant, is
investment adviser of:
Kemper Mutual Funds:
Kemper Technology Fund
Kemper Total Return Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Income and Capital Preservation Fund
Kemper Money Funds
Kemper National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Fund
Cash Equivalent Fund
Kemper U.S. Government Securities Fund
Kemper International Fund
Kemper Portfolios
Kemper State Tax-Free Income Series
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
Kemper Global Income Fund
Kemper Target Equity Fund
Cash Account Trust
Investors Cash Trust
Tax-Exempt New York Money Market Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Europe Fund
Kemper Asian Growth Fund
Kemper Closed-End Funds:
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund
Zurich Kemper Investments, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors Fund
and Kemper International Bond Fund.
C-3
<PAGE> 132
Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Adviser
TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Kemper Service Company
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
NEAL, JOHN E.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
CHENG, LAURENCE W.
Director, Zurich Kemper Investments, Inc.
President and Chief Executive Officer, Zurich Investment
Management Group
C-4
<PAGE> 133
MORAX, DOMINQUE P.
Director, Zurich Kemper Investments, Inc.
Senior Vice President, Member Extended Corporate Executive Board,
Zurich Insurance Company
Trustee, Kemper Funds
CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.
VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan
BEIMFORD, JR., JOSEPH P.
Executive Vice President, Chief Investment Officer - Fixed
Income, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Galaxy Offshore, Inc.
Vice President, Investors Cash Trust
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Global Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper International Bond Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Income Fund
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper U.S. Government Securities Fund
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
COXON, JAMES H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Vice President, Galaxy Offshore, Inc.
C-5
<PAGE> 134
Executive Vice President, Zurich Investment Management, Inc.
FERRO, DENNIS H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Managing Director-Equities, Zurich Investment
Management Limited
Vice President, Kemper International Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Target Equity Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.
JOHNS, GORDON K.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Global Income Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper International Bond Fund
Vice President, Kemper International Management, Inc.
Managing Director, Zurich Investment Management Limited
Vice President, Kemper Multi-Market Income Trust
Director, Thames Heritage Parade Limited
LANGBAUM, GARY A.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Total Return Fund
Vice President, Kemper Investors Fund
MANZONI, JR., CHARLES R.
Executive Vice President, Secretary & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
Secretary, Kemper Service Company
Secretary, Kemper Distributors, Inc.
Secretary, ZKI Holding Corporation
MURRIHY, MAURA J.
Executive Vice President, Zurich Kemper Investments, Inc.
REYNOLDS, STEVEN H.
Executive Vice President, Chief Investment Officer - Equities, Zurich
Kemper Investments, Inc.
Vice President, Kemper Technology Fund
Vice President, Kemper Total Return Fund
Vice President, Kemper Growth Fund
Vice President, Kemper Small Capitalization Equity Fund
Vice President, Kemper International Fund
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
C-6
<PAGE> 135
ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Kemper Service Company
WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Investment Management, Inc.
BUKOWSKI, DANIEL J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Investors Fund
BUTLER, DAVID H.
Senior Vice President, Zurich Kemper Investments, Inc.
CERVONE, DAVID M.
Senior Vice President, Zurich Kemper Investments, Inc.
CESSINE, ROBERT S.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Investors Fund
CHESTER, TRACY McCORMICK
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Target Equity Fund
CHIEN, CHRISTINE
Senior Vice President, Zurich Kemper Investments, Inc.
CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Kemper Service Company
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds
C-7
<PAGE> 136
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.
DUDASIK, PATRICK H.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Director and Treasurer, Zurich Investment Management Limited
Treasurer, ZKI Agency, Inc.
DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds
FENGER, JAMES E.
Senior Vice President, Zurich Kemper Investments, Inc.
FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.
GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.
KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
KLEIN, MARTY
Senior Vice President, Zurich Kemper Investments, Inc.
KORTH, FRANK D.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Technology Fund
McNAMARA, MICHAEL A.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
C-8
<PAGE> 137
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MOELLER, JAMES V.
Senior Vice President, Zurich Kemper Investments, Inc.
MOORE, C. PERRY
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
MIER, CHRISTOPHER J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Municipal Income Trust
RABIEGA, CRAIG F.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
RACHWALSKI, JR. FRANK J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Investors Cash Trust
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Portfolios
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
REGNER, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
RESIS, JR., HARRY E.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
SCHUMACHER, ROBERT T.
Senior Vice President, Zurich Kemper Investments, Inc.
SILVIA, JOHN E.
Senior Vice President, Zurich Kemper Investments, Inc.
SMITH, JR., EDWARD BYRON
Senior Vice President, Zurich Kemper Investments, Inc.
SWANSON, DAVID
Senior Vice President, Zurich Kemper Investments, Inc.
C-9
<PAGE> 138
THOUIN-LEERKAMP, EDITH A.
Senior Vice President, Zurich Kemper Investments, Inc.
Director-European Equities, Zurich Investment Management Limited
Vice President, Kemper Europe Fund
VANDENBERG, RICHARD
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper U.S. Government Securities Fund
Vice President, Kemper Portfolios
Vice President, Kemper Adjustable Rate U.S. Government Fund
VINCENT, CHRISTOPHER T.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich Investment Management, Inc.
WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
BAZAN, KENNETH M.
First Vice President, Zurich Kemper Investments, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
BOEHM, JONATHAN J.
First Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
BURROW, DALE R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
BYRNES, ELIZABETH A.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Intermediate Government Trust
CHIEN, CHRISTINE
First Vice President, Zurich Kemper Investments, Inc.
CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
COHEN, JERRI I.
First Vice President, Zurich Kemper Investments, Inc.
DeMAIO, CHRIS C.
First Vice President, Zurich Kemper Investments, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company
C-10
<PAGE> 139
DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.
DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.
HALE, DAVID D.
First Vice President, Zurich Kemper Investments, Inc.
HAUSKEN, PHILIP D.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
HORTON, ROBERT J.
First Vice President, Zurich Kemper Investments, Inc.
INNES, BRUCE D.
First Vice President, Zurich Kemper Investments, Inc.
Co-President, International Association of Corporate and
Professional Recruiters
JACOBS, PETER M.
First Vice President, Zurich Kemper Investments, Inc.
KEELEY, MICHELLE M.
First Vice President, Zurich Kemper Investments, Inc.
KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.
KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.
LAUGHLIN, ANN M.
First Vice President, Zurich Kemper Investments, Inc.
LENTZ, MAUREEN P.
First Vice President, Zurich Kemper Investments, Inc.
McCRINDLE-PETRARCA, SUSAN
First Vice President, Zurich Kemper Investments, Inc.
MINER, EDWARD
First Vice President, Zurich Kemper Investments, Inc.
MURRAY, SCOTT S.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.
C-11
<PAGE> 140
PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.
PONTECORE, SUSAN E.
First Vice President, Zurich Kemper Investments, Inc.
RADIS, STEVE A.
First Vice President, Zurich Kemper Investments, Inc.
RATEKIN, DIANE E.
First Vice President, Assistant General Counsel and Assistant
Secretary, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.
SMITH, ROBERT G.
First Vice President, Zurich Kemper Investments, Inc.
STUEBE, JOHN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
TEPPER, SHARYN A.
First Vice President, Zurich Kemper Investments, Inc.
TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
WETHERALD, ROBERT F.
First Vice President, Zurich Kemper Investments, Inc.
WILLSON, STEPHEN R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
WITTNEBEL, MARK E.
First Vice President, Zurich Kemper Investments, Inc.
ADAMS, DONALD
Vice President, Zurich Kemper Investments, Inc.
ALLEN, PATRICIA L.
Vice President, Zurich Kemper Investments, Inc.
ANDREASEN, AMY
Vice President, Zurich Kemper Investments, Inc.
ANTONAK, GEORGE A.
Vice President, Zurich Kemper Investments, Inc.
BALASUBRAMANIAM, KALAMADI
Vice President, Zurich Kemper Investments, Inc.
BARRY, JOANN M.
Vice President, Zurich Kemper Investments, Inc.
C-12
<PAGE> 141
BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.
BODEM, RICHARD A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
BRENNAN, ELEANOR R.
Vice President, Zurich Kemper Investments, Inc.
BUCHANAN, PAMELA S.
Vice President, Zurich Kemper Investments, Inc.
BURKE, MARY PAT
Vice President, Zurich Kemper Investments, Inc.
BURSHTAN, DAVID H.
Vice President, Zurich Kemper Investments, Inc.
CARNEY, ANNE T.
Vice President, Zurich Kemper Investments, Inc.
CACCIOLA, RONALD
Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.
COHEN, JERRI I.
Vice President, Zurich Kemper Investments, Inc.
COULTER, STEVAN F.
Vice President, Zurich Kemper Investments, Inc.
ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
FRIHART, THORA A.
Vice President, Zurich Kemper Investments, Inc.
GERACI, AUGUST L.
Vice President, Zurich Kemper Investments, Inc.
GOLAN, JAMES S.
Vice President, Zurich Kemper Investments, Inc.
GOODWIN, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.
GRAY, PATRICK
Vice President, Zurich Kemper Investments, Inc.
GROOTENDORST, TONYA
Vice President, Zurich Kemper Investments, Inc.
HECHT, MARC L.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.
Assistant Secretary, ZKI Holding Corporation
Assistant Secretary, ZKI Agency, Inc.
C-13
<PAGE> 142
HUOT, LISA L.
Vice President, Zurich Kemper Investments, Inc.
JASINSKI, R. ANTHONY
Vice President, Zurich Kemper Investments, Inc.
KARWOWSKI, KENNETH F.
Vice President, Zurich Kemper Investments, Inc.
KENNEDY, PATRICK J.
Vice President, Zurich Kemper Investments, Inc.
KOBS, MICHAEL G.
Vice President, Zurich Kemper Investments, Inc.
