-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FBv8CAcwQakaHv+uq2npbO97kHSjlpBiIvdIi94wcS2iqTOKsU2QsDQ2NkjdYdWV bHVq3gLh8h7K/58jVJqhpA== 0000950137-98-000230.txt : 19980128 0000950137-98-000230.hdr.sgml : 19980128 ACCESSION NUMBER: 0000950137-98-000230 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19980127 EFFECTIVENESS DATE: 19980127 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER BLUE CHIP FUND CENTRAL INDEX KEY: 0000823342 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363542349 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-17777 FILM NUMBER: 98514492 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-05357 FILM NUMBER: 98514493 BUSINESS ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125371569 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 485BPOS 1 485BPOS 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1998. 1933 ACT REGISTRATION NO. 33-17777 1940 ACT REGISTRATION NO. 811-5357 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. _ [ ] Post-Effective Amendment No. 14 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 14 [X]
(Check appropriate box or boxes) ------------------ KEMPER BLUE CHIP FUND (Exact name of Registrant as Specified in Charter)
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, Secretary and Treasurer With a copy to: Kemper Blue Chip 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
It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [X] on February 1, 1998 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. ================================================================================ 2 KEMPER BLUE CHIP FUND CROSS-REFERENCE SHEET BETWEEN ITEMS ENUMERATED IN PART A OF FORM N-1A AND PROSPECTUS
ITEM NUMBER OF FORM N-1A LOCATION IN PROSPECTUS 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; Purchase of Shares; Investment Manager and Underwriter; Special Features; Supplement to Prospectus 8. Redemption or Repurchase................ Summary; Redemption or Repurchase of Shares; Supplement to Prospectus 9. Pending Legal Proceedings............... Inapplicable
3 KEMPER EQUITY FUNDS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1998 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 Scudder Kemper Investments, Inc. ("Scudder Kemper") and its affiliates; and (b) the following investment advisory clients of Scudder Kemper 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
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO ALL FUNDS) CLASS I ---------------------------------------------------------- ------- 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
4
AGGRESSIVE BLUE SMALL TOTAL VALUE+ ANNUAL FUND GROWTH CHIP GROWTH QUANTITATIVE CAP TECHNOLOGY RETURN GROWTH OPERATING EXPENSES FUND FUND FUND FUND FUND FUND FUND FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS) ---------- ---- ------ ------------ ----- ---------- ------ ------ Management Fees........................ .68% .57% .54% .58% .35% .55% .53% .72% 12b-1 Fees............................. None None None None None None None None Other Expenses......................... .20% .13% .16% .68% .18% .19% .18% .20% ---- ---- ---- ---- ---- ---- ---- ---- Total Operating Expenses............... .88% .70% .70% 1.26% .53% .74% .71% .92% ==== ==== ==== ==== ==== ==== ==== ====
EXAMPLE FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------- ---- ------ ------- ------- -------- You would pay the following expenses on a Aggressive Growth $ 9 $28 $49 $108 $1,000 investment, assuming (1) 5% annual return and Blue Chip $ 7 $22 $39 $ 87 (2) redemption at the end of each time period: Growth $ 7 $22 $39 $ 87 Quantitative $13 $40 $69 $152 Small Cap $ 5 $17 $30 $ 66 Technology $ 8 $24 $41 $ 92 Total Return $ 7 $23 $40 $ 88 Value+Growth $ 9 $29 $51 $113
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 Aggressive Growth Fund and the Small Cap Fund, the table reflects the base management fee for the prior fiscal year after such adjustment. Since no Class I shares for the Aggressive Growth Fund and the Value+Growth Fund have been issued as of the Funds' fiscal year ends, "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 5 FINANCIAL HIGHLIGHTS KEMPER BLUE CHIP FUND
NOVEMBER 22, YEAR ENDED 1995 TO OCTOBER 31, OCTOBER 31, 1997 1996 ----------- ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $17.18 15.30 - ---------------------------------------------------------------------------------------- Income from investment operations: Net investment income .32 .36 - ---------------------------------------------------------------------------------------- Net realized and unrealized gain 3.58 2.96 - ---------------------------------------------------------------------------------------- Total from investment operations 3.90 3.32 - ---------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .23 .24 - ---------------------------------------------------------------------------------------- Distribution from net realized gain 3.13 1.20 - ---------------------------------------------------------------------------------------- Total dividends 3.36 1.44 - ---------------------------------------------------------------------------------------- Net asset value, end of period $17.72 17.18 - ---------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 26.89% 21.89 - ---------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses .70% 1.31 - ---------------------------------------------------------------------------------------- Net investment income 1.56% 1.33 - ----------------------------------------------------------------------------------------
KEMPER GROWTH FUND
YEAR ENDED SEPTEMBER 30, JULY 3 TO -------------------- SEPTEMBER 30, 1997 1996 1995 ------ ----- ------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $17.26 16.09 14.80 - -------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .08 .19 .03 - -------------------------------------------------------------------------------------------------- Net realized and unrealized gain 2.61 2.74 1.26 - -------------------------------------------------------------------------------------------------- Total from investment operations 2.69 2.93 1.29 - -------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income -- .08 -- - -------------------------------------------------------------------------------------------------- Distribution from net realized gain 4.35 1.68 -- - -------------------------------------------------------------------------------------------------- Total dividends 4.35 1.76 -- - -------------------------------------------------------------------------------------------------- Net asset value, end of period $15.60 17.26 16.09 - -------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 20.51% 20.19 8.72 - -------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses .70% .64 .59 - -------------------------------------------------------------------------------------------------- Net investment income .43% 1.08 .92 - --------------------------------------------------------------------------------------------------
3 6 KEMPER QUANTITATIVE EQUITY FUND
SEPTEMBER 9 YEAR ENDED TO NOVEMBER 30, NOVEMBER 30, 1997 1996 ------------ ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $11.14 9.67 - ----------------------------------------------------------------------------------------- Income from investment operations: Net investment loss (.01) -- - ----------------------------------------------------------------------------------------- Net realized and unrealized gain 2.14 1.47 - ----------------------------------------------------------------------------------------- Total from investment operations 2.13 1.47 - ----------------------------------------------------------------------------------------- Less distribution from net realized gain .19 -- - ----------------------------------------------------------------------------------------- Net asset value, end of period $13.08 11.14 - ----------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 19.48% 15.20 - ----------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses absorbed by the Fund 1.26% 1.08 - ----------------------------------------------------------------------------------------- Net investment loss (.17)% (.05) - ----------------------------------------------------------------------------------------- OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 1.26% 2.23 - ----------------------------------------------------------------------------------------- Net investment loss (.17)% (1.20) - -----------------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION EQUITY FUND
YEAR ENDED SEPTEMBER 30, JULY 3 TO -------------- SEPTEMBER 30, 1997 1996 1995 ------ ----- ------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 7.05 7.15 6.27 - -------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .01 .01 -- - -------------------------------------------------------------------------------------------- Net realized and unrealized gain 1.58 .94 .88 - -------------------------------------------------------------------------------------------- Total from investment operations 1.59 .95 .88 - -------------------------------------------------------------------------------------------- Less distribution from net realized gain .57 1.05 -- - -------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.07 7.05 7.15 - -------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 24.89% 16.76 14.04 - -------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses .53% .66 .79 - -------------------------------------------------------------------------------------------- Net investment income (loss) .17% .16 (.14) - --------------------------------------------------------------------------------------------
4 7 KEMPER TECHNOLOGY FUND
YEAR ENDED OCTOBER 31, JULY 3 TO ---------------------- OCTOBER 31, 1997 1996 1995 ----------- ----------- ----------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $13.20 14.64 12.72 - ----------------------------------------------------------------------------------------------------- Income from investment operations: Net investment loss (.04) (.07) (.02) - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain 2.14 .76 1.94 - ----------------------------------------------------------------------------------------------------- Total from investment operations 2.10 .69 1.92 - ----------------------------------------------------------------------------------------------------- Less distribution from net realized gain 2.11 2.13 -- - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $13.19 13.20 14.64 - ----------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 17.23% 8.06 15.09 - ----------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses .74% .76 .65 - ----------------------------------------------------------------------------------------------------- Net investment loss (.27)% (.49) (.33) - -----------------------------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
JULY 3 TO YEAR ENDED OCTOBER 31, OCTOBER 31, 1997 1996 1995 ----------- ----------- ----------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $11.27 10.61 10.07 - ----------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .36 .32 .10 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain 1.55 1.23 .52 - ----------------------------------------------------------------------------------------------------- Total from investment operations 1.91 1.55 .62 - ----------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .36 .39 .08 - ----------------------------------------------------------------------------------------------------- Distribution from net realized gain 1.49 .50 -- - ----------------------------------------------------------------------------------------------------- Total dividends 1.85 .89 .08 - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $11.33 11.27 10.61 - ----------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 19.40% 15.64 6.21 - ----------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses .71% .72 .61 - ----------------------------------------------------------------------------------------------------- Net investment income 3.22% 3.09 2.97 - -----------------------------------------------------------------------------------------------------
Note: For the Quantitative Fund, the investment manager agreed to temporarily waive or absorb certain operating expenses of the Fund. The other ratios to average net assets are computed without this expense waiver or absorption. 5 8 No financial information is presented for Class I shares of the Aggressive Growth Fund or the Value+Growth Fund since no Class I shares have been issued as of the Funds' fiscal year ends. SPECIAL FEATURES Shareholders of a Fund's Class I shares may exchange their shares for (i) shares of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I shares have purchased shares because they are participants in tax-exempt retirement plans of Scudder Kemper 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 Zurich Money Funds--Zurich Money Market Fund who have purchased shares because they are participants in tax-exempt retirement plans of Scudder Kemper 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." February 1, 1998 KEF - 1I (2/98) 6 9 TABLE OF CONTENTS - ----------------------------------------------- Summary 1 - ----------------------------------------------- Summary of Expenses 3 - ----------------------------------------------- Financial Highlights 6 - ----------------------------------------------- Investment Objectives, Policies and Risk Factors 15 - ----------------------------------------------- Investment Manager and Underwriter 29 - ----------------------------------------------- Dividends and Taxes 33 - ----------------------------------------------- Net Asset Value 35 - ----------------------------------------------- Purchase of Shares 35 - ----------------------------------------------- Redemption or Repurchase of Shares 41 - ----------------------------------------------- Special Features 45 - ----------------------------------------------- Performance 49 - ----------------------------------------------- Capital Structure 50 - -----------------------------------------------
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 February 1, 1998, 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 FEBRUARY 1, 1998 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 Scudder 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. 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 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. Scudder Kemper Investments, Inc. ("Scudder Kemper") serves as investment manager for each Fund. Scudder Kemper is paid a monthly investment management fee by each Fund based upon average daily net assets of that Fund at an annual rate that differs for each Fund, and, in the case of the Aggressive Growth and Small Cap Funds, subject to a performance adjustment. Kemper Distributors, Inc. ("KDI"), a wholly owned subsidiary of Scudder Kemper, 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 various broker-dealer firms and other service or administrative 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 12 SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C (APPLICABLE TO ALL FUNDS)(1) ------- ------- ------- 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
- ------------------------- (1) Investment dealers and other firms may independently charge additional fees for shareholder transactions or for advisory services; please see their materials for details. The table does not include the $9.00 quarterly small account fee. See "Redemption or Repurchase of Shares." (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 13 ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
AGGRESSIVE TOTAL VALUE+ GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH FUND FUND FUND FUND FUND FUND FUND FUND ---------- --------- ------ ------------ --------- ---------- ------ ------ CLASS A SHARES Management Fees......... .68% .57% .54% .58% .35% .55% .53% .72% 12b-1 Fees.............. None None None None None None None None Other Expenses.......... .81% .62% .52% .87% .55% .34% .48% .69% ---- ---- ---- ---- ---- ---- ---- ---- Total Operating Expenses.............. 1.49% 1.19% 1.06% 1.45% .90% .89% 1.01% 1.41% ==== ==== ==== ==== ==== ==== ==== ====
AGGRESSIVE TOTAL VALUE+ GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH FUND FUND FUND FUND FUND FUND FUND FUND ---------- --------- ------ ------------ --------- ---------- ------ ------ CLASS B SHARES Management Fees......... .68% .57% .54% .58% .35% .55% .53% .72% 12b-1 Fees(4)........... .75% .75% .75% .75% .75% .75% .75% .75% Other Expenses.......... .98% .74% .84% .94% 1.04% .55% .67% .80% ---- ---- ---- ---- ---- ---- ---- ---- Total Operating Expenses.............. 2.41% 2.06% 2.13% 2.27% 2.14% 1.85% 1.95% 2.27% ==== ==== ==== ==== ==== ==== ==== ====
AGGRESSIVE TOTAL VALUE+ GROWTH BLUE CHIP GROWTH QUANTITATIVE SMALL CAP TECHNOLOGY RETURN GROWTH FUND FUND FUND FUND FUND FUND FUND FUND ---------- --------- ------ ------------ --------- ---------- ------ ------ CLASS C SHARES Management Fees......... .68% .57% .54% .58% .35% .55% .53% .72% 12b-1 Fees(5)........... .75% .75% .75% .75% .75% .75% .75% .75% Other Expenses.......... .76% .68% .70% .83% .85% .52% .62% .68% ---- ---- ---- ---- ---- ---- ---- ---- Total Operating Expenses.............. 2.19% 2.00% 1.99% 2.16% 1.95% 1.82% 1.90% 2.15% ==== ==== ==== ==== ==== ==== ==== ====
- ------------------------- (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. EXAMPLE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---- ------ ------- ------- -------- CLASS A SHARES You would pay the following expenses on a Aggressive Growth $72 $102 $134 $225 $1,000 investment, assuming (1) 5% annual Blue Chip $69 $ 93 $119 $194 return and (2) redemption at the end of Growth $68 $ 89 $113 $179 each time period: Quantitative $71 $101 $132 $221 Small Cap $66 $ 85 $104 $162 Technology $66 $ 84 $104 $161 Total Return $67 $ 88 $110 $174 Value+Growth $71 $100 $130 $217
4 14 EXAMPLE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---- ------ ------- ------- -------- CLASS B SHARES(7) You would pay the following expenses on Aggressive Growth $64 $105 $149 $231 a $1,000 investment, assuming (1) 5% Blue Chip $61 $ 95 $131 $196 annual return and (2) redemption at the Growth $62 $ 97 $134 $194 end of each time period: Quantitative $63 $101 $142 $221 Small Cap $62 $ 97 $135 $186 Technology $59 $ 88 $120 $169 Total Return $60 $ 92 $125 $181 Value+Growth $63 $101 $141 $219 You would pay the following expenses on Aggressive Growth $24 $ 75 $129 $231 the same investment, assuming no Blue Chip $21 $ 65 $111 $196 redemption: Growth $22 $ 67 $114 $194 Quantitative $23 $ 71 $122 $221 Small Cap $22 $ 67 $115 $186 Technology $19 $ 58 $100 $169 Total Return $20 $ 61 $105 $181 Value+Growth $23 $ 71 $122 $219 CLASS C SHARES(8) You would pay the following expenses on Aggressive Growth $32 $ 69 $117 $252 a $1,000 investment, assuming (1) 5% Blue Chip $30 $ 63 $108 $233 annual return and (2) redemption at the Growth $30 $ 62 $107 $232 end of each time period: Quantitative $32 $ 68 $116 $249 Small Cap $30 $ 61 $105 $227 Technology $28 $ 57 $ 99 $214 Total Return $29 $ 60 $103 $222 Value+Growth $32 $ 67 $115 $248 You would pay the following expenses on Aggressive Growth $22 $ 69 $117 $252 the same investment, assuming no Blue Chip $20 $ 63 $108 $233 redemption: Growth $20 $ 62 $107 $232 Quantitative $22 $ 68 $116 $249 Small Cap $20 $ 61 $105 $227 Technology $18 $ 57 $ 99 $214 Total Return $19 $ 60 $103 $222 Value+Growth $22 $ 67 $115 $248
- ------------------------- (7) Assumes conversion to Class A shares six years after purchase. The contingent deferred sales charge was applied as follows: 1 year (4%), 3 years (3%), 5 years (2%) 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) The contingent deferred sales charge was applied as follows: 1 year (1%), 3, 5 and 10 years (0%). 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 Aggressive Growth Fund and the Small Cap Fund, the table reflects the base management fee for the prior fiscal year after such adjustment. 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 15 FINANCIAL HIGHLIGHTS The tables below show financial information for each 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 1997 Annual Report to Shareholders are incorporated herein by reference and may be obtained by writing or calling that Fund. AGGRESSIVE GROWTH FUND For the period from December 31, 1996 (commencement of operations) to September 30, 1997.