KOCH, DEBORAH L.
Vice President, Zurich Kemper Investments, Inc.
KOURY, KATHRYN E.
Vice President, Zurich Kemper Investments, Inc.
KOWALCZYK, MARK A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
KRANZ, KATHY J.
Vice President, Zurich Kemper Investments, Inc.
KRUEGER, PAMELA D.
Vice President, Zurich Kemper Investments, Inc.
KYCE, JOYCE
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
LASKA, ROBERTA E.
Vice President, Zurich Kemper Investments, Inc.
LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.
LeFEBVRE, THOMAS J.
Vice President, Zurich Kemper Investments, Inc.
McGINN, MARTHA R.
Vice President, Zurich Kemper Investments, Inc.
McGOVERN, KAREN B.
Vice President, Zurich Kemper Investments, Inc.
MILLER, GARY L.
Vice President, Zurich Kemper Investments, Inc.
MILLIGAN, BRIAN J.
Vice President, Zurich Kemper Investments, Inc.
C-14
<PAGE> 143
MULLEN, TERRENCE
Vice President, Zurich Kemper Investments, Inc.
MURPHY, THOMAS M.
Vice President, Zurich Kemper Investments, Inc.
NEVILLE, BRIAN P.
Vice President, Zurich Kemper Investments, Inc.
NORMAN, JR., DONALD L.
Vice President, Zurich Kemper Investments, Inc.
NOWAK, GREGORY J.
Vice President, Zurich Kemper Investments, Inc.
PANOZZO, ALBERT R.
Vice President, Zurich Kemper Investments, Inc.
PAXTON, THOMAS
Vice President, Zurich Kemper Investments, Inc.
QUADRINI, LISA L.
Vice President, Zurich Kemper Investments, Inc.
RANDALL, JR., WALTER R.
Vice President, Zurich Kemper Investments, Inc.
ROBINSON, DEBRA A.
Vice President, Zurich Kemper Investments, Inc.
RODGERS, JOHN B.
Vice President, Zurich Kemper Investments, Inc.
ROKOSZ, PAUL A.
Vice President, Zurich Kemper Investments, Inc.
ROSE, KATIE M.
Vice President, Zurich Kemper Investments, Inc.
RUDIN, MICHELLE I.
Vice President, Zurich Kemper Investments, Inc.
SAENGER, MARYELLEN
Vice President, Zurich Kemper Investments, Inc.
SHULTZ, KAREN D.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.
C-15
<PAGE> 144
SPILLER, KATHLEEN A.
Vice President, Zurich Kemper Investments, Inc.
SPURLING, CHRIS
Vice President, Zurich Kemper Investments, Inc.
STROMM, LAWRENCE D.
Vice President, Zurich Kemper Investments, Inc.
THOMAS, JILL
Vice President, Zurich Kemper Investments, Inc.
VANDEMERKT, RICHARD J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.
WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End Mutual Funds
WILNER, MITCHELL
Vice President, Zurich Kemper Investments, Inc.
WIZER, BARBARA K.
Vice President, Zurich Kemper Investments, Inc.
ZURAWSKI, CATHERINE N.
Vice President, Zurich Kemper Investments, Inc.
C-16
<PAGE> 145
Item 28(b)(ii) Business and Other Connections of Officers and Directors of
Zurich Investment Management Limited, the Investment Sub-Advisor
JOHNS, GORDON K.
Director, Managing Director, Zurich Investment Management Limited
Director, Thames Heritage Parade Limited
NEAL, JOHN E.
Director, Zurich Investment Management Limited
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, Zurich Kemper Investments, Inc.
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
TIMBERS, STEPHEN B.
Director, Zurich Investment Management Limited
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Dreman Value Advisors, Inc.
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Kemper Service Company
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Director, Investment Analysts Society of Chicago
Governor, Investment Company Institute
Director, ZKI Agency, Inc.
FERRO, DENNIS H.
Director, Managing Director-Equities, Zurich Investment
Management Limited
C-17
<PAGE> 146
DUDASIK, PATRICK H.
Director and Treasurer, Zurich Investment Management Limited
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Treasurer, ZKI Agency, Inc.
THOUIN-LEERKAMP, EDITH A.
Director-European Equities, Zurich Investment Management Limited
HAAS, RICHARD D.W.
Director, Finance Director, Compliance Officer and Joint
Secretary, Zurich Investment Management Limited
PRIDEAUX, TERENCE C.
Director, Zurich Investment Management Limited
KOMAROMY, LESLIE J.S.
Director, Zurich Investment Management Limited
WALLIS, STEPHEN P.
Director, Zurich Investment Management Limited
MASON, ANDREW
Director-Asian Equities, Zurich Investment Management Limited
SHANKAR, RAVI
Director-Fixed Income Strategy, Zurich Investment Management
Limited
SLENDEBROEK, MARC J.
Associate Director, Zurich Investment Management Limited
GRAHAM, ANDREW
Associate Director, Zurich Investment Management Limited
BOORMAN, JONATHAN J.
Associate Director, Zurich Investment Management Limited
C-18
<PAGE> 147
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Mutual
Funds, Kemper Investors Fund, Kemper International Bond Fund and Kemper-Dreman
Fund, Inc.
(b) Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago, Illinois
60606.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
William E. Chapman, II Director, Executive Vice President None
John E. Neal Director Vice President
Stephen B. Timbers Director President/Trustee
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Thomas V. Bruns Senior Vice President None
Terry Cunningham Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
Philip D. Hausken Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Charles R. Manzoni, Jr. Secretary Vice President
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
C-19
<PAGE> 148
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, the offices of Registrant's investment adviser, Zurich Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606 or at the
offices of the custodian and transfer agent, Investors Fiduciary Trust Company,
127 West 10th Street, Kansas City, Missouri 64105 or at the offices of the
shareholder service agent, Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-20
<PAGE> 149
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chicago and State of Illinois, on the 20th day of December, 1996.
KEMPER TOTAL RETURN FUND
By /s/ Stephen B. Timbers
---------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on December 20,
1996 on behalf of the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Stephen B. Timbers President
------------------------------------- (Principal
Stephen B. Timbers Executive Officer)
and Trustee
/s/ David W. Belin* Trustee
-------------------------------------
/s/ Lewis A. Burnham* Trustee
-------------------------------------
/s/ Donald L. Dunaway* Trustee
-------------------------------------
/s/ Robert B. Hoffman* Trustee
-------------------------------------
/s/ Donald R. Jones* Trustee
-------------------------------------
/s/ Dominique P. Morax* Trustee
-------------------------------------
/s/ Shirley D. Peterson* Trustee
-------------------------------------
/s/ William P. Sommers* Trustee
-------------------------------------
/s/ Jerome L. Duffy
------------------------------------- Treasurer
Jerome L. Duffy (Principal
Financial and
Accounting Officer)
*Philip J. Collora signs this document pursuant to powers of
attorney filed herewith.
/s/ Philip J. Collora
--------------------------------
Philip J. Collora
<PAGE> 150
KEMPER TOTAL RETURN FUND
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibits
99.B1. Amended and Restated Agreement and Declaration of Trust.*
99.B2. By-Laws.*
99.B3. Inapplicable.
99.B4. (a) Text of Share Certificate.*
99.B4. (b) Written Instrument Establishing and Designating Separate Classes of Shares.*
99.B4. (c) Amended and Restated Written Instrument Establishing and Designating Separate
Classes of Shares.
99.B5. (a) Investment Management Agreement.
99.B5. (b) Sub-Advisory Agreement.
99.B6. (a) Underwriting and Distribution Services Agreement.
99.B6. (b) Form of Selling Group Agreement.*
99.B6. (c) Addendum to Selling Group Agreement.
99.B7. Inapplicable.
99.B8. (a) Custody Agreement.*
99.B8. (b) Foreign Custody Agreement.*
99.B9. (a) Agency Agreement.*
99.B9. (b) Supplement to Agency Agreement.
99.B9. (c) Administrative Services Agreement.*
99.B9. (d) Amendment to Administrative Services Agreement.*
99.B9. (e) Assignment and Assumption (ASA).*
99.B10. Legal Opinion and Consent.
99.B11. Report and Consent of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14.(a) Kemper Retirement Plan Prototype.*
99.B14.(b) Model Individual Retirement Account.*
99.B15. See 6(a) above (Class B and Class C shares).
99.B16. Performance Calculations.*
99.B18. Multi-Distribution System Plan.
99.B24. Powers of Attorney.
27. Financial Data Schedule.
485(B) Representation of Counsel (Rule 485).
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's Registration
Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
- ----------------------------------------------------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4(a), 4(b), 6(b), 8(a), 8(b), 9(a), 9(c), 9(d), 49 1-30-96
9(e), 14(a), 14(b), and 16
</TABLE>
<PAGE> 1
EXHIBIT 99.B4(c)
KEMPER TOTAL RETURN FUND
AMENDED AND RESTATED
WRITTEN INSTRUMENT ESTABLISHING
AND DESIGNATING SEPARATE CLASSES OF SHARES
March 9, 1996
The undersigned constitute all the Trustees of Kemper Total Return Fund
(the "Fund"), a Massachusetts business trust governed by an Amended and Restated
Agreement and Declaration of Trust dated May 27, 1994 (the "Amended Declaration
of Trust"). This amended and restated instrument is executed pursuant to
Section 1 of Article III of the Amended Declaration of Trust in order to
establish and designate separate classes of shares of any series of the Fund, is
based in part upon resolutions of the Board of Trustees of the Fund adopted at
meetings held on January 14, 1994 and March 8-9, 1996 and amends and restates a
prior written instrument related to the subject matter hereof.