CLASS A CLASS B CLASS C ------- ------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 9.50 9.50 9.50 - --------------------------------------------------------------------- ------- ------- Income from investment operations: Net investment loss (.02) (.08) (.07) - --------------------------------------------------------------------- ------- ------- Net realized and unrealized gain 3.12 3.10 3.10 - --------------------------------------------------------------------- ------- ------- Total from investment operations 3.10 3.02 3.03 - --------------------------------------------------------------------- ------- ------- Net asset value, end of period $12.60 12.52 12.53 - --------------------------------------------------------------------- ------- ------- TOTAL RETURN (NOT ANNUALIZED) 32.63% 31.79 31.89 - --------------------------------------------------------------------- ------- ------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 1.49% 2.41 2.19 - --------------------------------------------------------------------- ------- ------- Net investment loss (.35)% (1.27) (1.05) - --------------------------------------------------------------------- ------- ------- ALL CLASSES SUPPLEMENTAL DATA: Net assets at end of period $11,609,000 - ----------------------------------------------------------------------------------------------- Portfolio turnover rate (annualized) 364% - ----------------------------------------------------------------------------------------------- Average commission rate paid per share on stock transactions $.0588 - -----------------------------------------------------------------------------------------------
BLUE CHIP FUND
NOV. 23, 1987 TO YEAR ENDED OCTOBER 31, OCT. 31, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 ----------------------------------------------------------------------- ----------- CLASS A SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $17.14 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 .18 .22 .19 .19 .18 .18 .11 .13 .18 .35 - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 3.70 3.45 2.57 (.71) 1.13 .41 3.63 (.45) 1.78 (.80) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.88 3.67 2.76 (.52) 1.31 .59 3.74 (.32) 1.96 (.45) - --------------------------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .21 .20 .20 .19 .15 .14 .15 .10 .30 .14 - --------------------------------------------------------------------------------------------------------------------------------- Distribution from net realized gain 3.13 1.20 .02 .84 -- .97 -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total dividends 3.34 1.40 .22 1.03 .15 1.11 .15 .10 .30 .14 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $17.68 17.14 14.87 12.33 13.88 12.72 13.24 9.65 10.07 8.41 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 26.78% 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 1.19% 1.26 1.30 1.48 1.25 1.46 1.66 1.91 2.08 1.83 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income 1.07% 1.40 1.47 1.50 1.28 1.63 .88 1.28 1.99 4.47 - ---------------------------------------------------------------------------------------------------------------------------------
6 16
CLASS B CLASS C ------------------------------------------ ------------------------------------------ YEAR ENDED MAY 31 TO YEAR ENDED MAY 31 TO OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 1997 1996 1995 1994 1997 1996 1995 1994 ------ ----------- ----- ----------- ------ ----------- ----- ----------- CLASS B AND C SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $17.09 14.82 12.29 12.30 17.15 14.88 12.32 12.30 - -------------------------------------------------------------------------------- ------------------------------------------ Income from investment operations: Net investment income .04 .10 .09 .06 .03 .10 .07 .09 - -------------------------------------------------------------------------------- ------------------------------------------ Net realized and unrealized gain (loss) 3.67 3.45 2.56 (.01) 3.71 3.45 2.62 (.01) - -------------------------------------------------------------------------------- ------------------------------------------ Total from investment operations 3.71 3.55 2.65 .05 3.74 3.55 2.69 .08 - -------------------------------------------------------------------------------- ------------------------------------------ Less dividends: Distribution from net investment income .06 .08 .10 .06 .07 .08 .11 .06 - -------------------------------------------------------------------------------- ------------------------------------------ Distribution from net realized gain 3.13 1.20 .02 -- 3.13 1.20 .02 -- - -------------------------------------------------------------------------------- ------------------------------------------ Total dividends 3.19 1.28 .12 .06 3.20 1.28 .13 .06 - -------------------------------------------------------------------------------- ------------------------------------------ Net asset value, end of period $17.61 17.09 14.82 12.29 17.69 17.15 14.88 12.32 - -------------------------------------------------------------------------------- ------------------------------------------ TOTAL RETURN (NOT ANNUALIZED) 25.62% 25.82 21.76 .42 25.71 25.75 22.04 .67 - -------------------------------------------------------------------------------- ------------------------------------------ RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 2.06% 2.08 2.06 2.43 2.00 2.05 2.01 2.33 - -------------------------------------------------------------------------------- ------------------------------------------ Net investment income .20% .58 .71 .33 .26 .61 .76 .43 - ---------------------------------------------------------------------------- ------------------------------------------
NOV. 23, 1987 YEAR ENDED OCTOBER 31, TO 1997 1996 1995 1994 1993 1992 1991 1990 1989 OCT. 31, 1988 ALL CLASSES ------------------------------------------------------------------------------------- ------------- SUPPLEMENTAL DATA: Net assets at end of period (in thousands) $446,891 256,172 168,266 153,172 196,327 182,553 61,146 32,172 26,164 20,421 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (annualized) 183% 166 117 131 222 178 162 93 89 326 - ------------------------------------------------------------------------------------------------------------------------------ Average commission rates paid per share on stock transactions for the years ended October 31, 1997 and 1996 were $.0593 and $.0587, respectively. - ------------------------------------------------------------------------------------------------------------------------------
7 17 GROWTH FUND
YEAR ENDED SEPTEMBER 30, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 -------------------------------------------------------------------------------- CLASS A SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $17.21 16.07 12.93 15.33 13.09 13.14 9.00 9.79 7.61 13.73 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income -- .12 .05 .01 .01 .03 .06 .18 .17 .23 - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 2.61 2.74 3.27 (1.41) 2.29 .71 4.57 (.79) 2.24 (2.83) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.61 2.86 3.32 (1.40) 2.30 .74 4.63 (.61) 2.41 (2.60) - --------------------------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income -- .04 -- -- .03 .05 .11 .18 .23 .21 - --------------------------------------------------------------------------------------------------------------------------------- Distribution from net realized gain 4.35 1.68 .18 1.00 .03 .74 .38 -- -- 3.31 - --------------------------------------------------------------------------------------------------------------------------------- Total dividends 4.35 1.72 .18 1.00 .06 .79 .49 .18 .23 3.52 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $15.47 17.21 16.07 12.93 15.33 13.09 13.14 9.00 9.79 7.61 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN 19.97% 19.62 26.07 (9.39) 17.60 5.55 54.13 (6.37) 32.60 (15.15) - --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses 1.06% 1.07 1.17 1.09 1.00 1.03 1.04 .89 .83 .82 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income .07% .65 .43 .24 .06 .32 .59 1.84 2.11 3.38 - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C ---------------------------------------- --------------------------------------- YEAR ENDED YEAR ENDED SEPTEMBER 30, MAY 31 TO SEPTEMBER 30, MAY 31 TO ------------------------ SEPTEMBER 30, ----------------------- SEPTEMBER 30, 1997 1996 1995 1994 1997 1996 1995 1994 ------ ----- ----- ------------- ----- ----- ---- ------------- CLASS B AND C SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $16.82 15.85 12.88 13.10 16.87 15.87 12.88 13.09 - ------------------------------------------------------------------------------ --------------------------------------- Income from investment operations: Net investment loss (.16) (.09) (.08) (.03) (.13) (.06) (.07) (.02) - ------------------------------------------------------------------------------ --------------------------------------- Net realized and unrealized gain (loss) 2.52 2.74 3.23 (.19) 2.52 2.74 3.24 (.19) - ------------------------------------------------------------------------------ --------------------------------------- Total from investment operations 2.36 2.65 3.15 (.22) 2.39 2.68 3.17 (.21) - ------------------------------------------------------------------------------ --------------------------------------- Less distribution from net realized gain 4.35 1.68 .18 -- 4.35 1.68 .18 -- - ------------------------------------------------------------------------------ --------------------------------------- Net asset value, end of period $14.83 16.82 15.85 12.88 14.91 16.87 15.87 12.88 - ------------------------------------------------------------------------------ --------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 18.68% 18.47 24.83 (1.68) 18.87 18.65 24.99 (1.60) - ------------------------------------------------------------------------------ --------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 2.13% 2.05 2.17 2.11 1.99 1.95 2.03 2.09 - ------------------------------------------------------------------------------ --------------------------------------- Net investment loss (1.00)% (.33) (.57) (.76) (.86) (.23) (.43) (.67) - ------------------------------------------------------------------------------ ---------------------------------------
YEAR ENDED SEPTEMBER 30, ALL CLASSES 1997 1996 1995 1994 1993 1992 1991 -------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets at end of year (in thousands) $2,827,565 2,738,303 2,503,301 2,255,977 1,826,961 1,419,292 613,245 - ------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 201% 150 67 115 139 83 143 - ------------------------------------------------------------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ALL CLASSES 1990 1989 1988 ------------------------ SUPPLEMENTAL DATA: Net assets at end of year (in thousands) 307,555 335,998 285,485 - ------------------------------------------------------- Portfolio turnover rate 194 160 61 - -------------------------------------------------------
Average commission rates paid per share on stock transaction for the years ended September 30, 1997 and 1996 were $.0569 and $.0560, respectively. - -------------------------------------------------------------------------------- 8 18 QUANTITATIVE FUND
FEBRUARY 15 YEAR ENDED TO NOVEMBER 30, NOVEMBER 30, 1997 1996 CLASS A SHARES ------------ ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $11.12 9.50 - ------------------------------------------------------------------------------------------------ Income from investment operations: Net investment loss (.03) -- - ------------------------------------------------------------------------------------------------ Net realized and unrealized gain 2.13 1.62 - ------------------------------------------------------------------------------------------------ Total from investment operations 2.10 1.62 - ------------------------------------------------------------------------------------------------ Less distribution from net realized gain .19 -- - ------------------------------------------------------------------------------------------------ Net asset value, end of period $13.03 11.12 - ------------------------------------------------------------------------------------------------ TOTAL RETURN (NOT ANNUALIZED) 19.25% 17.05 - ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses absorbed by the Fund 1.45% 1.48 - ------------------------------------------------------------------------------------------------ Net investment loss (.36)% (.16) - ------------------------------------------------------------------------------------------------ OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 1.45% 2.26 - ------------------------------------------------------------------------------------------------ Net investment loss (.36)% (.94) - ------------------------------------------------------------------------------------------------
CLASS B CLASS C ------------------------------ ------------------------------ FEBRUARY 15 FEBRUARY 15 YEAR ENDED TO YEAR ENDED TO NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, 1997 1996 1997 1996 CLASS B AND C SHARES ----------- ------------ ------------ ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $11.04 9.50 11.05 9.50 - ---------------------------------------------------------------------------------- ----------------------------- Income from investment operations: Net investment loss (.08) (.04) (.04) (.04) - ---------------------------------------------------------------------------------- ----------------------------- Net realized and unrealized gain 2.07 1.58 2.04 1.59 - ---------------------------------------------------------------------------------- ----------------------------- Total from investment operations 1.99 1.54 2.00 1.55 - ---------------------------------------------------------------------------------- ----------------------------- Less distribution from net realized gain .19 -- .19 -- - ---------------------------------------------------------------------------------- ----------------------------- Net asset value, end of period $12.84 11.04 12.86 11.05 - ---------------------------------------------------------------------------------- ----------------------------- TOTAL RETURN (NOT ANNUALIZED) 18.37% 16.21 18.45% 16.32 - ---------------------------------------------------------------------------------- ----------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses absorbed by the Fund 2.27% 2.32 2.16% 2.33 - ---------------------------------------------------------------------------------- ----------------------------- Net investment loss (1.18)% (1.00) (1.07)% (1.01) - ---------------------------------------------------------------------------------- ----------------------------- OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 2.27% 3.15 2.16% 3.12 - ---------------------------------------------------------------------------------- ----------------------------- Net investment loss (1.18)% (1.83) (1.07)% (1.80) - ---------------------------------------------------------------------------------- -----------------------------
FEBRUARY 15 YEAR ENDED TO NOVEMBER 30, NOVEMBER 30, 1997 1996 ALL CLASSES ------------ ------------ SUPPLEMENTAL DATA: Net assets at end of period $11,217,000 4,596,000 - ------------------------------------------------------------------------------------------------ Portfolio turnover rate (annualized) 84% 72 - ------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the periods ended November 30, 1997 and 1996 were $.0597 and $.0555, respectively. - -------------------------------------------------------------------------------- 9 19 SMALL CAP FUND