WHEREAS, Under the Amended Declaration of Trust the Board of Trustees has
the authority, in its discretion and without shareholder approval, to divide the
shares of any series of the Fund into separate classes of shares;
WHEREAS, This Board of Trustees has previously approved, subject to various
conditions, the division of the shares of each series of the Fund into four
classes of shares, to be named "Class A Shares," "Class B Shares," "Class C
Shares" and "Class I Shares" and has on this date approved amendments to the
terms of such division of shares;
WHEREAS, This Board of Trustees deems it desirable and in the best
interests of the Fund to amend and restate the terms and conditions governing
the division of the shares of each series of the Fund, whether now existing or
hereafter created (the "series"), into four separate classes of shares to be
named, as previously indicated, "Class A Shares," "Class B Shares," "Class C
Shares" and "Class I Shares" and the provision to investors of a conversion
feature from Class B Shares to the Class A Shares, which conversion feature
would thereby eliminate any distribution services fee then in effect under any
plan adopted pursuant to Rule 12b-1 of the Investment Company Act of 1940 ("1940
Act") for such Class B Shares; and
WHEREAS, This Board of Trustees believes that the creation of four separate
classes of shares on the terms and conditions as amended and restated herein
will be in the best interests of and will have no negative effects upon the
current shareholders of the Fund;
<PAGE> 2
NOW, THEREFORE, the establishment and designation of separate classes of
shares of any series of the Fund is approved in accordance with the following
amended and restated provisions:
1. Subject to the conditions hereinafter set forth, the shares of any
series shall be divided into four classes to be known respectively as the
"Class A Shares," the "Class B Shares," the "Class C Shares" and the "Class I
Shares," which classes shall have such preferences and special or relative
rights and privileges as may be determined from time to time by this Board of
Trustees subject always to the Amended Declaration of Trust and the 1940 Act
and the rules and regulations thereunder.
2. Subject to the terms of the Amended Declaration of Trust, the Class
A Shares, Class B Shares, Class C Shares and Class I Shares will have the same
rights and privileges except that:
(A) the Class A Shares
(1) shall be sold subject to an initial sales charge as described in
the prospectus for the Fund as from time to time in effect or shall be
issued to shareholders in connection with the conversion feature as
hereinafter described;
(2) shall have an administrative service fee;
(3) shall not have a plan of distribution adopted under Rule 12b-1 of
the 1940 Act ("Rule 12b-1 plan") and no fees payable under the Rule 12b-1
plans for the Class B Shares or Class C Shares shall be allocated or
charged to the Class A Shares; and
(4) shall have such dividend reinvestment, exchange and redemption
rights and privileges as may be described in the prospectus for the Fund
as from time to time in effect; and
(B) the Class B Shares
(1) shall be sold without an initial sales charge but subject to a
contingent deferred sales charge imposed upon the redemption of the Class
B shares as described in the prospectus of the Fund as from time to time
in effect;
(2) shall have an administrative service fee;
(3) shall have a Rule 12b-1 plan and any fees payable from time to
time under such plan shall be allocated and charged to, and any voting
rights with respect to such plan shall be exercisable by, the Class B
Shares only;
2
<PAGE> 3
(4) shall convert to Class A Shares within a specified number of
years as hereinafter described; and
(5) shall have such purchase, dividend reinvestment, exchange and
redemption rights and privileges associated therewith as may be described
in the prospectus for the Fund as from time to time in effect; and
(C) the Class C Shares
(1) shall be sold without any initial sales charge or any contingent
deferred sales charge except that, Class C Shares sold on or after April
1, 1996 shall be subject to a contingent deferred sales charge as
described in the prospectus for the Fund as from time to time in effect;
(2) shall have an administrative service fee;
(3) shall have a Rule 12b-1 plan and any fees payable from time to
time under such plan shall be allocated and charged to, and any voting
rights with respect to such plan shall be exercisable by, the Class C
Shares only; and
(4) shall have such purchase, dividend reinvestment, exchange and
redemption rights and privileges associated therewith as may be described
in the prospectus for the Fund as from time to time in effect; and
(D) the Class I Shares
(1) shall be sold without any initial sales charge or any contingent
deferred sales charge;
(2) shall not have an administrative service fee;
(3) shall not have a Rule 12b-1 plan and no fees payable under the
plans for the Class B Shares or Class C Shares shall be allocated or
charged to the Class I Shares; and
(4) shall have such dividend reinvestment, exchange and redemption
rights and privileges as may be described in the prospectus for the Fund
as from time to time in effect.
3. Any shares of the Fund that were issued and outstanding at the time
when shares of the Fund were originally divided into separate classes of shares
as set forth above shall be classified as Class A Shares.
4. Class A Shares of a series shall be issued to holders of Class B
Shares of the same series pursuant to the following described conversion
feature:
3
<PAGE> 4
(A) Class B Shares will convert to Class A Shares six years after
issuance of such Class B Shares; provided, however, that any Class B
Shares issued in exchange for shares originally classified as Initial
Shares of Kemper Portfolios, formerly known as Kemper Investment
Portfolios (KP), whether in connection with a reorganization with a series
of KP or otherwise, shall convert to Class A Shares seven years after
issuance of such Initial Shares if such Initial Shares were issued prior
to February 1, 1991;
(B) Class B Shares issued upon reinvestment of income and capital
gain dividends and other distributions will convert to Class A Shares on a
pro rata basis with other Class B Shares; and
(C) Conversion to Class A Shares shall be based upon the relative net
asset values of the Class A Shares and the Class B Shares at the time of
conversion.
IN WITNESS WHEREOF, the undersigned have this 9th day of March, 1996
signed these presents.
/s/ Stephen B. Timbers
-----------------------------------
Stephen B. Timbers
210 South Green Bay Road
Lake Forest, IL 60045
(signatures continue)
4
<PAGE> 5
/s/ David W. Belin
-----------------------------------
David W. Belin, Trustee
1705 Plaza Circle
Des Moines, Iowa 50322
/s/ Lewis A. Burnham
-----------------------------------
Lewis A. Burnham, Trustee
16410 Avila Boulevard
Tampa, Florida 33613
/s/ Donald L. Dunaway
-----------------------------------
Donald L. Dunaway, Trustee
7515 Pelican Bay Boulevard, #903
Naples, Florida 33963
/s/ Robert B. Hoffman
-----------------------------------
Robert B. Hoffman, Trustee
10045 Litzsinger Road
St. Louis, MO 63124-1131
/s/ Donald R. Jones
-----------------------------------
Donald R. Jones, Trustee
1776 Beaver Pond Road
Inverness, Illinois 60067
/s/ Dominique P. Morax
-----------------------------------
Dominique P. Morax, Trustee
Vordere Dorfstrasse 13
8803 Ruschlikon
Switzerland
/s/ Shirley D. Peterson
-----------------------------------
Shirley D. Peterson, Trustee
401 Rosemont Avenue
Frederick, MD 21701-8575
/s/ William P. Sommers
-----------------------------------
William P. Sommers, Trustee
2181 Parkside Avenue
Hillsborough, California 94010
-----------------------------------
Stephen B. Timbers, Trustee
210 South Green Bay Road
Lake Forest, Illinois 60045
<PAGE> 1
EXHIBIT 99.B5(a)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 4th day of January, 1996, by and between KEMPER TOTAL
RETURN FUND, a Massachusetts business trust (the "Fund"), and KEMPER FINANCIAL
SERVICES, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, the shares of beneficial interest
("Shares") of which are registered under the Securities Act of 1933;
WHEREAS, the Fund is authorized to issue Shares in separate series or
portfolios with each representing the interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund currently offers or intends to offer Shares in one
portfolio, the Initial Portfolio, together with any other Fund portfolios which
may be established later and served by the Adviser hereunder, being herein
referred to collectively as the "Portfolios" and individually referred to as a
"Portfolio"; and
WHEREAS, the Fund desires at this time to retain the Adviser to render
investment advisory and management services to the Initial Portfolio, and the
Adviser is willing to render such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for
the Initial Portfolio and other Portfolios hereunder and to manage the
investment and reinvestment of the assets of each such Portfolio in accordance
with the applicable investment objectives and policies and limitations, and to
administer the affairs of each such Portfolio to the extent requested by and
subject to the supervision of the Board of Trustees of the Fund for the period
and upon the terms herein set forth, and to place orders for the purchase or
sale of portfolio securities for the Fund's account with brokers or dealers
selected by it; and, in connection therewith, the Adviser is authorized as the
agent of the Fund to give instructions to the Custodian of the Fund as to the
deliveries of securities and payments of cash for the account of the Fund. In
connection with the selection of such brokers or dealers and the placing of
such orders, the Adviser is directed to seek for the Fund best execution of
orders. Subject to such policies as the Board of Trustees of the Fund
determines, the Adviser shall not be deemed
<PAGE> 2
to have acted unlawfully or to have breached any duty, created by this
Agreement or otherwise, solely by reason of its having caused the Fund to pay a
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction, if the Adviser determined in good faith
that such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer viewed in
terms of either that particular transaction or the Adviser's overall
responsibilities with respect to the clients of the Adviser as to which the
Adviser exercises investment discretion. The Fund recognizes that all research
services and research that the Adviser receives or generates are available for
all clients, and that the Fund and other clients may benefit thereby. The
investment of funds shall be subject to all applicable restrictions of the
Agreement and Declaration of Trust and By-Laws of the Fund as may from time to
time be in force.
The Adviser accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Fund, to permit any of its
officers or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions and to assume the obligations herein set
forth for the compensation herein provided. The Adviser shall for all purposes
herein provided be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund. It
is understood and agreed that the Adviser, by separate agreements with the
Fund, may also serve the Fund in other capacities.
2. In the event that the Fund establishes one or more portfolios other than
the Initial Portfolio with respect to which it desires to retain the Adviser to
render investment advisory and management services hereunder, it shall notify
the Adviser in writing. If the Adviser is willing to render such services, it
shall notify the Fund in writing whereupon such portfolio or portfolios shall
become a Portfolio or Portfolios hereunder.
3. For the services and facilities described in Section 1, the Fund will
pay to the Adviser at the end of each calendar month, an investment management
fee for each Portfolio computed by applying the following annual rates to the
applicable average daily net assets of the Portfolio:
2
<PAGE> 3
<TABLE>
<CAPTION>
Applicable Average
Daily Net Assets
(Thousands) Annual Rate
------------------ -----------
<S> <C>
$0 - $ 250,000 .58 of 1%
$ 250,000 - $ 1,000,000 .55 of 1%
$ 1,000,000 - $ 2,500,000 .53 of 1%
$ 2,500,000 - $ 5,000,000 .51 of 1%
$ 5,000,000 - $ 7,500,000 .48 of 1%
$ 7,500,000 - $10,000,000 .46 of 1%
$10,000,000 - $12,500,000 .44 of 1%
Over $12,500,000 .42 of 1%
</TABLE>
The fee as computed above shall be computed separately for, and charged as
an expense of, each Portfolio based upon the average daily net assets of such
Portfolio. For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year,
respectively.
4. The services of the Adviser to the Fund under this Agreement are not to
be deemed exclusive, and the Adviser shall be free to render similar services
or other services to others so long as its services hereunder are not impaired
thereby.
5. In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the Fund's
securities or other property, for keeping its books of account, for any other
charges of the custodian, and for calculating the net asset value of the Fund
as provided in the prospectus of the Fund. The Adviser shall not be required
to pay and the Fund shall assume and pay the charges and expenses of its
operations, including compensation of the trustees (other than those affiliated
with the Adviser), charges and expenses of independent auditors, of legal
counsel, of any transfer or dividend disbursing agent, and of any registrar of
the Fund, costs of acquiring and disposing of portfolio securities, interest,
if any, on obligations incurred by the Fund, costs of share certificates and of
reports, membership dues in the Investment Company Institute or any similar
organization, costs of reports and notices to shareholders, other like
miscellaneous expenses and all taxes and fees payable to federal, state or
other governmental agencies on account of the registration of securities issued
by the Fund, filing of trust documents or otherwise. The Fund shall not pay or
incur any obligation for any expenses for which the Fund intends to seek
3
<PAGE> 4
reimbursement from the Adviser as herein provided without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by law.
If expenses borne by the Fund for those Portfolios which the Adviser
manages in any fiscal year (including the Adviser's fee, but excluding
interest, taxes, fees incurred in acquiring and disposing of portfolio
securities, distribution services fees, extraordinary expenses and any other
expenses excludable under state securities law limitations) exceed any
applicable limitation arising under state securities laws, the Adviser will
reduce its fee or reimburse the Fund for any excess to the extent required by
such state securities laws. If for any month the expenses of the Fund properly
chargeable to the income account shall exceed 1/12 of the percentage of average
net assets allowable as expenses, the payment to the Adviser for that month
shall be reduced and if necessary the Adviser shall make a refund payment to
the Fund so that the total net expense will not exceed such percentage. As of
the end of the Fund's fiscal year, however, the foregoing computations and
payments shall be readjusted so that the aggregate compensation payable to the
Adviser for the year is equal to the percentage calculated in accordance with
Section 3 hereof of the average net asset value as determined as described
herein throughout the fiscal year, diminished to the extent necessary so that
the total of the aforementioned expense items of the Fund shall not exceed the
expense limitation. The aggregate of repayments, if any, by the Adviser to the
Fund for the year shall be the amount necessary to limit the said net expense
to said percentage in accordance with the foregoing.
The net asset value for each Portfolio shall be calculated in accordance
with the provisions of the Fund's prospectus or as the trustees may determine
in accordance with the provisions of the Investment Company Act of 1940. On
each day when net asset value is not calculated, the net asset value of a
Portfolio shall be deemed to be the net asset value of such Portfolio as of the
close of business on the last day on which such calculation was made for the
purpose of the foregoing computations.
6. Subject to applicable statutes and regulations, it is understood that
trustees, officers or agents of the Fund are or may be interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested
in the Fund otherwise than as a trustee, officer or agent.
7. The Adviser shall not be liable for any error of judgment or of law or
for any loss suffered by the Fund in connection with
4
<PAGE> 5
the matters to which this Agreement relates, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
8. This Agreement shall become effective with respect to the Initial
Portfolio on the date hereof and shall remain in full force until March 1,
1996, unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter with respect to each Portfolio,
but only as long as such continuance is specifically approved for each
Portfolio at least annually in the manner required by the Investment Company
Act of 1940 and the rules and regulations thereunder; provided, however, that
if the continuation of this Agreement is not approved for a Portfolio, the
Adviser may continue to serve in such capacity for such Portfolio in the manner
and to the extent permitted by the Investment Company Act of 1940 and the rules
and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Adviser on sixty (60) days written notice to the other
party. The Fund may effect termination with respect to any Portfolio by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Portfolio.
This Agreement may be terminated with respect to any Portfolio at any time
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio in the event
that it shall have been established by a court of competent jurisdiction that
the Adviser or any officer or director of the Adviser has taken any action
which results in a breach of the covenants of the Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
3 earned prior to such termination.
9. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
5
<PAGE> 6
10. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
11. All parties hereto are expressly put on notice of the Fund's Agreement
and Declaration of Trust and all amendments thereto, all of which are on file
with the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the trustees, officers, or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund.
With respect to any claim by the Adviser for recovery of that portion of the
investment management fee (or any other liability of the Fund arising
hereunder) allocated to a particular Portfolio, whether in accordance with the
express terms hereof or otherwise, the Adviser shall have recourse solely
against the assets of that Portfolio to satisfy such claim and shall have no
recourse against the assets of any other Portfolio for such purpose.
12. This Agreement shall be construed in accordance with applicable federal
law and (except as to Section 11 hereof which shall be construed in accordance
with the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
6
<PAGE> 7
13. This Agreement is the entire contract between the parties relating to
the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed as of the day and year first above written.
KEMPER TOTAL RETURN FUND
By: /s/ John E. Peters
-------------------------------
Title: Vice President
----------------------------
ATTEST:
/s/ Philip J. Collora
- -----------------------------
Title: Secretary
-----------------------
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
-------------------------------
Title: Senior Vice President
----------------------------
ATTEST:
/s/ David F. Dierenfeldt
- -----------------------------
Title: Assistant Secretary
-----------------------
7
<PAGE> 1
EXHIBIT 99.B5(b)
SUB-ADVISORY AGREEMENT
AGREEMENT made this 1st day of December, 1996, by and between ZURICH
KEMPER INVESTMENTS, INC., a Delaware corporation (the "Adviser") and ZURICH
INVESTMENT MANAGEMENT LIMITED, an English corporation (the "Sub-Adviser").
WHEREAS, KEMPER TOTAL RETURN FUND, a Massachusetts business trust (the
"Fund") is a management investment company registered under the Investment
Company Act of 1940;
WHEREAS, the Fund has retained the Adviser to render to it investment
advisory and management services with regard to the Fund's sole series (the
"initial series") pursuant to an Investment Management Agreement (the
"Management Agreement"); and
WHEREAS, the Adviser desires at this time to retain the Sub-Adviser to
render investment advisory and management services with respect to that portion
of the portfolio of the Fund's initial series allocated to the Sub-Adviser by
the Adviser for management of foreign securities, including foreign currency
transactions and related investments, and the Sub-Adviser is willing to render
such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Adviser hereby employs the Sub-Adviser to manage the investment
and reinvestment of the assets of the initial series of the Fund allocated by
the Adviser in its sole discretion to the Sub-Adviser for management of foreign
securities, including foreign currency transactions and related investments, in
accordance with the applicable investment objectives, policies and limitations
and subject to the supervision of the Adviser and the Board of Trustees of the
Fund for the period and upon the terms herein set forth, and to place orders
for the purchase or sale of portfolio securities for the Fund's account with
brokers or dealers selected by the Sub-Adviser; and, in connection therewith,
the Sub-Adviser is authorized as the agent of the Fund to give instructions to
the Custodian of the Fund as to the deliveries of securities and payments of
cash for the account of the Fund. In connection with the selection of such
brokers or dealers and the placing of such orders, the Sub-Adviser is directed
to seek for the Fund best execution of orders. Subject to such policies as the
Board of Trustees of the Fund determines and subject to satisfying the
requirements of Section 28(e) of the Securities Exchange Act of 1934, the
Sub-Adviser shall not be deemed to have acted
<PAGE> 2
unlawfully or to have breached any duty, created by this Agreement or
otherwise, solely by reason of its having caused the Fund to pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Sub-Adviser determined in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer viewed in
terms of either that particular transaction or the Sub-Adviser's overall
responsibilities with respect to the clients of the Sub-Adviser as to which the
Sub-Adviser exercises investment discretion. The Adviser recognizes that all
research services and research that the Sub-Adviser receives are available for
all clients of the Sub-Adviser, and that the Fund and other clients of the
Sub-Adviser may benefit thereby. The investment of funds shall be subject to
all applicable restrictions of the Agreement and Declaration of Trust and
By-Laws of the Fund as may from time to time be in force.
The Sub-Adviser accepts such employment and agrees during such period to
render such investment management services, to furnish related office
facilities and equipment and clerical, bookkeeping and administrative services
for the Fund, to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions
and to assume the obligations herein set forth for the compensation herein
provided. The Sub-Adviser shall for all purposes herein provided be deemed to
be an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund or the
Adviser in any way or otherwise be deemed an agent of the Fund or the Adviser.
It is understood and agreed that the Sub-Adviser, by separate agreements with
the Fund, may also serve the Fund in other capacities.
The Sub-Adviser will keep the Fund and the Adviser informed of
developments materially affecting the Fund and shall, on the Sub-Adviser's own
initiative and as reasonably requested by the Adviser or the Fund, furnish to
the Fund and the Adviser from time to time whatever information the Adviser
reasonably believes appropriate for this purpose.