YEAR ENDED SEPTEMBER 30, 1997 1996(A) 1995(A) 1994 1993 1992(A) 1991 1990 1989 1988 ------------------------------------------------------------------------------------------ CLASS A SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $ 7.01 7.14 5.81 6.45 5.25 5.35 3.79 4.71 3.66 6.69 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.01) (.02) (.01) (.01) (.02) (.02) .02 .05 .10 .05 - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 1.55 .94 1.68 (.27) 1.71 .40 1.89 (.86) 1.00 (1.45) - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.54 .92 1.67 (.28) 1.69 .38 1.91 (.81) 1.10 (1.40) - --------------------------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income -- -- -- -- -- .01 .06 .11 .05 .13 - --------------------------------------------------------------------------------------------------------------------------------- Distribution from net realized gain .57 1.05 .34 .36 .49 .47 .29 -- -- 1.50 - --------------------------------------------------------------------------------------------------------------------------------- Total dividends .57 1.05 .34 .36 .49 .48 .35 .11 .05 1.63 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $ 7.98 7.01 7.14 5.81 6.45 5.25 5.35 3.79 4.71 3.66 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN 24.29% 16.33 30.88 (4.31) 34.11 7.02 55.16 (17.52) 30.58 (17.34) - --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses .90% 1.08 1.14 1.34 1.03 1.28 1.25 .86 .64 .72 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.20)% (.26) (.18) (.76) (.43) (.43) .27 1.22 2.55 1.42 - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C ---------------------------------------------- --------------------------- YEAR ENDED MAY 31 TO YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1995 1994 1997 1996 1995 ---- ---- ---- ------------- ---- ---- ---- CLASS B AND C SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 6.81 7.03 5.78 5.65 6.80 7.02 5.77 - -------------------------------------------------------------------------------------- --------------------------- Income from investment operations: Net investment loss (.10) (.09) (.07) (.02) (.09) (.09) (.07) - -------------------------------------------------------------------------------------- --------------------------- Net realized and unrealized gain 1.50 .92 1.66 .15 1.49 .92 1.66 - -------------------------------------------------------------------------------------- --------------------------- Total from investment operations 1.40 .83 1.59 .13 1.40 .83 1.59 - -------------------------------------------------------------------------------------- --------------------------- Less distribution from net realized gain .57 1.05 .34 -- .57 1.05 .34 - -------------------------------------------------------------------------------------- --------------------------- Net asset value, end of period $ 7.64 6.81 7.03 5.78 7.63 6.80 7.02 - -------------------------------------------------------------------------------------- --------------------------- TOTAL RETURN (NOT ANNUALIZED) 22.83% 15.13 29.59 2.30 22.87 15.16 29.65 - -------------------------------------------------------------------------------------- --------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 2.14% 2.15 2.17 2.29 1.95 2.15 2.10 - -------------------------------------------------------------------------------------- --------------------------- Net investment loss (1.44)% (1.33) (1.21) (1.38) (1.25) (1.33) (1.14) - ----------------------------------------------------------------------------- --------------------------- CLASS C ------------- MAY 31 TO SEPTEMBER 30, 1994 ------------- CLASS B AND C SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period 5.65 - --------------------------------- Income from investment operations: Net investment loss (.03) - --------------------------------- Net realized and unrealized gain .15 - --------------------------------- Total from investment operations .12 - --------------------------------- Less distribution from net realized gain -- - --------------------------------- Net asset value, end of period 5.77 - --------------------------------- TOTAL RETURN (NOT ANNUALIZED) 2.12 - --------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 2.10 - --------------------------------- Net investment loss (1.21) - --------------------------------------------
YEAR ENDED SEPTEMBER 30, ALL CLASSES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 ---------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets at end of year (in thousands) $1,095,478 934,075 839,905 631,607 510,060 329,116 289,345 179,092 286,411 284,426 - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 102% 85 102 58 82 73 126 107 100 90 - ---------------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended September 30, 1997 and 1996 were $.0573 and $.0557, respectively. - -------------------------------------------------------------------------------- 10 20 TECHNOLOGY FUND
YEAR ENDED OCTOBER 31, 1997(A) 1996(A) 1995(A) 1994(A) 1993(A) 1992 1991 1990 1989 1988 ---------------------------------------------------------------------------------------- CLASS A SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $13.16 14.63 11.50 10.68 9.95 12.42 9.37 10.19 9.39 11.76 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.06) (.08) (.03) -- (.01) .01 .13 .22 .26 .18 - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 2.14 .74 4.66 1.49 2.03 .04 3.35 (.45) 1.28 .07 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.08 .66 4.63 1.49 2.02 .05 3.48 (.23) 1.54 .25 - --------------------------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income -- -- -- -- -- .03 .20 .29 .23 .12 - --------------------------------------------------------------------------------------------------------------------------------- Distribution from net realized gain 2.11 2.13 1.50 .67 1.29 2.49 .23 .30 .51 2.50 - --------------------------------------------------------------------------------------------------------------------------------- Total dividends 2.11 2.13 1.50 .67 1.29 2.52 .43 .59 .74 2.62 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $13.13 13.16 14.63 11.50 10.68 9.95 12.42 9.37 10.19 9.39 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN 17.11% 7.83 47.30 14.95 21.76 .32 38.58 (2.51) 18.19 3.84 - --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses .89% .89 .88 .89 .81 .82 .81 .71 .69 .69 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (.42)% (.62) (.23) .05 (.06) .07 1.24 2.23 2.92 2.26 - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C --------------------------------------------- --------------------------------------------- YEAR ENDED MAY 31, TO YEAR ENDED MAY 31, TO OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 1997(A) 1996(A) 1995(A) 1994 1997(A) 1996(A) 1995(A) 1994 ------- ----------- ------- ----------- ------- ----------- ------- ----------- CLASS B AND C SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $12.77 14.39 11.45 9.99 12.85 14.45 11.45 9.99 - ------------------------------------------------------------------------------ --------------------------------------------- Income from investment operations: Net investment loss (.18) (.19) (.15) (.05) (.17) (.18) (.15) (.05) - ------------------------------------------------------------------------------ --------------------------------------------- Net realized and unrealized gain 2.06 .70 4.59 1.51 2.07 .71 4.65 1.51 - ------------------------------------------------------------------------------ --------------------------------------------- Total from investment operations 1.88 .51 4.44 1.46 1.90 .53 4.50 1.46 - ------------------------------------------------------------------------------ --------------------------------------------- Less distribution from net realized gain 2.11 2.13 1.50 -- 2.11 2.13 1.50 -- - ------------------------------------------------------------------------------ --------------------------------------------- Net asset value, end of period $12.54 12.77 14.39 11.45 12.64 12.85 14.45 11.45 - ------------------------------------------------------------------------------ --------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 15.91% 6.76 45.65 14.61 15.98 6.88 46.23 14.61 - ------------------------------------------------------------------------------ --------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 1.85% 1.87 1.82 1.99 1.82 1.82 1.76 1.83 - ------------------------------------------------------------------------------ --------------------------------------------- Net investment loss (1.38)% (1.60) (1.17) (1.08) (1.35) (1.55) (1.11) (.92) - ---------------------------------------------------------------------------- ---------------------------------------------
YEAR ENDED OCTOBER 31, ALL CLASSES 1997 1996 1995 1994 1993 1992 1991 --------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets at end of year (in thousands) $1,209,723 1,062,813 1,017,955 713,654 612,604 559,279 606,295 - ---------------------------------------------------------------------------------------------------------- Portfolio turnover rate 192% 121 105 81 95 95 81 - ---------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, ALL CLASSES 1990 1989 1988 --------------------------- SUPPLEMENTAL DATA: Net assets at end of year (in thousands) 472,992 532,760 513,800 - ---------------------------------------------------------- Portfolio turnover rate 25 39 11 - ----------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended October 31, 1997 and 1996 were $.0583 and $.0558, respectively. - -------------------------------------------------------------------------------- 11 21 TOTAL RETURN FUND
YEAR ENDED OCTOBER 31, 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 -------------------------------------------------------------------------------- CLASS A SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $11.28 10.60 9.10 11.23 10.07 10.07 7.78 8.34 7.34 7.24 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .31 .28 .29 .19 .30 .22 .36 .46 .37 .36 - --------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 1.57 1.24 1.46 (1.01) 1.54 .37 2.42 (.64) 1.04 .23 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.88 1.52 1.75 (.82) 1.84 .59 2.78 (.18) 1.41 .59 - --------------------------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .33 .34 .25 .23 .24 .29 .49 .38 .41 .29 - --------------------------------------------------------------------------------------------------------------------------------- Distribution from net realized gain 1.49 .50 -- 1.08 .44 .30 -- -- -- .20 - --------------------------------------------------------------------------------------------------------------------------------- Total dividends 1.82 .84 .25 1.31 .68 .59 .49 .38 .41 .49 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of year $11.34 11.28 10.60 9.10 11.23 10.07 10.07 7.78 8.34 7.34 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN 18.95% 15.34 19.46 (7.92) 19.08 6.09 37.20 (2.31) 20.00 8.75 - --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses 1.01% 1.05 1.12 1.13 1.02 1.06 1.03 .87 .79 .78 - --------------------------------------------------------------------------------------------------------------------------------- Net investment income 2.92% 2.76 3.00 2.34 2.94 2.23 3.96 5.87 4.76 5.10 - ---------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C --------------------------------------- -------------------------------------- YEAR ENDED MAY 31 TO YEAR ENDED MAY 31 TO OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 1997 1996 1995 1994 1997 1996 1995 1994 --------------------------------------- -------------------------------------- CLASS B AND C SHARES PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $11.27 10.59 9.09 9.24 11.28 10.61 9.09 9.24 - ------------------------------------------------------------------------------------ -------------------------------------- Income from investment operations: Net investment income .22 .19 .20 .06 .22 .20 .21 .06 - ------------------------------------------------------------------------------------ -------------------------------------- Net realized and unrealized gain (loss) 1.55 1.23 1.46 (.16) 1.56 1.22 1.48 (.16) - ------------------------------------------------------------------------------------ -------------------------------------- Total from investment operations 1.77 1.42 1.66 (.10) 1.78 1.42 1.69 (.10) - ------------------------------------------------------------------------------------ -------------------------------------- Less dividends: Distribution from net investment income .22 .24 .16 .05 .23 .25 .17 .05 - ------------------------------------------------------------------------------------ -------------------------------------- Distribution from net realized gain 1.49 .50 -- -- 1.49 .50 -- -- - ------------------------------------------------------------------------------------ -------------------------------------- Total dividends 1.71 .74 .16 .05 1.72 .75 .17 .05 - ------------------------------------------------------------------------------------ -------------------------------------- Net asset value, end of period $11.33 11.27 10.59 9.09 11.34 11.28 10.61 9.09 - ------------------------------------------------------------------------------------ -------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 17.86% 14.28 18.42 (1.06) 17.92 14.31 18.76 (1.05) - ------------------------------------------------------------------------------------ -------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 1.95% 1.99 2.05 2.03 1.90 1.89 1.86 2.00 - ------------------------------------------------------------------------------------ -------------------------------------- Net investment income 1.98% 1.82 2.07 1.57 2.03 1.92 2.26 1.60 - ------------------------------------------------------------------------------------ --------------------------------------
YEAR ENDED OCTOBER 31, ALL CLASSES 1997 1996 1995 1994 1993 1992 1991 ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets at end of year (in thousands) $3,241,383 3,020,798 2,926,542 2,864,322 1,509,687 1,212,896 998,465 - ------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 122% 85 142 121 180 150 157 - ------------------------------------------------------------------------------------------------------------------------ YEAR ENDED OCTOBER 31, ALL CLASSES 1990 1989 1988 ------------------------------ SUPPLEMENTAL DATA: Net assets at end of year (in thousands) 781,417 937,804 976,972 - ------------------------------------------------------------------- Portfolio turnover rate 157 130 187 - -------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended October 31, 1997 and 1996 were $.0578 and $.0580, respectively. - -------------------------------------------------------------------------------- 12 22 VALUE+GROWTH FUND
OCTOBER 16 YEAR ENDED TO NOVEMBER 30, NOVEMBER 30, 1997 1996 1995 CLASS A SHARES ------ ----- ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $12.95 10.02 9.50 - ---------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .02 .05 .02 - ---------------------------------------------------------------------------------------------- Net realized and unrealized gain 2.48 2.88 .50 - ---------------------------------------------------------------------------------------------- Total from investment operations 2.50 2.93 .52 - ---------------------------------------------------------------------------------------------- Less distribution from net realized gain .83 -- - ---------------------------------------------------------------------------------------------- Net asset value, end of period $14.62 12.95 10.02 - ---------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 20.83% 29.24 5.47 - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses absorbed by the Fund 1.41% 1.47 1.35 - ---------------------------------------------------------------------------------------------- Net investment income .35% .43 2.25 - ---------------------------------------------------------------------------------------------- OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 1.41% 1.59 -- - ---------------------------------------------------------------------------------------------- Net investment income .35% .31 -- - ----------------------------------------------------------------------------------------------
OCTOBER 16 YEAR ENDED OCTOBER 16 YEAR ENDED TO NOVEMBER 30, TO NOVEMBER 30, NOVEMBER 30, -------------- NOVEMBER 30, 1997 1996 1995 1997 1996 1995 CLASS B AND C SHARES ------ ----- ------------ ----- ----- ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $12.83 10.02 9.50 12.84 10.01 9.50 - ---------------------------------------------------------------------------------------- ------------------------------ Income from investment operations: Net investment income (loss) (.07) (.04) .02 (.05) (.04) .01 - ---------------------------------------------------------------------------------------- ------------------------------ Net realized and unrealized gain 2.44 2.85 .50 2.41 2.87 .50 - ---------------------------------------------------------------------------------------- ------------------------------ Total from investment operations 2.37 2.81 .52 2.36 2.83 .51 - ---------------------------------------------------------------------------------------- ------------------------------ Less distribution from net realized gain .83 -- -- .83 -- -- - ---------------------------------------------------------------------------------------- ------------------------------ Net asset value, end of period $14.37 12.83 10.02 14.37 12.84 10.01 - ---------------------------------------------------------------------------------------- ------------------------------ TOTAL RETURN (NOT ANNUALIZED) 19.96% 28.04 5.47 19.86 28.27 5.37 - ---------------------------------------------------------------------------------------- ------------------------------ RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses absorbed by the Fund 2.27% 2.27 2.10 2.15 2.22 2.07 - ---------------------------------------------------------------------------------------- ------------------------------ Net investment income (loss) (.51)% (.37) 1.50 (.39) (.32) 1.53 - ---------------------------------------------------------------------------------------- ------------------------------ OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Expenses 2.32% 2.44 -- 2.16 2.35 -- - ---------------------------------------------------------------------------------------- ------------------------------ Net investment loss (.56)% (.54) -- (.40) (.45) -- - ---------------------------------------------------------------------------------------- ------------------------------