The Sub-Adviser agrees that, in the performance of the duties required of
it by this Agreement, it will comply with the Investment Advisers Act of 1940
and the Investment Company Act of 1940, and all rules and regulations
thereunder, and all applicable laws and regulations and with any applicable
procedures adopted by the Fund's Board of Trustees and identified in writing to
the Sub-Adviser.
-2-
<PAGE> 3
The Sub-Adviser shall provide the Adviser with such investment portfolio
accounting and shall maintain and provide such detailed records and reports as
the Adviser may from time to time reasonably request, including without
limitation, daily processing of investment transactions and cash positions,
periodic valuations of investment portfolio positions as required by the
Adviser, monthly reports of the investment portfolio and all investment
transactions and the preparation of such reports and compilation of such data
as may be required by the Adviser to comply with the obligations imposed upon
it under Management Agreement.
The Sub-Adviser shall provide adequate security with respect to all
materials, records, documents and data relating to any of its responsibilities
pursuant to this Agreement including any means for the effecting of securities
transactions.
The Sub-Adviser agrees that it will make available to the Adviser and the
Fund promptly upon their request copies of all of its investment records and
ledgers with respect to the Fund to assist the Adviser and the Fund in
monitoring compliance with the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as well as other applicable laws. The
Sub-Adviser will furnish the Fund's Board of Trustees such periodic and special
reports with respect to the Fund's portfolio as the Adviser or the Board of
Trustees may reasonably request.
In compliance with the requirements of Rule 31a-3 under the Investment
Company Act of 1940, the Sub-Adviser hereby agrees that any records that it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund copies of any such records upon the Fund's
request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the Investment Company Act of 1940 any records
with respect to the Sub-Adviser's duties hereunder required to be maintained by
Rule 31a-1 under the such Act to the extent that the Sub-Adviser prepares and
maintains such records pursuant to this Agreement and to preserve the records
required by Rule 204-2 under the Investment Advisers Act of 1940 for the period
specified in that Rule.
The Sub-Adviser agrees that it will immediately notify the Adviser and the
Fund in the event that the Sub-Adviser: (i) becomes subject to a statutory
disqualification that prevents the Sub-Adviser from serving as an investment
adviser pursuant to this Agreement; or (ii) is or expects to become the subject
of an administrative proceeding or enforcement action by the United States
Securities and Exchange Commission, the Investment Management Regulatory
Organization ("IMRO") or other regulatory authority.
The Sub-Adviser represents that it is an investment adviser registered
under the Investment Advisers Act of 1940 and other applicable laws and it is
regulated by IMRO and will treat the
-3-
<PAGE> 4
Fund as a Non-Private Customer as defined by IMRO. The Sub-Adviser agrees to
maintain the completeness and accuracy of its registration on Form ADV in
accordance with all legal requirements relating to that Form. The Sub-Adviser
acknowledges that it is an "investment adviser" to the Fund within the meaning
of the Investment Company Act of 1940 and the Investment Advisers Act of 1940.
The Sub-Adviser shall be responsible maintaining an appropriate compliance
program to ensure that the services provided by it under this Agreement are
performed in a manner consistent with applicable laws and the terms of this
Agreement. Furthermore, the Sub-Adviser shall maintain and enforce a Code of
Ethics that is in form and substance satisfactory to the Adviser. Sub-Adviser
agrees to provide such reports and certifications regarding its compliance
program as the Adviser or the Fund shall reasonably request from time to time.
2. In the event that there are, from time to time, one or more
additional series of the Fund with respect to which the Adviser desires to
retain the Sub-Adviser to render investment advisory and management services
hereunder, the Adviser shall notify the Sub-Adviser in writing. If the
Sub-Adviser is willing to render such services, it shall notify the Adviser in
writing whereupon such additional series shall become subject to this
Agreement.
3. For the services and facilities described in Section 1, the Adviser
will pay to the Sub-Adviser, at the end of each calendar month, a sub-advisory
fee computed at an annual rate of .35% of that portion of the average daily net
assets of the initial series of the Fund that is allocated by the Adviser to
the Sub-Adviser for management.
For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year,
respectively.
4. The services of the Sub-Adviser under this Agreement are not to be
deemed exclusive, and the Sub-Adviser shall be free to render similar services
or other services to others so long as its services hereunder are not impaired
thereby.
5. The Sub-Adviser shall arrange, if desired by the Fund, for officers
or employees of the Sub-Adviser to serve, without compensation from the Fund,
as trustees, officers or agents of the Fund if duly elected or appointed to
such positions and subject to their individual consent and to any limitations
imposed by law.
-4-
<PAGE> 5
6. The net asset value for each series of the Fund subject to this
Agreement shall be calculated as the Board of Trustees of the Fund may
determine from time to time in accordance with the provisions of the Investment
Company Act of 1940. On each day when net asset value is not calculated, the
net asset value of a series shall be deemed to be the net asset value of such
series as of the close of business on the last day on which such calculation
was made for the purpose of the foregoing computations.
7. Subject to applicable statutes and regulations, it is understood that
certain trustees, officers or agents of the Fund are or may be interested in
the Sub-Adviser as officers, directors, agents, shareholders or otherwise, and
that the officers, directors, shareholders and agents of the Sub-Adviser may be
interested in the Fund otherwise than as a trustee, officer or agent.
8. The Sub-Adviser shall not be liable for any error of judgment or of
law or for any loss suffered by the Fund or the Adviser in connection with the
matters to which this Agreement relates, except loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser in
the performance of its obligations and duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
9. This Agreement shall become effective with respect to the initial
series of the Fund on the date hereof and shall remain in full force until
March 1, 1998, unless sooner terminated as hereinafter provided. This
Agreement shall continue in force from year to year thereafter with respect to
each such series, but only as long as such continuance is specifically approved
for each series at least annually in the manner required by the Investment
Company Act of 1940 and the rules and regulations thereunder; provided,
however, that if the continuation of this Agreement is not approved for a
series, the Sub-Adviser may continue to serve in such capacity for such series
in the manner and to the extent permitted by the Investment Company Act of 1940
and the rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Management Agreement and
may be terminated at any time with respect to any series subject to this
Agreement without the payment of any penalty by the Adviser or by the
Sub-Adviser on sixty (60) days written notice to the other party. The Fund may
effect termination with respect to any such series without payment of any
penalty by action of the Board of Trustees or by vote of a majority of the
outstanding voting securities of such
-5-
<PAGE> 6
series on sixty (60) days written notice to the Adviser and the Sub-Adviser.
This Agreement may be terminated with respect to any series at any time
without the payment of any penalty by the Board of Trustees of the Fund, by
vote of a majority of the outstanding voting securities of such series or by
the Adviser in the event that it shall have been established by a court of
competent jurisdiction that the Sub-Adviser or any officer or director of the
Sub-Adviser has taken any action which results in a breach of the covenants of
the Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 3 earned prior to such termination.
10. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
12. This Agreement shall be construed in accordance with applicable
federal law and the laws of the State of Illinois.
-6-
<PAGE> 7
13. This Agreement is the entire contract between the parties relating to
the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.
ZURICH KEMPER INVESTMENTS, INC.
By:
--------------------------------
Title:
-----------------------------
ZURICH INVESTMENT MANAGEMENT LIMITED
By:
---------------------------------
Title:
------------------------------
-7-
<PAGE> 1
EXHIBIT 99.B6(a)
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 4th day of January, 1996, between KEMPER TOTAL RETURN
FUND, a Massachusetts business trust (the "Fund"), and KEMPER DISTRIBUTORS,
INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for the distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the
payment or reinvestment of dividends or distributions, or otherwise; or (b)
issue or sell shares at net asset value to the shareholders of any other
investment company, for which KDI shall act as exclusive distributor, who wish
to exchange all or a portion of their investment in shares of such other
investment company for shares of the Fund. KDI shall appoint various financial
service firms ("Firms") to provide distribution services to investors. The
Firms shall provide such office space and equipment, telephone facilities,
personnel, literature distribution, advertising and promotion as is necessary
or beneficial for providing information and distribution services to existing
and potential clients of the Firms. KDI may also provide some of the above
services for the Fund.
KDI accepts such appointment as distributor and principal underwriter and
agrees to render such services and to assume the obligations herein set forth
for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI will,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution
<PAGE> 2
services contemplated hereunder directly to or for the benefit of existing and
potential shareholders who may be clients of such Firms. Such Firms shall at
all times be deemed to be independent contractors retained by KDI and not the
Fund.
KDI shall use its best efforts with reasonable promptness to sell such
part of the authorized shares of the Fund remaining unissued as from time to
time shall be effectively registered under the Securities Act of 1933
("Securities Act"), at prices determined as hereinafter provided and on terms
hereinafter set forth, all subject to applicable federal and state laws and
regulations and to the Agreement and Declaration of Trust of the Fund.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the
Securities Act, as KDI may determine from time to time, provided that no Firm
or other person shall be appointed or authorized to act as agent of the Fund
without the prior consent of the Fund. In addition to sales made by it as
agent of the Fund, KDI may, in its discretion, also sell shares of the Fund as
principal to persons with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by
KDI shall be so offered or sold at a price per share determined in accordance
with the then current prospectus. The price the Fund shall receive for all
shares purchased from it shall be the net asset value used in determining the
public offering price applicable to the sale of such shares. Any excess of the
sales price over the net asset value of the shares of the Fund sold by KDI as
agent shall be retained by KDI as a commission for its services hereunder. KDI
may compensate Firms for sales of shares at the commission levels provided in
the Fund's prospectus from time to time. KDI may pay other commissions, fees
or concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in Section 8 hereof.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under
the Securities Act for sale as herein
2
<PAGE> 3
contemplated such shares as KDI shall reasonably request and as the Securities
and Exchange Commission shall permit to be so registered. Notwithstanding any
other provision hereof, the Fund may terminate, suspend or withdraw the
offering of shares whenever, in its sole discretion, it deems such action to be
desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund
as a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use
in connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue
and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any trustee or officer of the Fund or to any
officer or director of KDI or of any corporation or association furnishing
investment advisory, managerial or supervisory services to the Fund, or to any
corporation or association, unless such sales are made in accordance with the
then current prospectus relating to the sale of such shares. KDI, as agent of
and for the account of the Fund, may repurchase the shares of the Fund at such
prices and upon such terms and conditions as shall be specified in the current
prospectus of the Fund. In selling or reacquiring shares of the Fund for the
account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or
reacquisition, as the case may be, and will indemnify and save harmless the
Fund from any damage or expense on account of any wrongful act by KDI or any
employee, representative or agent of KDI. KDI will observe and be bound by all
the provisions of the Agreement and Declaration of Trust of the Fund (and of
any fundamental policies adopted by the Fund pursuant to the Investment Company
Act of 1940, notice of which shall have been given to KDI) which at the
3
<PAGE> 4
time in any way require, limit, restrict, prohibit or otherwise regulate any
action of the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement. The Fund will pay or cause to be paid expenses (including the
fees and disbursements of its own counsel) of any registration of the Fund and
its shares under the United States securities laws and expenses incident to the
issuance of shares of beneficial interest, such as the cost of share
certificates, issue taxes, and fees of the transfer agent. KDI will pay all
expenses (other than expenses which one or more Firms may bear pursuant to any
agreement with KDI) incident to the sale and distribution of the shares issued
or sold hereunder, including, without limiting the generality of the foregoing,
all (a) expenses of printing and distributing any prospectus and of preparing,
printing and distributing or disseminating any other literature, advertising
and selling aids in connection with the offering of the shares for sale (except
that such expenses need not include expenses incurred by the Fund in connection
with the preparation, typesetting, printing and distribution of any
registration statement or prospectus, report or other communication to
shareholders in their capacity as such), (b) expenses of advertising in
connection with such offering and (c) expenses (other than the Fund's auditing
expenses) of qualifying or continuing the qualification of the shares for sale
and, in connection therewith, of qualifying or continuing the qualification of
the Fund as a dealer or broker under the laws of such states as may be
designated by KDI under the conditions herein specified. No transfer taxes, if
any, which may be payable in connection with the issue or delivery of shares
sold as herein contemplated or of the certificates for such shares shall be
borne by the Fund, and KDI will indemnify and hold harmless the Fund against
liability for all such transfer taxes.
8. For the services and facilities described herein in connection with
Class B shares and Class C shares of each series of the Fund, the Fund will pay
to KDI at the end of each calendar month a distribution services fee computed
at the annual rate of .75% of average daily net assets attributable to the
Class B shares and Class C shares of each such series. For the month and year
in which this Agreement becomes effective or terminates, there shall be an
appropriate proration on the basis of the number of days that the Agreement is
in effect during the month and year, respectively. The foregoing fee shall be
in addition to and shall not be reduced or offset by the amount of any
contingent deferred sales charge received by KDI under Section 2 hereof.
The net asset value shall be calculated in accordance with the provisions
of the Fund's current prospectus. On each day when net asset value is not
calculated, the net asset value of a
4
<PAGE> 5
share of any class of any series of the Fund shall be deemed to be the net
asset value of such a share as of the close of business on the last previous
day on which such calculation was made. The distribution services fee for any
class of a series of the Fund shall be based upon average daily net assets of
the series attributable to the class and such fee shall be charged only to such
class.
9. KDI shall prepare reports for the Board of Trustees of the Fund on a
quarterly basis in connection with the Fund's distribution plan for Class B
shares and Class C shares showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board of Trustees.
10. To the extent applicable, this Agreement constitutes the plan for the
Class B shares and Class C shares of each series of the Fund pursuant to Rule
12b-1 under the Investment Company Act of 1940; and this Agreement and plan
shall be approved and renewed in accordance with Rule 12b-1 for such Class B
shares and Class C shares separately.
This Agreement shall become effective on the date hereof and shall
continue until March 1, 1996; and shall continue from year to year thereafter
only so long as such continuance is approved in the manner required by the
Investment Company Act of 1940.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days written notice to the other party.
The Fund may effect termination with respect to any class of any series of the
Fund by a vote of (i) a majority of the Board of Trustees, (ii) a majority of
the trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in this Agreement or in any agreement related to
this Agreement, or (iii) a majority of the outstanding voting securities of the
class. Without prejudice to any other remedies of the Fund, the Fund may
terminate this Agreement at any time immediately upon KDI's failure to fulfill
any of its obligations hereunder.
This Agreement may not be amended to increase the amount to be paid to KDI
by the Fund for services hereunder with respect to a class of any series of the
Fund without the vote of a majority of the outstanding voting securities of
such class. All material amendments to this Agreement must in any event be
approved 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 this Agreement or in any agreement related to this
Agreement, cast in person at a meeting called for such purpose.
5
<PAGE> 6
The terms "assignment", "interested" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
Investment Company Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8
earned prior to such termination.
11. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal
and state securities laws and regulations. KDI will furnish the Fund with
copies of all such material.
12. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement
and Declaration of Trust, and all amendments thereto, all of which are on file
with the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund.
With respect to any claim by KDI for recovery of any liability of the Fund
arising hereunder allocated to a particular series or class, whether in
accordance with the express terms hereof or otherwise, KDI shall have recourse
solely against the assets of that series or class to satisfy such claim and
shall have no recourse against the assets of any other series or class for such
purpose.
15. This Agreement shall be construed in accordance with applicable federal
law and (except as to Section 14 hereof which shall be construed in accordance
with the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
6
<PAGE> 7
16. This Agreement is the entire contract between the parties relating to
the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER TOTAL RETURN FUND
By: /s/ John E. Peters
-------------------------------
Title: Vice President
----------------------------
ATTEST:
/s/ Philip J. Collora
- -----------------------------
Title: Secretary
-----------------------
KEMPER DISTRIBUTORS, INC.
By: /s/ Patrick H. Dudasik
-------------------------------
Title: Chief Financial Officer
and Treasurer
----------------------------
ATTEST:
/s/ David F. Dierenfeldt
- -----------------------------
Title: Secretary
-----------------------
7
<PAGE> 1
EXHIBIT 99.B6(c)
ADDENDUM TO
KEMPER DISTRIBUTORS, INC.
SELLING GROUP AGREEMENT
Your Selling Group Agreement, including any subsequent amendments thereto
("Agreement"), with Kemper Distributors, Inc. ("KDI") for the distribution of
shares of the Kemper Funds (the "Funds") is hereby amended as follows:
(1) Section 3 is revised by the inclusion of the following condition
after the last sentence of said Section. "Our liability to you with
respect to the payment of any service fee is limited to the proceeds
received by us from the Funds for your services, and you waive any right
you may have to payment of any service fee until we are in receipt of
the proceeds from the Funds that are attributable to your
services."
(2) The third sentence of Section 17 is revised to read as follows:
"Class C Shares are offered at net asset value without an initial
sales charge but are subject to a contingent deferred sales charge
and a Rule 12b-1 fee, and have no conversion feature.
KEMPER DISTRIBUTORS, INC.
Date: October 18, 1996
<PAGE> 1
EXHIBIT 99.B9(b)
SUPPLEMENT TO AGENCY AGREEMENT
Supplement to Agency Agreement ("Supplement") made as of April 1, 1995 and
between the registered investment company executing this document (the "Fund")
and Investors Fiduciary Trust Company ("Agent").
WHEREAS, the Fund and Agent are parties to an Agency Agreement ("Agency
Agreement"), as supplemented from time to time;
WHEREAS, Section 5.A. of the Agency Agreement provides that the fees
payable by the Fund to Agent thereunder shall be as set forth in a separate
schedule to be agreed to by the Fund and Agent; and
WHEREAS, the parties desire to reflect in this Supplement the revised fee
schedule for the Agency Agreement as in effect as of the date hereof;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein provided, the parties agree as follows:
1. The revised fee schedule for services provided by Agent to the Fund
under the Agency Agreement as in effect as of the date hereof is set forth in
Exhibit A attached hereto.
2. This Supplement shall become a part of the Agency Agreement and
subject to its terms and shall supersede all previous fee schedules under such
agreement as of the date hereof.
IN WITNESS WHEREOF, the Fund and Agent have duly executed this Supplement
as of the day and year first set forth above.
KEMPER TOTAL RETURN FUND
By: /s/ John E. Peters
----------------------------------
Title: Vice President
-------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Stephen R. Hilliard
----------------------------------
Title: Executive Vice President
-------------------------------
<PAGE> 2
EXHIBIT A
FEE SCHEDULE (MULTIPLE CLASSES OF SHARES)
TRANSFER AGENCY FUNCTION FEE PAYABLE BY FUND
CLASS A, C AND I CLASS B
1. Annual open shareholder
account fee (per year per
account).
a. Non-daily dividend series. $6.00 $6.00
b. Daily dividend series. $8.00 $8.00
2. Annual closed shareholder account
fee (per year per account). $6.00 $6.00
3. Contingent deferred sales charge Not
account fee (per year per open Applicable $2.25
account).
4. Establishment of new shareholder
account (per new account). $4.00 $4.00
5. Payment of dividend (per dividend
per account). $ .40 $ .40
6. Automated transaction (per
transaction).** $ .50 $ .50
7. Non-monetary transactions fee (per
year per open account). $2.00 $2.00
8. All other shareholder inquiry,
correspondence and research trans-
actions (per transaction). $1.25 $1.25
The out-of-pocket expenses of IFTC will be reimbursed by Fund in accordance
with the provisions of Section 5 of the Agency Agreement. All fees will be
subject to offset by earnings allowances under the Custody Agreement between
Fund and IFTC. The attached Transfer Agency Fee Schedule Supplement is a part
of this Exhibit A.