13 23
OCTOBER 16 YEAR ENDED TO NOVEMBER 30, NOVEMBER 30, 1997 1996 1995 ------- ------- ------------ ALL CLASSES SUPPLEMENTAL DATA: Net assets at end of period (in thousands) $97,741 39,092 5,851 - ---------------------------------------------------------------------------------------------- Portfolio turnover rate 56% 82 -- - ----------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended November 30, 1997 and 1996 were $.0578 and $.0571, respectively. - -------------------------------------------------------------------------------- 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. 14 24 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. 15 25 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. 16 26 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 17 27 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 18 28 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. 19 29 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. 20 30 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. In managing the growth portion of the portfolio, the investment manager emphasizes stock selection and fundamental research in seeking to enhance long-term performance potential. The investment manager 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. In managing the value portion of the portfolio, the investment manager 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, the investment manager 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. 21 31 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). The Aggressive Growth 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 most Western European countries. Currently, investing in many emerging markets may not be desirable or 22 32 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. 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 23 33 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. 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 24 34 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 are listed under "Financial Highlights." 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. 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 25 35 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 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. 26 36 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. 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. 27 37 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. 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. 28 38 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; and (e) 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. Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345 Park Avenue, New York, New York, is the investment manager of each Fund and provides each Fund with continuous professional investment supervision. Scudder Kemper is one of the largest investment managers in the country with more than $200 billion under management and has been engaged in the management of investment funds for more than seventy years. Zurich Insurance Company, a leading internationally recognized provider of insurance and financial services in property/casualty and life insurance, reinsurance and structured financial solutions as well as asset management, owns approximately 70% of Scudder Kemper, with the balance owned by Scudder Kemper's officers and employees. Responsibility for overall management of each Fund rests with its Board of Trustees and officers. Professional investment supervision is provided by Scudder Kemper. The investment management agreements provide that Scudder Kemper shall act as each Fund's investment adviser, manage its investments and provide it with various services and facilities. Tracy McCormick Chester has been the portfolio manager of the Blue Chip Fund since September, 1994 when she joined Scudder Kemper. She is a vice president of the Blue Chip Fund and senior vice president of Scudder Kemper. Prior to coming to Scudder Kemper, from August 1992 to September 1994, she was a senior vice president and portfolio manager of an investment management company; and prior thereto, she managed private accounts. She received a B.A. and an M.B.A. in Finance from Michigan State University, East Lansing, Michigan. Steven H. Reynolds has been the portfolio manager of the Kemper Growth Fund since February 1997. He joined Scudder Kemper in September 1995 and is currently executive vice president of Scudder Kemper. From 1991 to September 1995, he was a senior vice president and equity portfolio manager of an unaffiliated 29 39 investment advisory firm. Mr. Reynolds received a B.A. degree from Johns Hopkins University, Baltimore, Maryland and an M.B.A. in finance from the University of Virginia, Charlottesville, Virginia. Kurt R. Stalzer has been the portfolio manager of Kemper Small Capitalization Equity Fund since he joined Scudder Kemper in January 1997 and the portfolio manager of the Kemper Aggressive Growth Fund since February 1997. He is a senior vice president at Scudder Kemper. From 1992 to 1996, Mr. Stalzer was a senior portfolio manager for an unaffiliated investment management company. Mr. Stalzer received a B.B.A. in finance and accounting from the University of Michigan. Gary A. Langbaum has been the portfolio manager of the Total Return Fund since February, 1995. He is assisted by investment personnel who specialize in certain areas. Mr. Langbaum joined Scudder Kemper in 1988 and is an executive vice president of Scudder Kemper. 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 Scudder Kemper in 1989 and is a senior vice president and Director of Quantitative Research of Scudder Kemper 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 Scudder Kemper in 1992 and is a first vice president of Scudder Kemper. Immediately prior to joining Scudder Kemper, he served as an officer with an unaffiliated investment management firm from September, 1988. The Technology Fund is managed by a team of investment professionals who each play an important role in the Technology Fund's management process. The team is comprised of the following members: Tracy McCormick Chester, Richard A. Goers, Gary A. Langbaum and Steven H. Reynolds. Mr. Goers joined Scudder Kemper in January, 1971 and is currently a senior technology analyst. He received a B.S. in Industrial (Business) Administration from Iowa State University, Ames, Iowa and an M.B.A. in Finance from Northwestern University, Chicago, Illinois. Mr. Goers is a Chartered Financial Analyst. Information concerning the other members of the team appears above. The Funds (other than the Aggressive Growth Fund and the Small Cap Fund) pay Scudder Kemper investment management fees, payable monthly, at 1/12 of 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 30 40 the adjustment, the 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%.
BLUE CHIP, GROWTH, QUANTITATIVE, TECHNOLOGY AND TOTAL RETURN VALUE+ AVERAGE DAILY NET ASSETS FUNDS GROWTH FUND - ------------------------ ------------- ----------- $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
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder Kemper, is responsible for determining the daily net asset value per share of the Funds and maintaining all accounting records related thereto. Currently, SFAC receives no fee for its services to the Funds; however, subject to Board approval, at some time in the future, SFAC may seek payment for its services under this agreement. 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 Scudder Kemper, 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%. 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 31 41 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 1997 fiscal year.
CONTINGENT DEFERRED DISTRIBUTION EXPENSES DISTRIBUTION FEES PAID SALES CHARGES PAID INCURRED BY UNDERWRITER BY FUND TO UNDERWRITER TO UNDERWRITER ----------------------- ----------------------- -------------------- FUND CLASS B CLASS C CLASS B CLASS C CLASS B CLASS C - ---- ------- ------- ------- ------- ------- ------- Aggressive Growth*............ $ 143,000 45,000 13,000 6,000 11,000 5,000 Blue Chip..................... $2,952,000 182,000 659,000 49,000 128,000 3,000 Growth........................ $5,466,000 324,000 6,426,000 110,000 1,183,000 1,000 Quantitative.................. $ 79,000 13,000 13,000 8,000 0 0 Small Cap..................... $2,632,000 168,000 1,930,000 62,000 417,000 2,000 Technology.................... $2,259,000 179,000 698,000 51,000 179,000 3,000 Total Return.................. $5,950,000 293,000 8,705,000 109,000 1,382,000 2,000 Value+Growth.................. $1,044,000 57,000 195,000(a) 8,000(a) 28,000 1,000
- --------------- * For the period December 31, 1996 to September 30, 1997. (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 broker-dealer firms and other service or administrative ("firms"), that provide services and facilities for their customers or clients who are investors of the Funds. Such administrative services and assistance may include, but are not limited to, establishing and maintaining accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding each Fund and its special features, and such other administrative services as may be agreed upon from time to time and permitted by applicable statute, rule or regulation. 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, normally payable quarterly, 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 affiliates of KDI. 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 normally paid quarterly. 32 42 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 normally 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 a firm provides administrative services 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 a firm provides administrative services as well as, with respect to Class A shares, the date when shares representing such assets were purchased. 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"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as sub-custodian, have custody of all securities and cash of 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 ("KSvC"), an affiliate of Scudder Kemper, 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. Scudder Kemper places all orders for purchases and sales of a Fund's securities. Subject to seeking the most favorable net results, they may consider sales of shares of a Fund and other funds managed by Scudder Kemper 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. 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 33 43 (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 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 20% on gains realized by a Fund from securities held more than 18 months and at a maximum rate of 28% on gains realized by a Fund from securities held more than 12 months but not more than 18 months. 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 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. 34 44 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 35 45 class has distinct advantages and disadvantages for different investors, and investors may choose the class that best suits their circumstances and objectives.
ANNUAL 12B-1 FEES (AS A % OF AVERAGE DAILY SALES CHARGE NET ASSETS) OTHER INFORMATION ------------ ------------------------ ----------------- 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
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.
SALES CHARGE ------------------------------------------------------------------ ALLOWED TO AS A PERCENTAGE DEALERS AS A AS A PERCENTAGE OF NET ASSET PERCENTAGE OF AMOUNT OF PURCHASE OF OFFERING PRICE VALUE* OFFERING PRICE ------------------ ----------------- --------------- -------------- 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** ***
- --------------- * 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 36 46 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 Scudder Kemper 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 KSvC. 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 also applies. 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 37 47 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 by persons who purchase such shares through bank trust departments that process such trades through an automated, integrated mutual fund clearing program provided by a third party clearing firm. 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 of a Fund may be purchased at net asset value by persons who purchase shares of the Fund through KDI as part of an automated billing and wage deduction program administered by RewardsPlus of America for the benefit of employees of participating employer groups. 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 Value Fund, Inc. ("KVF") on September 8, 1995, and have continuously owned shares of KVF (or a Kemper Fund acquired by exchange of KVF shares) since that date, for themselves or members of their families; and (d) any trust, pension, profit-sharing or other benefit plan for only such persons. 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 38 48 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 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 39 49 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 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 KSvC, (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 40 50 cash dividends. Such firms, including affiliates of KDI, may receive compensation from the Funds through the Shareholder Service Agent for these services. This prospectus should be read in connection with such firms' material regarding their fees and services. The Funds reserve the right to withdraw all or any part of the offering made by this prospectus and to reject purchase orders. Also, from time to time, each Fund may temporarily suspend the offering of any class of its shares to new investors. During the period of such suspension, persons who are already shareholders of such class of such Fund normally are permitted to continue to purchase additional shares of such class and to have dividends reinvested. Shareholders should direct their inquiries to KSvC, 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, effective January 1998, the Funds may assess a quarterly fee of $9 on an account with a balance below $1,000 for the quarter. The fee will not apply to accounts enrolled in an automatic investment program, Individual Retirement Accounts or employer sponsored employee benefit plans using the subaccount record keeping system made available through the Shareholder Service Agent. Shareholders can request the following telephone privileges: expedited wire transfer redemptions and EXPRESS-Transfer transactions (see "Special Features") and exchange transactions for individual and 41 51 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 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 Scudder Kemper 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 42 52 bank. The Funds currently do not charge the account holder for wire transfers. The account holder is responsible for any charges imposed by the account holder's firm or bank. There is a $1,000 wire redemption minimum (including any contingent deferred sales charge). To change the designated account to receive wire redemption proceeds, send a written request to the Shareholder Service Agent with signatures guaranteed as described above or contact the firm through which shares of the Fund were purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer until such shares have been owned for at least 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.