- -----------------
* The new shareholder account fee is not applicable to Class A Share
accounts established in connection with a conversion from Class B Shares.
** Automated transaction includes, without limitation, money market series
purchases and redemptions, ACH purchases, systematic exchanges and
conversions from Class B Shares to Class A Shares.
<PAGE> 3
TRANSFER AGENCY FEE SCHEDULE SUPPLEMENT
For purposes of the following limitation, "Class Expenses" are expenses
identified as attributable to a particular class of the Fund and charged
directly to the class. Class Expenses are limited to the following:
registration fees, directors' or trustees' fees, expenses of periodic meetings
of directors, trustees or shareholders, transfer agency fees, legal and
accounting fees (other than fees for income tax return preparation or income
tax advice), and costs of shareholder communications required by law (e.g., the
preparation and mailing of prospectuses and proxy statements). Class Expenses
specifically do not include Rule 12b-1 fees and administrative service fees.
Transfer agency fees and expenses will be limited for any class of the Fund to
the extent necessary to ensure that the Class Expenses allocated to each share
of a class of the Fund for a fiscal year will differ from the Class Expenses
allocated to each share of any other class of the Fund by less than 50 basis
points (.50%) of the average daily net asset value per share of the class of
shares with the smallest average net asset value (adjusted as necessary for
classes in effect for a partial year). For a Fund with multiple series, the
foregoing shall be applied to each series separately.
In addition, transfer agency fees and expenses (as a percentage of average
daily net assets) for any fiscal year will be limited as follows:
SERIES NAME CLASS B SHARES CLASS C SHARES
Initial Portfolio No Limit .33%
<PAGE> 1
EXHIBIT 99.B10
[VEDDER, PRICE, KAUFMAN & KAMMHOLZ LETTERHEAD]
December 17, 1996
Kemper Total Return Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A under the Securities Act of 1933 being
filed by Kemper Total Return Fund (the "Fund") in connection with the proposed
public offering of units of beneficial interest, no par value ("Shares"), in
the Fund.
We have acted as counsel to the Fund since its inception and in such
capacity are familiar with the Fund's organization and have counseled the Fund
regarding various legal matters. We have examined such Fund records and other
documents and certificates as we have considered necessary or appropriate for
the purposes of this opinion. In our examination of such materials, we have
assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us. In addition, we have taken note of
the opinion dated December 3, 1996 from Ropes & Gray to the Kemper Aggressive
Growth Fund.
Based upon the foregoing and upon the opinion dated November 18, 1985
by Ropes & Gray of Boston, Massachusetts, and assuming that the Fund's Amended
and Restated Agreement and Declaration of Trust dated May 27, 1994, the Written
Instrument Establishing and Designating Classes dated May 27, 1994, and the
By-Laws of the Fund adopted January 28, 1986 are presently in full force and
effect and have not been amended in any respect and that the resolutions
adopted by the Board of Trustees of the Fund on January 28, 1986 and March 5,
1994 relating to organizational matters, securities matters and the issuance of
shares are presently in full force and effect and have not been amended in any
respect, we advise you and opine that (a) the Fund is a duly authorized and
validly existing voluntary association with transferrable shares under the laws
of the Commonwealth of Massachusetts and is authorized to issue an unlimited
number of Shares; and (b) upon the
<PAGE> 2
[VEDDER PRICE LETTERHEAD]
Kemper Total Return Fund
December 17, 1996
Page 2
issuance of the Shares in accordance with the Fund's Agreement and Declaration
of Trust and the receipt by the Fund of a purchase price not less than the net
asset value per Share, the Shares will be legally issued and outstanding, fully
paid and non-assessable (although shareholders of the Fund may be subject to
liability under certain circumstances described in the opinion from Ropes &
Gray).
This opinion is solely for the benefit of the Fund, the Fund's Board
of Trustees and the Fund's officers and may not be relied upon by any other
person without our prior written consent. We hereby consent to the use of this
opinion in connection with said Post-Effective Amendment.
Very truly yours,
Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE> 1
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Kemper Total Return Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Kemper Total Return Fund as of October 31,
1996, and the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal periods since 1987. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Total Return Fund at October 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the fiscal periods
since 1987, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 17, 1996
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report dated December 17, 1996 in the Registration Statement (Form
N-1A) of Kemper Total Return Fund, and its incorporation by reference in
the related prospectus and statement of additional information of Kemper Equity
Funds, filed with the Securities and Exchange Commission in this Post-Effective
Amendment No. 50 to the Registration Statement under the Securities Act of 1933
(2-21789) and in this Amendment No. 50 to the Registration Statement under the
Investment Company Act of 1940 (811-1236).
ERNST & YOUNG LLP
Chicago, Illinois
December 23, 1996
<PAGE> 1
EXHIBIT 99.B18
KEMPER MUTUAL FUNDS
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, each investment company adopting this Multi- Distribution System
Plan (each a "Fund" and collectively the "Funds") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, Zurich Kemper Investments, Inc. and/or Dreman Value Advisors,
Inc. serves as investment adviser and Kemper Distributors, Inc. serves as
principal underwriter for each Fund;
WHEREAS, each Fund has a non-Rule 12b-1 administrative services agreement
providing for a service fee at an annual rate of up to .25% of average daily
net assets;
WHEREAS, each Fund has established a Multi-Distribution System enabling
each Fund, as more fully reflected in its prospectus, to offer investors the
option of purchasing shares (a) with a front-end sales load (which may vary
among Funds) and a service fee ("Class A shares"); (b) without a front-end
sales load, but subject to a Contingent Deferred Sales Charge ("CDSC") (which
may vary among Funds), a Rule 12b-1 plan providing for a distribution fee, and
a service fee ("Class B shares"); (c) without a front-end sales load, but
subject to a CDSC (applicable to shares purchased on or after April 1, 1996 and
which may vary among Funds), a Rule 12b-1 Plan providing for a distribution
fee, and a service fee ("Class C shares"); and (d) for certain Funds, without a
front-end load, a CDSC, a distribution fee or a service fee ("Class I shares");
and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation of
each class and any related conversion features or exchange privileges;
NOW, THEREFORE, each Fund, wishing to be governed by Rule 18f-3 under the
1940 Act, hereby adopts this Multi-Distribution System Plan as follows:
1. Each class of shares will represent interests in the same portfolio
of investments of the Fund (or series), and be identical in all respects to
each other class, except as set forth below. The only differences among the
various classes of shares of the Fund (or series) will relate solely to:
<PAGE> 2
(a) different distribution fee payments associated with any Rule 12b-1 Plan for
a particular class of shares and any other costs relating to implementing or
amending such Rule 12b-1 Plan (including obtaining shareholder approval of such
Rule 12b-1 Plan or any amendment thereto), which will be borne solely by
shareholders of such classes; (b) different service fees; (c) different
shareholder servicing fees; (d) different class expenses, which will be limited
to the following expenses determined by the Fund board to be attributable to a
specific class of shares: (i) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses,
and proxy statements to current shareholders of a specific class; (ii)
Securities and Exchange Commission registration fees incurred by a specific
class; (iii) litigation or other legal expenses relating to a specific class;
(iv) board member fees or expenses incurred as a result of issues relating to a
specific class; and (v) accounting expenses relating to a specific class; (e)
the voting rights related to any Rule 12b-1 Plan affecting a specific class of
shares; (f) conversion features; (g) exchange privileges; and (h) class names
or designations. Any additional incremental expenses not specifically
identified above that are subsequently identified and determined to be properly
applied to one class of shares of the Fund (or a series) shall be so applied
upon approval by a majority of the members of the Fund's board, including a
majority of the board members who are not interested persons of the Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative
aggregate net assets of the classes, except that, if the Fund has series,
expenses will first be allocated among series, based upon their relative
aggregate net assets. Expenses that are attributable to a particular series,
but not to a particular class thereof, will be borne by each class of that
series on the basis of the relative aggregate net assets of the classes.
Notwithstanding the foregoing, the underwriter, the investment manager or other
provider of services to the Fund may waive or reimburse the expenses of a
specific class or classes to the extent permitted under Rule 18f-3 under the
1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to that class including: (a) any distribution fees associated with
any Rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto); (b) any service
fees attributable to such class; (c) any shareholder servicing fees
attributable to such class; and (d) any class expenses determined by the Fund
board to be attributable to such class.
2
<PAGE> 3
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund (or
series) at the relative net asset values of the two classes and will thereafter
not be subject to a Rule 12b-1 Plan; provided, however, that any Class B Shares
issued in exchange for shares originally classified as Initial Shares of Kemper
Portfolios, formerly known as Kemper Investment Portfolios (KP), whether in
connection with a reorganization with a series of KP or otherwise, shall
convert to Class A shares seven years after issuance of such Initial Shares if
such Initial Shares were issued prior to February 1, 1991. Class B shares
issued upon reinvestment of income and capital gain dividends and other
distributions will be converted to Class A shares on a pro rata basis with the
Class B shares.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the
Fund will be exchangeable with shares of the same class of another Fund, or
with money market fund shares as described in the applicable prospectus.
Exchanges will comply with all applicable provisions of Rule 11a-3 under the
1940 Act. For purposes of calculating the time period remaining on the
conversion of Class B shares to Class A shares, Class B shares received on
exchange retain their original purchase date.
6. Dividends paid by the Fund (or series) as to each class of its
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount;
except that any distribution fees, service fees, shareholder servicing fees and
class expenses allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of the Fund, including distribution
fees, front-end sales loads and CDSCs, will comply with Article III, Section
26, of the Rules of Fair Practice of the National Association of Securities
Dealers, Inc.