CONTINGENT DEFERRED SALES YEAR OF REDEMPTION AFTER PURCHASE CHARGE - --------------------------------- ---------- First....................................................... 4% Second...................................................... 3% Third....................................................... 3% Fourth...................................................... 2% Fifth....................................................... 2% Sixth....................................................... 1%
43 53 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:
CONTINGENT DEFERRED SALES CHARGE YEAR OF ------------------------------------------------------------- REDEMPTION SHARES PURCHASED ON OR AFTER AFTER SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1991 AND BEFORE PURCHASE MARCH 1, 1993 MARCH 1, 1993 - ---------- ----------------------------- ----------------------------- First...................................... 4% 3% Second..................................... 3% 3% Third...................................... 3% 2% Fourth..................................... 2% 2% Fifth...................................... 2% 1% Sixth...................................... 1% 1%
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), (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 and (g) redemption of shares by an employer sponsored employee benefit plan that offers funds in addition to Kemper Funds and whose dealer of record has waived the advance of the first year administrative service and distribution fees applicable to such shares and agrees to receive such fees quarterly. 44 54 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 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 Series, Kemper U.S. Government Securities Fund, Kemper International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are subject to a limited offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value+Growth Fund, Kemper 45 55 Value Fund, Inc., Kemper Quantitative Equity Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive Growth Fund and Kemper Global/International Series, Inc. ("Kemper Mutual Funds"). Except as noted below, there is no combined purchase credit for direct purchases of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper Mutual Funds" for purposes hereof. For purposes of the Combined Purchases feature described above as well as for the Letter of Intent and Cumulative Discount features described below, employer sponsored employee benefit plans using the subaccount record keeping system made available through the Shareholder Service Agent may include: (a) Money Market Funds as "Kemper Mutual Funds", (b) all classes of shares of any Kemper Mutual Fund and (c) the value of any other plan investment, such as guaranteed investment contracts and employer stock, maintained on such subaccount record keeping system. 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, Investors Municipal Cash Fund and Investors Cash Trust are available on exchange but only through a financial services firm having a services agreement with KDI. 46 56 Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege may be exchanged for Class A shares of another Kemper Mutual Fund or a Money Market Fund under the exchange privilege described above without paying any contingent deferred sales charge at the time of exchange. If the Class A shares received on 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 KSvC, 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 the portfolios of Investors Municipal Cash Fund are available for sale only in certain states. 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 47 57 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 KSvC, 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 KSvC, 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. 48 58 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 Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE"), IRA accounts and Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents. - - 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of plan is available to employees of most non-profit organizations. - - Prototype money purchase pension and profit-sharing plans may be adopted by employers. The maximum annual contribution per participant is the lesser of 25% of compensation or $30,000. Brochures describing the above plans as well as model defined benefit plans, target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials for establishing them are available from the Shareholder Service Agent upon request. The brochures for plans with IFTC as custodian describe the current fees payable to IFTC for its services as custodian. Investors should consult with their own tax advisers before establishing a retirement plan. 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 49 59 mutual funds or mutual fund indexes with similar objectives and policies as reported by independent mutual fund reporting services such as Lipper Analytical Services, Inc. ("Lipper"). Lipper performance calculations are based upon changes in net asset value with all dividends reinvested and do not include the effect of any sales charges. Information may be quoted from publications such as Morningstar, Inc., The Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune, USA Today, Institutional Investor and Registered Representative. Also, investors may want to compare the historical returns of various investments, performance indexes of those investments or economic indicators, including but not limited to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury obligations. Bank product performance may be based upon, among other things, the BANK RATE MONITOR National IndexTM or various certificate of deposit indexes. Money market fund performance may be based upon, among other things, the IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R), reporting services on money market funds. Performance of U.S. Treasury obligations may be based upon, among other things, various U.S. Treasury bill indexes. Certain of these alternative investments may offer fixed rates of return and guaranteed principal and may be insured. A Fund may depict the historical performance of the securities in which the Fund may invest over periods reflecting a variety of market or economic conditions either alone or in comparison with alternative investments, performance indexes of those investments or economic indicators. A Fund may also describe its portfolio holdings and depict its size or relative size compared to other mutual funds, the number and make-up of its shareholder base and other descriptive factors concerning the Fund. The relative performance of growth stocks versus value stocks may also be discussed. 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 50 60 Kemper Summit Fund, Inc., a Maryland corporation organized in 1968. Prior to February 1, 1992, the Small Cap Fund was known as "Kemper Summit Fund." The Technology Fund was organized as a business trust under the laws of Massachusetts on October 24, 1985 as Technology Fund and changed its name to Kemper Technology Fund effective February 1, 1988. Effective January 31, 1986, Technology Fund pursuant to a reorganization succeeded to the assets and liabilities of Technology Fund, Inc., a Maryland corporation originally organized as a Delaware corporation in 1948. Technology Fund was known as Television Fund, Inc. until 1950 and as Television-Electronics Fund, Inc. until 1968. The Total Return Fund was organized as a business trust under the laws of Massachusetts on October 24, 1985 and, effective January 31, 1986, that Fund pursuant to a reorganization succeeded to the assets and liabilities of Kemper Total Return Fund, Inc., a Maryland corporation organized in 1963. The Total Return Fund was known as Balanced Income Fund, Inc. until 1972 and as Supervised Investors Income Fund, Inc. until 1977. The Value+Growth Fund was organized as a business trust under the laws of Massachusetts on June 14, 1995 under the name Kemper Value Plus Growth Fund and does business as Kemper Value+Growth Fund. The Technology Fund and the Quantitative Fund each may in the future seek to achieve its investment objective by pooling its assets with assets of other mutual funds for investment in another investment company having the same investment objective and substantially the same investment policies and restrictions as such Fund. The purpose of such an arrangement is to achieve greater operational efficiencies and to reduce costs. It is expected that any such investment company will be managed by Scudder Kemper in substantially the same manner as the corresponding Fund. Shareholders of a Fund will be given at least 30 days' prior notice of any such investment, although they will not be entitled to vote on the action. Such investment would be made only if the Trustees determine it to be in the best interests of the respective Fund and its shareholders. 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 Scudder Kemper and its affiliates; and (b) the following investment advisory clients of Scudder Kemper 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. 51 61 Principal Underwriter Kemper Distributors, Inc. 222 South Riverside Plaza Chicago, Illinois 60606-5808 www.kemper.com E-mail info@kemper.com Tel (800) 621-1048 [KEMPER FUNDS LOGO] KEF-1 (12/96) KDI 801162 FEBRUARY 1, 1998 PROSPECTUS KEMPER EQUITY FUNDS/GROWTH STYLE 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 FUNDS LOGO] Long-term investing in a short-term world(SM) 62 KEMPER BLUE CHIP FUND CROSS-REFERENCE SHEET BETWEEN ITEMS ENUMERATED IN PART B OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
LOCATION IN STATEMENT OF ITEM NUMBER ADDITIONAL INFORMATION OF FORM N-1A ------------------------ 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 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 17. Brokerage Allocation and Other Practices................................ Portfolio Transactions 18. Capital Stock and Other Securities....... Dividends and Taxes; 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
63 KEMPER EQUITY FUNDS STATEMENT OF ADDITIONAL INFORMATION FEBRUARY 1, 1998 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 February 1, 1998. The prospectus may be obtained without charge from the Funds. ------------------ TABLE OF CONTENTS
Page ---- Investment Restrictions..................................... B-1 Investment Policies and Techniques.......................... B-8 Portfolio Transactions...................................... B-15 Investment Manager and Underwriter.......................... B-16 Purchase and Redemption of Shares........................... B-24 Dividends and Taxes......................................... B-25 Performance................................................. B-26 Officers and Trustees....................................... B-44 Shareholder Rights.......................................... B-49 Appendix -- Ratings of Fixed Income Investments............. B-50
The financial statements appearing in each Fund's 1997 Annual Report to Shareholders are incorporated herein by reference. The Annual Report for the Fund for which this Statement of Additional Information is requested accompanies this document. KEF-13 2/98 (LOGO) printed on recycled paper 64 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (2) Purchase more than 10% of any class of voting securities of any issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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), except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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, except B-1 65 that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (2) Purchase more than 10% of any class of voting securities of any issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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 B-2 66 Fund will not borrow for leverage purposes and will not purchase securities or make investments while borrowings are outstanding. (5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its total assets and then only to secure borrowings permitted by restriction number (4) above. (The collateral arrangements with respect to options, financial futures and delayed delivery transactions and any margin payments in connection therewith are not deemed to be pledges or other encumbrances.) (6) Purchase securities on margin, except to obtain such short-term credits as may be necessary for the clearance of transactions; however, the Fund may make margin deposits in connection with options and financial futures transactions. (7) Make short sales of securities or maintain a short position for the account of the Fund unless at all times when a short position is open it owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short and unless not more than 10% of the Fund's total assets is held as collateral for such sales at any one time. (8) Write (sell) put or call options, combinations thereof or similar options; nor may it purchase put or call options if more than 5% of the Fund's net assets would be invested in premiums on put and call options, combinations thereof or similar options; however, the Fund may buy or sell options on financial futures contracts. (9) Purchase securities (other than securities of the U.S. Government, its agencies or instrumentalities) if as a result of such purchase 25% or more of the Fund's total assets would be invested in any one industry, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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) Invest for the purpose of exercising control or management of another issuer. (ii) Purchase securities of other open-end investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets. (iii) Invest more than 15% of its net assets in illiquid securities. B-3 67 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (2) Purchase more than 10% of any class of securities of any issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. 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, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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 68 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 for the purpose of exercising control or management of another issuer. (ii) Purchase securities of other investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets. (iii) Invest more than 15% of its net assets in illiquid securities. 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (2) Purchase more than 10% of any class of securities of any issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. 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, and except that all or B-5 69 substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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 for the purpose of exercising control or management of another issuer. (ii) Purchase securities of other investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets. (iii) Invest more than 15% of its net assets in illiquid securities. 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (2) Purchase more than 10% of any class of securities of any issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. Water, communications, electric and gas utilities shall each be considered a separate industry. B-6 70 (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, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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 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 for the purpose of exercising control or management of another issuer. (ii) 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. (iii) Invest more than 15% of its net assets in illiquid securities. 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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (2) Purchase more than 10% of any class of securities of any issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. All debt securities and all preferred stocks are each considered as one class. (3) Lend money or securities, provided that the making of time or demand deposits with banks and the purchase of debt securities such as bonds, debentures, commercial paper, repurchase agreements and short-term obligations in accordance with its objective and policies are not prohibited and the Fund may lend its portfolio securities as described under "Investment Objectives and Policies" in the prospectus. (4) Borrow money except for temporary or emergency purposes (but not for the purpose of purchase of investments) and then only in an amount not to exceed 5% of the Fund's net assets; or pledge the Fund's securities or receivables or transfer or assign or otherwise encumber them in an amount exceeding the amount of the borrowings secured thereby. B-7 71 (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, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. 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, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. (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 for the purpose of exercising control or management of another issuer. (ii) Purchase securities of other investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets. (iii) Invest more than 15% of its net assets in illiquid securities. 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 B-8 72 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 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 B-9 73 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 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 B-10 74 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. 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. B-11 75 There may be an imperfect correlation between movements in prices of futures contracts and portfolio assets being hedged. In addition, the market prices of futures contracts may be affected by certain factors. If participants in the futures market elect to close out their contracts through offsetting transactions rather than meet margin requirements, distortions in the normal relationship between the assets and futures markets could result. Price distortions could also result if investors in futures contracts decide to make or take delivery of underlying securities or other assets rather than engage in closing transactions because of the resultant reduction in the liquidity of the futures market. In addition, because, from the point of view of speculators, the margin requirements in the futures markets are less onerous than margin requirements in the cash market, increased participation by speculators in the futures market could cause temporary price distortions. Due to the possibility of price distortions in the futures market and because of the imperfect correlation between movements in the prices of securities or other assets and movements in the prices of futures contracts, a correct forecast of market trends by the investment manager may still not result in a successful hedging transaction. If any of these events should occur, the Fund could lose money on the financial futures contracts and also on the value of its portfolio assets. OPTIONS ON FINANCIAL FUTURES CONTRACTS. A Fund may purchase and write call and put options on financial futures contracts. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise, the writer of the option delivers the futures contract to the holder at the exercise price. A Fund would be required to deposit with its custodian initial margin and maintenance margin with respect to put and 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 B-12 76 purchase and the settlement date, the Fund would not have to exercise its call but could acquire in the spot market the amount of foreign currency needed for settlement. FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of their financial futures transactions (see "Financial Futures Contracts" and "Options on Financial Futures Contracts" above), the Funds may use foreign currency futures contracts and options on such futures contracts. Through the purchase or sale of such contracts, a Fund may be able to achieve many of the same objectives as through forward foreign currency exchange contracts more effectively and possibly at a lower cost. Unlike forward foreign currency exchange contracts, foreign currency futures contracts and options on foreign currency futures contracts are standardized as to amount and delivery period and are traded on boards of trade and commodities exchanges. It is anticipated that such contracts may provide greater liquidity and lower cost than forward foreign currency exchange contracts. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days ("term") from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders (usually large commercial banks) and their customers. The investment manager believes that it is important to have the flexibility to enter into such forward contracts when it determines that to do so is in the best interests of a Fund. A Fund will not speculate in foreign currency exchange. If a Fund retains the portfolio security and engages in an offsetting transaction with respect to a forward contract, the Fund will incur a gain or a loss (as described below) to the extent that there has been movement in forward 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. B-13 77 SHORT SALES AGAINST-THE-BOX. The Aggressive Growth and Blue Chip Funds may make short sales against-the-box for the purpose of, but not limited to, deferring realization of loss when deemed advantageous 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 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." B-14 78 PORTFOLIO TRANSACTIONS BROKERAGE Allocation of brokerage is supervised by Scudder Kemper. The primary objective of Scudder Kemper in placing orders for the purchase and sale of securities for a Fund's portfolio is to obtain the most favorable net results taking into account such factors as price, commission (negotiable in the case of U.S. national securities exchange transactions) where applicable, size of order, difficulty of execution and skill required of the executing broker/dealer. Scudder Kemper seeks to evaluate the overall reasonableness of brokerage commissions paid (to the extent applicable) through its familiarity with commissions charged on comparable transactions, as well as by comparing commissions paid by a Fund to reported commissions paid by others. Scudder Kemper reviews on a routine basis commission rates, execution and settlement services performed, making internal and external comparisons. Each Fund's purchases and sales of fixed-income securities are generally placed by Scudder Kemper with primary market makers for these securities on a net basis, without any brokerage commission being paid by a Fund. Trading does, however, involve transaction costs. Transactions with dealers serving as primary market makers reflect the spread between the bid and asked prices. Purchases of underwritten issues may be made, which will include an underwriting fee paid to the underwriter. When it can be done consistently with the policy of obtaining the most favorable net results, it is Scudder Kemper's practice to place such orders with broker/dealers who supply market quotations to Scudder Fund Accounting Corporation ("SFAC") for appraisal purposes or who supply research, market and statistical information to a Fund. The term "research, market and statistical information" includes advice as to the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or purchasers or sellers of securities; and analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. Scudder Kemper is authorized when placing portfolio transactions for a Fund to pay a brokerage commission in excess of that which another broker might charge for executing the same transaction solely on account of the receipt of research, market or statistical information. In effecting transactions in over-the-counter securities, orders are placed with the principal market makers for the security being traded unless, after exercising care, it appears that more favorable results are available elsewhere. In selecting among firms believed to meet the criteria for handling a particular transaction, Scudder Kemper may give consideration to those firms that have sold or are selling shares of a Fund managed by Scudder Kemper. To the maximum extent feasible, it is expected that Scudder Kemper will place orders for portfolio transactions through Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts 02110 ("SIS"), a corporation registered as a broker-dealer and a subsidiary of Scudder Kemper; SIS will place orders on behalf of the Funds with issuers, underwriters or other brokers and dealers. SIS will not receive any commission, fee or other remuneration from the Funds for this service. Although certain research, market and statistical information from broker/dealers may be useful to a Fund and to Scudder Kemper, it is the opinion of Scudder Kemper that such information only supplements its own research effort since the information must still be analyzed, weighed and reviewed by Scudder Kemper's staff. Such information may be useful to Scudder Kemper in providing services to clients other than the Funds and not all such information is used by Scudder Kemper in connection with the Funds. Conversely, such information provided to Scudder Kemper by broker/dealers through whom other clients of Scudder Kemper effect securities transactions may be useful to Scudder Kemper in providing services to a Fund. B-15 79 The Trustees for the Funds review from time to time whether the recapture for the benefit of a Fund of some portion of the brokerage commissions or similar fees paid by a Fund on portfolio transactions is legally permissible and advisable. Each Fund's average portfolio turnover rate is the ratio of the lesser of sales or purchases to the monthly average value of the portfolio securities owned during the year, excluding all securities with maturities or expiration dates at the time of acquisition of one year or less. A higher rate involves greater brokerage transaction expenses to a Fund and may result in the realization of net capital gains, which would be taxable to shareholders when distributed. Purchases and sales are made for a Fund's portfolio whenever necessary, in management's opinion, to meet a Fund's objective. 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.
ALLOCATED TO FIRMS BASED ON RESEARCH IN FISCAL FUND FISCAL 1997 1997 FISCAL 1996 FISCAL 1995 ---- ----------- ------------------ ----------- ----------- Aggressive*.............................. $ 27,000 100% $ N.A. $ N.A. Blue Chip................................ $ 2,664,000 94% $1,661,000 $ 506,000 Growth................................... $11,676,000 83% $9,535,000 $6,470,000 Quantitative............................. $ 21,000 92% $ 9,000 N.A. Small Cap................................ $ 6,618,000 97% $6,362,000 $5,975,000 Technology............................... $ 3,329,000 92% $4,438,000 $3,504,000 Total Return............................. $ 7,170,000 76% $6,335,000 $8,309,000 Value+Growth............................. $ 142,000 85% $ 66,000 $ 6,000
- --------------- * For the period December 31, 1996 to September 30, 1997. INVESTMENT MANAGER AND UNDERWRITER INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper"), 345 Park Avenue, New York, New York, is each Fund's investment manager. Scudder Kemper is approximately 70% owned by Zurich Insurance Company, a leading internationally recognized provider of insurance and financial services in property/casualty and life insurance, reinsurance and structured financial solutions as well as asset management. The balance of Scudder Kemper is owned by Scudder Kemper's officers and employees. Pursuant to investment management agreements, Scudder Kemper acts as each Fund's investment adviser, manages its investments, administers its business affairs, furnishes office facilities and equipment, provides clerical 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 Scudder Kemper), 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 and maintaining all accounting records related thereto, 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. The investment management agreements provide that Scudder Kemper 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 Scudder Kemper in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations and duties under each agreement. B-16 80 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. Each Fund's investment management agreement may be terminated at any time upon 60 days notice by either party, or by a majority vote of the outstanding shares of the Fund, and will terminate automatically upon assignment. If additional Fund's become subject to an investment management agreement, the provisions concerning continuation, amendment and termination shall be on a Fund by Fund basis. Additional Funds may be subject to a different agreement. Pursuant to the terms of an agreement, Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company ("Zurich"), formed a new global investment organization by combining Scudder with Zurich Kemper Investments, Inc. ("ZKI"), a former subsidiary of Zurich and the former investment manager to the Funds and Scudder changed its name to Scudder Kemper Investments, Inc. As a result of the transaction, Zurich owns approximately 70% of Scudder Kemper, with the balance owned by Scudder Kemper's officers and employees. Because the transaction between Scudder and Zurich resulted in the assignment of the Funds' investment management agreements with ZKI, the agreements were deemed to be automatically terminated upon consummation of the transaction. In anticipation of the transaction, however, new investment management agreements between the Funds and Scudder Kemper were approved by the Funds' Board of Trustees and shareholders. The new investment management agreements were effective as of December 31, 1997 and will be in effect for an initial term ending on the same date as would the previous investment management agreement with ZKI. The Funds' investment management agreements are on substantially similar terms as the investment management agreements terminated by the transaction, except that Scudder Kemper is the new investment adviser to the Funds. 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.
FUND FISCAL 1997 FISCAL 1996 FISCAL 1995 ---- ----------- ----------- ----------- Aggressive+........................................ $ 37,000(1) -- -- Blue Chip.......................................... $ 2,018,000 1,198,000 903,000 Growth............................................. $14,576,000 13,994,000 12,349,000 Quantitative....................................... $ 46,000 11,000(2) N.A. Small Cap.......................................... $ 3,193,000(3) 4,418,000(4) 3,273,000(5) Technology......................................... $ 6,532,000 5,582,000 4,542,000 Total Return....................................... $17,084,000 15,825,000 15,147,000 Value+Growth....................................... $ 474,000 131,000* 1,000(6)*
- --------------- + For the period December 31, 1996 (commencement of operations) to September 30, 1997. * Amounts shown are after expense waiver. (1) Fee was increased $1,000 from $36,000 base fee. (2) For the period February 15, 1996 to November 30, 1996. (3) Fee was decreased $2,617,000 from $5,810,000 base fee. (4) Fee was decreased $670,000 from $5,088,000 base fee. (5) Fee was decreased $766,000 from $4,039,000 base fee. (6) For the period October 16, 1995 to November 30, 1995. 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 B-17 81 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 Scudder Kemper. On the other hand, if the Index rose from 100 to 110 (10%), no incentive fee would have been payable. A rise in the Index from 100 to 116 (16%) would have resulted in the minimum monthly fee of 1/12 of .35%. Since the computation is not cumulative from year to year, an additional management fee may be payable with respect to a particular year, although the Small Cap Fund's performance over some longer period of time may be less favorable than that of the Index. Conversely, a lower management fee may be payable in a year in which the performance of the Fund's Class A shares' is less favorable than that of the Index, although the performance of the Fund's Class A shares over a longer period of time might be better than that of the Index. 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 B-18 82 incentive compensation would have been earned by Scudder Kemper. 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. FUND ACCOUNTING AGENT. SFAC, a subsidiary of Scudder Kemper, is responsible for determining the daily net asset value per share of the Funds and maintaining all accounting records related thereto. Currently, SFAC receives no fee for its services to the Funds; however, subject to Board approval, some time in the future, SFAC may seek payment for its services under this agreement. PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution services agreements ("distribution agreements"), Kemper Distributors, Inc. ("KDI"), a wholly owned subsidiary of Scudder Kemper, is the principal underwriter and distributor for the shares of each Fund and acts as agent of each Fund in the continuous offering of its shares. KDI bears all its expenses of providing services pursuant to the distribution agreements, including the payment of any commissions. Each Fund pays the cost for the prospectus and shareholder reports to be set in type and printed for existing shareholders, and KDI, as principal underwriter, pays for the printing and distribution of copies thereof used in connection with the offering of shares to prospective investors. KDI also pays for supplementary sales literature and advertising costs. 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. B-19 83 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.
COMMISSIONS COMMISSIONS COMMISSIONS RETAINED UNDERWRITER PAID TO KEMPER FUND FISCAL YEAR BY UNDERWRITER PAID TO ALL FIRMS AFFILIATED FIRMS ---- ----------- -------------------- ----------------- ---------------- Aggressive................... 1997+ $ 7,000 111,000 5,000 1996 N.A. N.A. N.A. 1995 N.A. N.A. N.A. Blue Chip.................... 1997 $124,000 1,101,000 7,000 1996 $ 72,000 424,000 11,000 1995 $ 33,000 225,000 29,000 Growth....................... 1997 $296,000 1,523,000 9,000 1996 $327,000 2,075,000 57,000 1995 $266,000 2,130,000 326,000 Quantitative................. 1997 $ 2,000 18,000 0 1996* $ 1,000 5,000 0 1995 N.A. N.A. N.A. Small Cap.................... 1997 $104,000 705,000 0 1996 $130,000 849,000 16,000 1995 $105,000 798,000 133,000 Technology................... 1997 $181,000 853,000 7,000 1996 $198,000 869,000 37,000 1995 $116,000 840,000 218,000 Total Return................. 1997 $191,000 1,591,000 0 1996 $225,000 1,697,000 79,000 1995 $206,000 1,642,000 218,000 Value+Growth................. 1997 $ 40,000 538,000 0 1996 $ 33,000 238,000 15,000 1995** $ 0 48,000 3,000
- --------------- + For the period December 31, 1996 (commencement of operations) to September 30, 1997. * For the period February 15, 1996 to November 30, 1996. ** For the period October 16, 1995 to November 30, 1995. 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 B-20 84 are set forth below. A portion of the marketing, sales and operating expenses shown below could be considered overhead expense.
DISTRIBUTION CONTINGENT TOTAL FEES PAID DEFERRED COMMISSIONS COMMISSIONS FUND CLASS B FISCAL BY FUND TO SALES CHARGES PAID BY UNDERWRITER PAID BY UNDERWRITER SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS TO AFFILIATED FIRMS ------------ ------ ------------ -------------- ------------------- ------------------- Aggressive........... 1997+ $ 13,000 11,000 122,000 0 1996 N.A. N.A. N.A. N.A. 1995 N.A. N.A. N.A. N.A. Blue Chip............ 1997 $ 659,000 128,000 1,885,000 0 1996 $ 233,000 41,000 521,000 3,000 1995 $ 59,000 29,000 183,000 25,000 Growth............... 1997 $6,426,000 1,183,000 3,193,000 0 1996 $6,149,000 1,494,000 3,522,000 53,000 1995 $5,249,000 2,368,000 3,296,000 335,000 Quantitative......... 1997 $ 13,000 0 40,000 0 1996* $ 3,000 0 4,000 0 1995 N.A. N.A. N.A. N.A. Small Cap............ 1997 $1,930,000 417,000 1,308,000 0 1996 $1,743,000 389,000 1,370,000 18,000 1995 $1,341,000 518,000 1,188,000 142,000 Technology........... 1997 $ 698,000 179,000 1,272,000 0 1996 $ 413,000 102,000 974,000 28,000 1995 $ 168,000 56,000 654,000 151,000 Total Return......... 1997 $8,705,000 1,382,000 3,769,000 0 1996 $8,464,000 2,089,000 3,572,000 64,000 1995 $8,303,000 3,318,000 3,751,000 371,000 Value+............... 1997 $ 195,000(a) 28,000 656,000 0 Growth 1996 $ 65,000 4,000 320,000 15,000 1995** $ 1,000 0 75,000 2,000 OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER ----------------------------------------------------------- ADVERTISING MARKETING MISC. FUND CLASS B AND PROSPECTUS AND SALES OPERATING INTEREST SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSES ------------ ----------- ---------- --------- --------- -------- Aggressive........... 12,000 1,000 3,000 1,000 4,000 Blue Chip............ 189,000 13,000 530,000 97,000 238,000 117,000 10,000 232,000 76,000 85,000 18,000 6,000 77,000 26,000 22,000 Growth............... 563,000 39,000 1,424,000 199,000 48,000 1,020,000 88,000 2,049,000 284,000 188,000 322,000 59,000 1,872,000 239,000 277,000 Quantitative......... 3,000 0 9,000 22,000 5,000 7,000 1,000 17,000 4,000 1,000 N.A. N.A. N.A. N.A. N.A. Small Cap............ 222,000 15,000 564,000 97,000 426,000 384,000 34,000 781,000 125,000 380,000 117,000 22,000 666,000 98,000 317,000 Technology........... 162,000 11,000 442,000 77,000 295,000 309,000 28,000 572,000 121,000 191,000 53,000 14,000 239,000 55,000 54,000 Total Return......... 517,000 36,000 1,391,000 193,000 44,000 1,100,000 100,000 2,139,000 344,000 438,000 416,000 62,000 2,277,000 277,000 809,000 Value+............... 65,000 5,000 184,000 30,000 104,000 Growth 88,000 7,000 160,000 41,000 40,000 2,000 0 9,000 3,000 1,000
- --------------- + For the period December 31, 1996 (commencement of operations) to September 30, 1997. * For the period February 15, 1996 to November 30, 1996. ** For the period October 16, 1995 to November 30, 1995. (a) Amounts shown after expense waiver. B-21 85
TOTAL DISTRIBUTION DISTRIBUTION CONTINGENT DISTRIBUTION FEES PAID FEES PAID DEFERRED FEES PAID BY UNDERWRITER BY FUND SALES CHARGES BY UNDERWRITER TO AFFILIATED FUND CLASS C SHARES FISCAL YEAR TO UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS - ------------------- ----------- -------------- -------------- -------------- -------------- Aggressive.......... 1997+ $ 6,000 5,000 16,000 0 1996 N.A. N.A. N.A. N.A. 1995 N.A. N.A. N.A. N.A. Blue Chip........... 1997 $ 49,000 3,000 72,000 0 1996 $ 12,000 0 18,000 0 1995 $ 5,000 N.A. 5,000 0 Growth.............. 1997 $110,000 1,000 123,000 0 1996 $ 57,000 0 73,000 0 1995 $ 23,000 N.A. 22,000 6,000 Quantitative........ 1997 $ 8,000 0 2,000 0 1996* $ 3,000 0 0 0 1995 N.A. N.A. N.A. N.A. Small Cap........... 1997 $ 62,000 2,000 63,000 0 1996 $ 35,000 0 42,000 0 1995 $ 13,000 N.A. 13,000 4,000 Technology.......... 1997 $ 51,000 3,000 66,000 0 1996 $ 21,000 1,000 32,000 0 1995 $ 5,000 N.A. 4,000 1,000 Total Return........ 1997 $109,000 2,000 123,000 0 1996 $ 60,000 0 69,000 0 1995 $ 26,000 N.A. 25,000 5,000 Value+Growth........ 1997 $ 8,000(a) 1,000 20,000 0 1996 $ 2,000 0 7,000 0 1995** $ 0 N.A. 0 0 OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER ----------------------------------------------------------- ADVERTISING MARKETING MISC. AND PROSPECTUS AND SALES OPERATING INTEREST FUND CLASS C SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSES - ------------------- ----------- ---------- --------- --------- -------- Aggressive.......... 7,000 1,000 20,000 0 1,000 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. Blue Chip........... 26,000 2,000 52,000 18,000 12,000 14,000 1,000 28,000 1,000 5,000 3,000 1,000 13,000 8,000 2,000 Growth.............. 44,000 3,000 110,000 8,000 36,000 48,000 4,000 89,000 8,000 18,000 12,000 2,000 70,000 15,000 7,000 Quantitative........ 0 0 0 9,000 2,000 7,000 0 15,000 6,000 1,000 N.A. N.A. N.A. N.A. N.A. Small Cap........... 21,000 1,000 53,000 9,000 21,000 30,000 3,000 60,000 3,000 11,000 6,000 1,000 36,000 14,000 4,000 Technology.......... 24,000 2,000 66,000 2,000 19,000 34,000 3,000 67,000 2,000 8,000 4,000 1,000 19,000 10,000 2,000 Total Return........ 35,000 2,000 94,000 2,000 36,000 49,000 4,000 97,000 5,000 20,000 13,000 2,000 72,000 15,000 9,000 Value+Growth........ 7,000 1,000 20,000 2,000 7,000 13,000 1,000 23,000 8,000 3,000 1,000 0 1,000 1,000 0
- --------------- + For the period December 31, 1996 (commencement of operations) to September 30, 1997. * For the period February 15, 1996 to November 30, 1996. ** For the period October 16, 1995 to November 30, 1995. (a) Amount shown after expense waiver. 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 broker-dealer firms and other service or administrative firms ("firms"), that provide services and facilities for their customers or clients who are shareholders of a Fund. The firms provide such office space and equipment, telephone facilities and personnel as is necessary or beneficial for providing information and services to their clients. Such services and assistance may include, but are not limited to, establishing and maintaining 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, normally 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 normally 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 B-22 86 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.