8. All material amendments to this Plan must be approved by a majority
of the members of the Fund's board, including a majority of the board members
who are not interested persons of the Fund.
Any open-end investment company may establish a Multi- Distribution System
and adopt this Multi-Distribution System Plan by approval of a majority of the
members of any such company's
3
<PAGE> 4
governing board, including a majority of the board members who are not
interested persons of such company.
For use on or after: April 1, 1996
4
<PAGE> 1
EXHIBIT 99.B24
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as such person's
attorney-in-fact to sign and file on such person's behalf individually and in
the capacity stated below such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of
Kemper Total Return Fund.
Signature Title Date
/s/ Stephen B. Timbers Trustee November 20, 1996
- ----------------------------
<PAGE> 2
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as his attorney-in-fact to sign
and file on his behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Total Return Fund.
Signature Title Date
/s/ David W. Belin Trustee November 20, 1996
- ----------------------------
<PAGE> 3
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as his attorney-in-fact to sign
and file on his behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Total Return Fund.
Signature Title Date
/s/ Lewis A. Burnham Trustee November 20, 1996
- ---------------------------
<PAGE> 4
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as such person's
attorney-in-fact to sign and file on such person's behalf individually and in
the capacity stated below such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of
Kemper Total Return Fund.
Signature Title Date
/s/ Donald L. Dunaway Trustee November 20, 1996
- ----------------------------
<PAGE> 5
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as his attorney-in-fact to sign
and file on his behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Total Return Fund.
Signature Title Date
/s/ Robert B. Hoffman Trustee November 20, 1996
- ----------------------------
<PAGE> 6
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as his attorney-in-fact to sign
and file on his behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper Total Return Fund.
Signature Title Date
/s/ Donald R. Jones Trustee November 20, 1996
- --------------------------
<PAGE> 7
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as such person's
attorney-in-fact to sign and file on such person's behalf individually and in
the capacity stated below such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of
Kemper Total Return Fund.
Signature Title Date
/s/ Dominique P. Morax Trustee November 20, 1996
- -----------------------------
<PAGE> 8
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as such person's
attorney-in-fact to sign and file on such person's behalf individually and in
the capacity stated below such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of
Kemper Total Return Fund.
Signature Title Date
/s/ Shirley D. Peterson Trustee November 20, 1996
- -----------------------------
<PAGE> 9
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr. and Philip J. Collora and each of them, any of
whom may act without the joinder of the others, as such person's
attorney-in-fact to sign and file on such person's behalf individually and in
the capacity stated below such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of
Kemper Total Return Fund.
Signature Title Date
/s/ William P. Sommers Trustee November 20, 1996
- -----------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENITIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000095603
<NAME> KEMPER TOTAL RETURN FUND
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 2,691,653
<INVESTMENTS-AT-VALUE> 3,032,309
<RECEIVABLES> 32,335
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,064,694
<PAYABLE-FOR-SECURITIES> 36,493
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,403
<TOTAL-LIABILITIES> 43,896
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,267,074
<SHARES-COMMON-STOCK> 165,455
<SHARES-COMMON-PRIOR> 167,193
<ACCUMULATED-NII-CURRENT> 14,605
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 398,463
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 340,656
<NET-ASSETS> 3,020,798
<DIVIDEND-INCOME> 27,187
<INTEREST-INCOME> 85,039
<OTHER-INCOME> 0
<EXPENSES-NET> (41,509)
<NET-INVESTMENT-INCOME> 70,717
<REALIZED-GAINS-CURRENT> 396,108
<APPREC-INCREASE-CURRENT> (58,142)
<NET-CHANGE-FROM-OPS> 408,683
<EQUALIZATION> (2,799)
<DISTRIBUTIONS-OF-INCOME> (57,214)
<DISTRIBUTIONS-OF-GAINS> (83,095)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,912
<NUMBER-OF-SHARES-REDEEMED> (34,314)
<SHARES-REINVESTED> 12,664
<NET-CHANGE-IN-ASSETS> 94,256
<ACCUMULATED-NII-PRIOR> 29,814
<ACCUMULATED-GAINS-PRIOR> 139,014
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,825
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,509
<AVERAGE-NET-ASSETS> 2,954,123
<PER-SHARE-NAV-BEGIN> 10.60
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 1.24
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (0.50)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.28
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000095603
<NAME> KEMPER TOTAL RETURN FUND
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 2,691,653
<INVESTMENTS-AT-VALUE> 3,032,309
<RECEIVABLES> 32,335
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,064,694
<PAYABLE-FOR-SECURITIES> 36,493
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,403
<TOTAL-LIABILITIES> 43,896
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,267,074
<SHARES-COMMON-STOCK> 100,551
<SHARES-COMMON-PRIOR> 107,242
<ACCUMULATED-NII-CURRENT> 14,605
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 398,463
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 340,656
<NET-ASSETS> 3,020,798
<DIVIDEND-INCOME> 27,187
<INTEREST-INCOME> 85,039
<OTHER-INCOME> 0
<EXPENSES-NET> (41,509)
<NET-INVESTMENT-INCOME> 70,717
<REALIZED-GAINS-CURRENT> 396,108
<APPREC-INCREASE-CURRENT> (58,142)
<NET-CHANGE-FROM-OPS> 408,683
<EQUALIZATION> (2,799)
<DISTRIBUTIONS-OF-INCOME> (25,341)
<DISTRIBUTIONS-OF-GAINS> (52,687)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,124
<NUMBER-OF-SHARES-REDEEMED> (27,219)
<SHARES-REINVESTED> 7,404
<NET-CHANGE-IN-ASSETS> 94,256
<ACCUMULATED-NII-PRIOR> 29,814
<ACCUMULATED-GAINS-PRIOR> 139,014
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,825
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,509
<AVERAGE-NET-ASSETS> 2,954,123
<PER-SHARE-NAV-BEGIN> 10.59
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 1.23
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> (0.50)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.27
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000095603
<NAME> KEMPER TOTAL RETURN FUND
<SERIES>
<NUMBER> 003
<NAME> CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 2,691,653
<INVESTMENTS-AT-VALUE> 3,032,309
<RECEIVABLES> 32,335
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,064,694
<PAYABLE-FOR-SECURITIES> 36,493
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,403
<TOTAL-LIABILITIES> 43,896
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,267,074
<SHARES-COMMON-STOCK> 981
<SHARES-COMMON-PRIOR> 505
<ACCUMULATED-NII-CURRENT> 14,605
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 398,463
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 340,656
<NET-ASSETS> 3,020,798
<DIVIDEND-INCOME> 27,187
<INTEREST-INCOME> 85,039
<OTHER-INCOME> 0
<EXPENSES-NET> (41,509)
<NET-INVESTMENT-INCOME> 70,717
<REALIZED-GAINS-CURRENT> 396,108
<APPREC-INCREASE-CURRENT> (58,142)
<NET-CHANGE-FROM-OPS> 408,683
<EQUALIZATION> (2,799)
<DISTRIBUTIONS-OF-INCOME> (172)
<DISTRIBUTIONS-OF-GAINS> (265)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 572
<NUMBER-OF-SHARES-REDEEMED> (139)
<SHARES-REINVESTED> 43
<NET-CHANGE-IN-ASSETS> 94,256
<ACCUMULATED-NII-PRIOR> 29,814
<ACCUMULATED-GAINS-PRIOR> 139,014
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,825
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,509
<AVERAGE-NET-ASSETS> 2,954,123
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 1.22
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.50)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.28
<EXPENSE-RATIO> 1.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000095603
<NAME> KEMPER TOTAL RETURN FUND
<SERIES>
<NUMBER> 004
<NAME> CLASS I
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 2,691,653
<INVESTMENTS-AT-VALUE> 3,032,309
<RECEIVABLES> 32,335
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,064,694
<PAYABLE-FOR-SECURITIES> 36,493
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,403
<TOTAL-LIABILITIES> 43,896
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,267,074
<SHARES-COMMON-STOCK> 983
<SHARES-COMMON-PRIOR> 1,182
<ACCUMULATED-NII-CURRENT> 14,605
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 398,463
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 340,656
<NET-ASSETS> 3,020,798
<DIVIDEND-INCOME> 27,187
<INTEREST-INCOME> 85,039
<OTHER-INCOME> 0
<EXPENSES-NET> (41,509)
<NET-INVESTMENT-INCOME> 70,717
<REALIZED-GAINS-CURRENT> 396,108
<APPREC-INCREASE-CURRENT> (58,142)
<NET-CHANGE-FROM-OPS> 408,683
<EQUALIZATION> (2,799)
<DISTRIBUTIONS-OF-INCOME> (442)
<DISTRIBUTIONS-OF-GAINS> (570)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 298
<NUMBER-OF-SHARES-REDEEMED> (596)
<SHARES-REINVESTED> 99
<NET-CHANGE-IN-ASSETS> 94,256
<ACCUMULATED-NII-PRIOR> 29,814
<ACCUMULATED-GAINS-PRIOR> 139,014
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,825
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,509
<AVERAGE-NET-ASSETS> 2,954,123
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 1.23
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> (0.50)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.27
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.485(b)
[VEDDER, PRICE, KAUFMAN & KAMMHOLZ LETTERHEAD]
December 17, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kemper Total Return Fund
To The Commission:
We are counsel to the above-referenced investment company (the "Fund")
and as such have participated in the preparation and review of Post-Effective
Amendment No. 50 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485 and in reliance upon the oral approval of the staff of the
Commission, acting on behalf of the Commission, under Rule 485(b)(1)(ix) for
certain of the disclosures to be contained in the amendment, we hereby
represent that such amendment does not contain disclosures which would render
it ineligible to become effective pursuant to paragraph (b) thereof.
Very truly yours,
/s/ Vedder Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