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 ---- ----------- ------- ------- ------- --------------------- --------------------- Aggressive........... 1997+ $ 7,000 4,000 2,000 24,000 0 1996 N.A. N.A. N.A. N.A. N.A. 1995 N.A. N.A. N.A. N.A. N.A. Blue Chip............ 1997 $ 598,000 220,000 16,000 886,000 0 1996 $ 415,000 78,000 4,000 512,000 15,000 1995 $ 361,000 19,000 2,000 386,000 69,000 Growth............... 1997 $4,000,000 2,093,000 36,000 6,149,000 41,000 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 Quantitative......... 1997 $ 3,000 0 1,000 7,000 0 1996** $ 1,000 1,000 1,000 1,000 0 1995 N.A. N.A. N.A. N.A. N.A. Small Cap............ 1997 $1,376,000 632,000 21,000 2,027,000 7,000 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 Technology........... 1997 $1,682,000 228,000 17,000 1,955,000 0 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 Total Return......... 1997 $4,683,000 2,813,000 36,000 7,603,000 22,000 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 Value+Growth......... 1997* $ 71,000 73,000 4,000 169,000 0 1996 $ 22,000 25,000 2,000 57,000 2,000 1995*** $ 0 0 0 5,000 0
- --------------- + For the period December 31, 1996 (commencement of operations) to September 30, 1997. * Amounts shown after expense waiver. ** 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. Certain trustees or officers of a Fund are also directors or officers of Scudder Kemper or KDI as indicated under "Officers and Trustees." CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as custodian and State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as sub-custodian, have custody of all securities and cash of 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 B-23 87 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 Scudder Kemper, 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 1997 fiscal year the shareholder service fees IFTC remitted to KSvC.
FEES IFTC PAID TO KSVC FUND ------------ Aggressive*................................................. $ 13,000 Blue Chip................................................... $ 959,000 Growth...................................................... $7,398,000 Quantitative................................................ $ 10,000 Small Cap................................................... $2,814,000 Technology.................................................. $1,091,000 Total Return................................................ $7,212,000 Value+Growth................................................ $ 236,000
- --------------- * For the period December 31, 1996 (commencement of operations) to September 30, 1997. 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. LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago, Illinois 60601, serves as legal counsel to the Funds. 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. 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. B-24 88 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 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. A Fund's options, futures and foreign currency transactions are subject to special tax provisions that may accelerate or defer recognition of certain gains or losses, change the character of certain gains or losses, or alter the holding periods of certain of the Fund's securities. The mark-to-market rules of the Code may require a Fund to recognize unrealized gains and losses on certain options and futures held by the Fund at the end of the fiscal year. Under these provisions, 60% of any capital gain net income or loss recognized will generally be treated as long-term and 40% as short-term. However, although certain forward contracts 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 B-25 89 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. 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 B-26 90 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. B-27 91 AGGRESSIVE GROWTH FUND -- SEPTEMBER 30, 1997
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) ------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ CLASS A SHARES Life of Fund(+) 12,500 0 0 12,500 25.0 13,263 32.6 CLASS B SHARES Life of Fund(+) 13,179 0 0 12,779 27.8 13,179 31.8 CLASS C SHARES Life of Fund(+) 13,189 0 0 13,089 30.9 13,189 31.9 Dow Russell U.S. TOTAL Jones Standard Consumer 3000(R) Lipper Treasury RETURN Industrial & Poor's Price Growth Growth Bill TABLE Average(3) 500(4) Index(5) Index(13) Fund(9) Index(8) ------ ---------- -------- -------- --------- ------- -------- CLASS A SHARES Life of Fund(+) 24.9 29.6 1.6 28.8 27.2 2.6 CLASS B SHARES Life of Fund(+) 24.9 29.6 1.6 28.8 27.2 2.6 CLASS C SHARES Life of Fund(+) 24.9 29.6 1.6 28.8 27.2 2.6
Russell U.S. AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer 3000(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(13) Fund(9) Index(8) -------------- ------- ------- ------- ---------- -------- -------- --------- ------- -------- Life of Fund(+) 34.7 38.7 43.2 34.6 41.3 2.2 40.1 37.9 3.4
- --------------- (+) Since December 31, 1996 for Class A, B and C shares. B-28 92 BLUE CHIP FUND -- OCTOBER 31, 1997
Initial Income Ending Percentage TOTAL $10,000 Capital Gain Dividends Ending Percentage Value Increase RETURN Investment Dividends Reinvested Value Increase (unadjusted) (unadjusted) TABLE (1) Reinvested (2) (adjusted)(1) (adjusted)(1) (1) (1) ------ ---------- ------------ ---------- ------------- ------------- ------------ ------------ CLASS A SHARES Life of Fund(+) 18,513 4,905 9,387 32,805 228.1 34,810 248.1 Five Years 13,096 2,336 4,287 19,719 97.2 20,928 109.3 One Year 9,719 881 1,346 11,946 19.5 12,678 26.8 Year to Date 11,247 0 52 11,299 13.0 11,985 19.9 CLASS B SHARES Life of Fund(++) 14,317 2,000 3,008 19,125 91.3 19,325 93.3 One Year 10,304 934 1,324 12,262 22.6 12,562 25.6 Year to Date 11,898 0 7 11,505 15.1 11,905 19.1 CLASS C SHARES Life of Fund(++) 14,382 2,002 3,036 * * 19,420 94.2 One Year 10,315 931 1,325 * * 12,571 25.7 Year to Date 11,897 0 10 11,807 18.1 11,907 19.1 Dow Russell Lipper U.S. TOTAL Jones Standard Consumer 1000(R) Growth Treasury RETURN Industrial & Poor's Price Growth and Income Bill TABLE Average(3) 500(4) Index(5) Index(6) Fund(7) Index(8) ------ ---------- -------- -------- -------- ---------- -------- CLASS A SHARES Life of Fund(+) 451.5 432.4 40.0 439.0 351.1 72.6 Five Years 161.4 147.1 14.0 132.8 130.4 25.8 One Year 25.8 32.1 2.1 30.5 28.0 5.2 Year to Date 17.2 25.4 1.9 23.8 21.5 2.6 CLASS B SHARES Life of Fund(++) 114.6 116.9 9.6 120.2 92.9 19.9 One Year 25.8 32.1 2.1 30.5 28.0 5.2 Year to Date 17.2 25.4 1.9 23.8 21.5 2.6 CLASS C SHARES Life of Fund(++) 114.6 116.9 9.6 120.2 92.9 19.9 One Year 25.8 32.1 2.1 30.5 28.0 5.2 Year to Date 17.2 25.4 1.9 23.8 21.5 2.6
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) -------------- ------- ------- ------- ---------- -------- -------- -------- ------- -------- Life of Fund(+) 12.7 * * 18.7 18.3 3.5 18.5 16.4 5.7 Life of Fund(++) * 20.9 21.4 25.0 25.4 2.7 26.0 21.2 5.4 Five Years 14.5 * * 21.2 19.8 2.7 18.4 18.2 4.7 One Year 19.5 22.6 25.7 25.8 32.1 2.1 30.5 28.0 5.2
- --------------- (+) Since November 23, 1987 for Class A shares. (++) Since May 31, 1994 for Class B and Class C shares. B-29 93 GROWTH FUND -- SEPTEMBER 30, 1997
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 Life of Fund(+) 28,916 291,840 134,747 455,503 4,455.0 483,520 4,735.2 3,030.1 Ten Years 10,618 13,544 6,975 31,137 211.4 33,042 230.4 316.4 Five Years 11,138 5,109 1,921 18,168 81.7 19,278 92.8 175.5 One Year 8,472 1,936 899 11,307 13.1 11,997 20.0 37.7 Year to Date 11,170 0 0 11,170 11.7 11,854 18.5 24.9 CLASS B SHARES Life of Fund(++) 11,321 4,195 1,742 17,058 70.6 17,258 72.6 128.7 One Year 8,817 2,083 968 11,604 16.0 11,868 18.7 37.7 Year to Date 11,761 0 0 11,361 13.6 11,761 17.6 24.9 CLASS C SHARES Life of Fund(++) 11,390 4,209 1,747 * * 17,346 73.5 128.7 One Year 8,838 2,082 967 * * 11,887 18.9 37.7 Year to Date 11,787 0 0 11,687 16.9 11,787 17.9 24.9 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) ------ -------- -------- -------- ------- -------- L CLASS A SHARES ife of Fund(+) 3,351.3 402.2 NA 2,788.9 705.0 Ten Years 295.2 40.2 292.6 250.6 72.6 Five Years 156.8 14.1 145.3 137.7 25.8 One Year 40.4 2.2 36.3 34.6 5.2 Year to Date 29.6 1.6 28.5 25.6 2.6 CLASS B SHARES Life of Fund(++) 124.3 9.3 128.6 98.6 19.9 One Year 40.4 2.2 36.3 34.6 5.2 Year to Date 29.6 1.6 28.5 25.6 2.6 CLASS C SHARES Life of Fund(++) 124.3 9.3 128.6 98.6 19.9 One Year 40.4 2.2 36.3 34.6 5.2 Year to Date 29.6 1.6 28.5 25.6 2.6
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) -------------- ------- ------- ------- ---------- -------- -------- -------- ------- -------- Life of Fund(+) 12.9 * * 11.6 11.9 5.3 NA 11.3 6.9 Life of Fund(++) * 17.3 17.9 28.1 27.4 2.7 28.2 22.8 5.6 Ten Years 12.0 * * 15.3 14.7 3.4 14.7 13.4 5.6 Five Years 12.7 * * 22.5 20.8 2.7 19.7 18.9 4.7 One Year 13.1 16.0 18.9 37.7 40.4 2.2 36.3 34.6 5.2
- --------------- (+) Since April 4, 1966 for Class A shares. (++) Since May 31, 1994 for Class B and Class C shares. B-30 94 QUANTITATIVE EQUITY FUND -- NOVEMBER 30, 1997
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 Life of Fund(+) 12,927 0 228 13,155 31.6 13,958 39.6 50.6 One Year 11,042 0 195 11,237 12.4 11,925 19.3 22.2 Year to Date 11,390 0 0 11,390 13.9 12,087 20.9 23.4 CLASS B SHARES Life of Fund(+) 13,516 0 240 13,456 34.6 13,756 37.6 50.6 One Year 11,630 0 207 11,537 15.4 11,837 18.4 22.2 Year to Date 12,011 0 0 11,611 16.1 12,011 20.1 23.4 CLASS C SHARES Life of Fund(+) 13,536 0 241 * * 13,777 37.8 50.6 One Year 11,638 0 207 * * 11,845 18.5 22.2 Year to Date 12,019 0 0 11,919 19.2 12,019 20.2 23.4 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) ------ -------- -------- -------- ------- -------- CLASS A SHARES Life of Fund(+) 55.8 4.7 51.0 44.5 7.9 One Year 28.5 1.9 26.5 23.6 5.2 Year to Date 31.1 1.9 29.0 26.0 2.6 CLASS B SHARES Life of Fund(+) 55.8 4.7 51.0 44.5 7.9 One Year 28.5 1.9 26.5 23.6 5.2 Year to Date 31.1 1.9 29.0 26.0 2.6 CLASS C SHARES Life of Fund(+) 55.8 4.7 51.0 44.5 7.9 One Year 28.5 1.9 26.5 23.6 5.2 Year to Date 31.1 1.9 29.0 26.0 2.6
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) -------------- ------- ------- ------- ---------- -------- -------- -------- ------- -------- Life of Fund(+) 16.6 18.0 19.6 25.7 28.1 2.6 26.5 22.8 4.4
- --------------- (+) Since February 15, 1996 for Class A, B and C shares. B-31 95 SMALL CAP FUND -- SEPTEMBER 30, 1997
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) ------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ---------- CLASS A SHARES Life of Fund(+) 37,607 229,569 70,009 337,185 3,271.9 357,753 3,477.5 2,788.1 Ten Years 11,240 18,189 4,396 33,825 238.3 35,898 259.0 316.4 Five Years 14,327 7,554 1,007 22,888 128.9 24,283 142.8 175.5 One Year 10,725 864 121 11,710 17.1 12,429 24.3 37.7 Year to Date 12,000 0 0 12,000 20.0 12,727 27.3 24.9 CLASS B SHARES Life of Fund(++) 13,522 4,432 794 18,548 85.5 18,748 87.5 128.7 One Year 11,219 933 131 11,983 19.8 12,283 22.8 37.7 Year to Date 12,607 0 0 12,207 22.1 12,607 26.1 24.9 CLASS C SHARES Life of Fund(++) 13,505 4,434 795 * * 18,734 87.3 128.7 One Year 11,221 935 131 * * 12,287 22.9 37.7 Year to Date 12,612 0 0 12,512 25.1 12,612 26.1 24.9 Russell TOTAL Standard Consumer 1000(R) RETURN & Poor's Price Wilshire Growth TABLE 500(4) Index(5) 4500 Index(6) ------ -------- -------- -------- -------- CLASS A SHARES Life of Fund(+) 2,763.2 350.3 NA NA Ten Years 295.2 40.2 251.3 292.6 Five Years 156.8 14.1 148.8 145.3 One Year 40.4 2.2 32.1 36.3 Year to Date 29.6 1.6 27.5 28.5 CLASS B SHARES Life of Fund(++) 124.3 9.3 101.5 128.6 One Year 40.4 2.2 32.1 36.3 Year to Date 29.6 1.6 27.5 28.5 CLASS C SHARES Life of Fund(++) 124.3 9.3 101.5 128.6 One Year 40.4 2.2 32.1 36.3 Year to Date 29.6 1.6 27.5 28.5
Dow AVERAGE ANNUAL Fund Fund Fund Jones Standard Consumer TOTAL RETURN Class A Class B Class C Industrial & Poor's Price Wilshire TABLE Shares Shares Shares Average(3) 500(4) Index(5) 4500 -------------- ------- ------- ------- ---------- -------- -------- -------- Life of Fund(+) 13.1 * * 12.5 12.4 5.4 NA Life of Fund(++) * 20.3 20.7 28.1 27.4 2.7 23.4 Ten Years 13.0 * * 15.3 14.7 3.4 13.4 Five Years 18.0 * * 22.5 20.8 2.7 20.0 One Year 17.1 19.8 22.9 37.7 40.4 2.2 32.1 AVERAGE ANNUAL Russell TOTAL RETURN 1000(R) Growth TABLE Index(6) -------------- -------------- Life of Fund(+) NA Life of Fund(++) 28.2 Ten Years 14.7 Five Years 19.7 One Year 36.3
- --------------- (+) Since February 20, 1969 for Class A shares. (++) Since May 31, 1994 for Class B and Class C shares. NA--Not Available. B-32 96 TECHNOLOGY FUND -- OCTOBER 31, 1997
INITIAL INCOME ENDING PERCENTAGE ENDING PERCENTAGE DOW TOTAL $10,000 CAPITAL 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) ------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ---------- CLASS A SHARES Life of Fund(+) 55,343 3,623,143 665,479 4,343,965 43,339.7 4,611,214 46,012.1 34,104.0 Ten Years 10,521 26,801 3,488 40,810 308.1 43,309 333.1 407.2 Five Years 12,434 10,959 1,138 24,531 145.3 26,035 160.4 161.4 One Year 9,405 1,635 0 11,040 10.4 11,711 17.1 25.8 Year to Date 10,330 0 0 10,330 3.3 10,960 9.6 17.2 CLASS B SHARES Life of Fund(++) 12,552 7,134 971 20,457 104.6 20,657 106.6 114.6 One Year 9,820 1,771 0 11,296 13.0 11,591 15.9 25.8 Year to Date 10,876 0 0 10,476 4.8 10,876 8.8 17.2 CLASS C SHARES Life of Fund(++) 12,652 7,152 973 * * 20,777 107.8 114.6 One Year 9,836 1,762 0 * * 11,598 16.0 25.8 Year to Date 10,878 0 0 10,778 7.8 10,878 8.8 17.2 RUSSELL TOTAL STANDARD CONSUMER 1000(R) RETURN & POOR'S PRICE GROWTH TABLE 500(4) INDEX(5) INDEX(6) ------ -------- -------- -------- CLASS A SHARES Life of Fund(+) 41,183.2 559.6 NA Ten Years 387.0 40.2 392.5 Five Years 147.1 14.0 132.8 One Year 32.1 2.1 30.5 Year to Date 25.4 1.9 23.8 CLASS B SHARES Life of Fund(++) 116.9 9.6 120.2 One Year 32.1 2.1 30.5 Year to Date 25.4 1.9 23.8 CLASS C SHARES Life of Fund(++) 116.9 9.6 120.2 One Year 32.1 2.1 30.5 Year to Date 25.4 1.9 23.8
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 1000(R) Growth TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) -------------- ------- ------- ------- ---------- -------- -------- -------------- Life of Fund(+) 13.2 * * 12.6 13.0 3.9 NA Life of Fund(++) * 23.3 23.8 25.0 25.4 2.7 26.0 Ten Years 15.1 * * 17.6 17.2 3.4 17.3 Five Years 19.7 * * 21.2 19.8 2.7 18.4 One Year 10.4 13.0 16.0 25.8 32.1 2.1 30.5
- --------------- (+) Since September 7, 1948 for Class A shares. (++) Since May 31, 1994 for Class B and Class C shares. NA--Not Available. B-33 97 TOTAL RETURN FUND -- OCTOBER 31, 1997
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) ------ ---------- ---------- ---------- ---------- ---------- ------------ ------------ ---------- CLASS A SHARES Life of Fund(+) 26,872 169,595 234,049 430,516 4,205.2 457,048 4,470.5 3,538.3 Ten Years 14,765 7,446 9,220 31,431 214.3 33,342 233.4 407.2 Five Years 10,618 3,511 2,815 16,944 69.4 17,970 79.7 161.4 One Year 9,474 1,007 728 11,209 12.1 11,895 19.0 25.8 Year to Date 10,608 0 221 10,829 8.3 11,485 14.9 17.2 CLASS B SHARES Life of Fund(++) 12,262 1,918 1,601 15,581 55.8 15,781 57.8 114.6 One Year 10,053 1,069 664 11,486 14.9 11,786 17.9 25.8 Year to Date 11,240 0 157 10,997 10.0 11,397 14.0 17.2 CLASS C SHARES Life of Fund(++) 12,272 1,922 1,645 * * 15,839 58.4 114.6 One Year 10,053 1,068 671 * * 11,792 17.9 25.8 Year to Date 11,239 0 161 11,300 13.0 11,400 14.0 17.2 Russell TOTAL Standard 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) ------ -------- -------- -------- -------- ------------ Life of Fund(+) 3,978.3 423.0 NA 2,455.0 * Ten Years 387.0 40.2 392.5 231.5 140.9 Five Years 147.1 14.0 132.8 86.5 44.4 One Year 32.1 2.1 30.5 20.1 8.8 Year to Date 25.4 1.9 23.8 16.2 8.1 Life of Fund(++) 116.9 9.6 120.2 64.0 33.4 One Year 32.1 2.1 30.5 20.1 8.8 Year to Date 25.4 1.9 23.8 16.2 8.1 Life of Fund(++) 116.9 9.6 120.2 64.0 33.4 One Year 32.1 2.1 30.5 20.1 8.8 Year to Date 25.4 1.9 23.8 16.2 8.1
AVERAGE ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell Lipper Lehman Bros. TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 1000(R) Growth Balanced Gov't/Corp. TABLE Shares Shares Shares Average(3) 500(4) Index(5) Index(6) Fund(11) Index(12) ------------ ------- ------- ------- ---------- -------- -------- -------------- -------- ------------ Life of Fund(+) 11.8 * * 11.3 11.6 5.0 NA 10.1 * Life of Fund(++) * 13.9 14.4 25.0 25.4 2.7 26.0 15.6 8.8 Ten Years 12.1 * * 17.6 17.2 3.4 17.3 12.7 9.2 Five Years 11.1 * * 21.2 19.8 2.7 18.4 13.3 7.6 One Year 12.1 14.9 17.9 25.8 32.1 2.1 30.5 20.1 8.8
- --------------- (+) Since March 2, 1964 for Class A shares. (++) Since May 31, 1994 for Class B and Class C shares. B-34 98 VALUE+GROWTH FUND -- NOVEMBER 30, 1997
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 Life of Fund(+) 14,503 123 897 15,523 55.2 16,471 64.7 71.0 One Year 10,640 90 658 11,388 13.9 12,083 20.8 22.2 Year to Date 11,622 0 0 11,622 16.2 12,327 23.3 23.4 CLASS B SHARES Life of Fund(+) 15,126 129 945 15,900 59.0 16,200 62.0 71.0 One Year 11,201 96 699 11,696 17.0 11,996 20.0 22.2 Year to Date 12,240 0 0 11,840 18.4 12,240 22.4 23.4 CLASS C SHARES Life of Fund(+) 15,126 129 945 * * 16,200 62.0 71.0 One Year 11,191 96 699 * * 11,986 19.9 22.2 Year to Date 12,230 0 0 12,130 21.3 12,230 22.3 23.4 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) ------ -------- -------- -------- ------- -------- CLASS A SHARES Life of Fund(+) 70.9 5.5 66.0 51.6 10.7 One Year 28.5 1.9 26.5 23.6 5.2 Year to Date 31.1 1.9 29.0 26.0 2.6 CLASS B SHARES Life of Fund(+) 70.9 5.5 66.0 51.6 10.7 One Year 28.5 1.9 26.5 23.6 5.2 Year to Date 31.1 1.9 29.0 26.0 2.6 CLASS C SHARES Life of Fund(+) 70.9 5.5 66.0 51.6 10.7 One Year 28.5 1.9 26.5 23.6 5.2 Year to Date 31.1 1.9 29.0 26.0 2.6
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) -------------- ------- ------- ------- ---------- -------- -------- -------- ------- -------- Life of Fund(+) 22.9 24.3 25.4 28.6 28.6 2.5 27.5 21.6 4.9
- --------------- (+) 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 4500 Index Trust is a capitalization-weighted index, including all of the securities in the Wilshire 5000 Index with the exception of the S&P 500 securities. (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. (13) The Russell 3000(R) Index is an unmanaged index comprised of 3000 of the largest capitalized U.S. domiciled companies whose common stocks trade in the U.S. This portfolio of securities represents approximately 98 percent of the investable U.S. equity market. B-35 99 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-36 100 The following tables illustrate an assumed $10,000 investment in Class A shares of each Fund, which includes the current maximum sales charge of 5.75%, with income and capital gain dividends reinvested in additional shares. Each table covers the period from commencement of operations of the Fund to December 31, 1997. AGGRESSIVE GROWTH FUND (12/31/96)
------- 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 - ---------------------------------------------------------------------------------------------------- 1996 $ 0 $ 0 $ 9,425 $ 0 $ 0 $ 9,425 1997 546 0 11,994 577 0 12,571 - ----------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- BLUE CHIP FUND (11/23/87)
------- DIVIDENDS -------- ----- CUMULATIVE VALUE OF SHARES ACQUIRED ----- ANNUAL ANNUAL REINVESTED YEAR INCOME CAPITAL GAIN REINVESTED CAPITAL ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL 12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE - ---------------------------------------------------------------------------------------------------- 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 1996 3,027 1,993 15,517 7,743 4,112 27,372 1997 3,455 928 17,057 12,023 5,466 34,546 - ----------------------------------------------------------------------------------------------------
B-37 101 - -------------------------------------------------------------------------------- GROWTH FUND (4/4/66)
------ 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 - ---------------------------------------------------------------------------------------------------- 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 1996 30,446 65,524 24,393 113,668 246,187 384,248 1997 37,100 24,439 24,467 152,226 272,111 448,804
- -------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------ 1996 $ 188 $ 0 $10,694 $ 189 $ 0 $ 10,883 1997 333 202 12,411 556 204 13,171 - ------------------------------------------------------------------------------------------
B-38 102 - -------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------- 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 1996 2,709 19,351 29,548 55,007 180,376 264,931 1997 845 33,380 31,574 59,670 227,911 319,155
- -------------------------------------------------------------------------------- B-39 103 - -------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------ 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 1996 0 594,714 50,496 607,192 3,305,808 3,963,496 1997 29,776 678,228 44,805 569,410 3,631,208 4,245,423
- -------------------------------------------------------------------------------- B-40 104 - -------------------------------------------------------------------------------- TOTAL RETURN FUND (3/2/64)
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 - ---------------------------------------------------------------------------------------------------------- 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 1996 23,184 34,012 23,886 200,221 150,791 374,858 1997 31,868 39,103 23,934 232,013 190,663 446,610
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------- 1995 $ 0 $ 0 $10,030 $ 0 $ 0 $10,030 1996 724 99 11,766 727 100 12,593 1997 372 159 14,146 1,252 282 15,680
- -------------------------------------------------------------------------------- * Includes short-term capital gain dividends. B-41 105 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. AGGRESSIVE GROWTH FUND
Lipper Mutual Fund Performance Analysis ---------------------- Capital Appreciation Funds ---------------------- One Year (Period ended 12/31/97)............................ 24 of 231
The Lipper Capital Appreciation Fund category includes funds which aim to maximize capital appreciation. BLUE CHIP FUND
Lipper Mutual Fund Performance Analysis ---------------------- Growth & Income Funds ---------------------- Ten Year (Period ended 12/31/97)............................ 117 of 136 Five Year (Period ended 12/31/97)........................... 186 of 240 One Year (Period ended 12/31/97)............................ 361 of 611
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
Lipper Mutual Fund Performance Analysis ---------------------- Growth Funds ---------------------- Ten Years (Period ended 12/31/97)........................... 115 of 181 Five Years (Period ended 12/31/97).......................... 293 of 311 One Year (Period ended 12/31/97)............................ 709 of 820
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. QUANTITATIVE FUND
Lipper Mutual Fund Performance Analysis ---------------------- Growth Funds ---------------------- One Year (Period ended 12/31/97)............................ 602 of 820
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. B-42 106 SMALL CAP FUND
Lipper Mutual Fund Performance Analysis ---------------------- Small Cap Company Growth Funds ---------------------- Ten Years (Period ended 12/31/97)........................... 35 of 56 Five Years (Period ended 12/31/97).......................... 85 of 138 One Year (Period ended 12/31/97)............................ 251 of 466
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
Lipper Mutual Fund Performance Analysis ---------------------- Science & Technology Funds ---------------------- Ten Years (Period ended 12/31/97)........................... 11 of 12 Five Years (Period ended 12/31/97).......................... 10 of 15 One Year (Period ended 12/31/97)............................ 31 of 57
The Lipper Science & Technology Funds category includes funds which invest 65% of their equity portfolio in science and technology stocks. TOTAL RETURN FUND
Lipper Mutual Fund Performance Analysis ---------------------- Balanced Funds ---------------------- Ten Years (Period ended 12/31/97)........................... 21 of 48 Five Years (Period ended 12/31/97).......................... 78 of 109 One Year (Period ended 12/31/97)............................ 173 of 350
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
Lipper Mutual Fund Performance Analysis ---------------------- Growth & Income ---------------------- One Year (Period ended 12/31/97)............................ 449 of 611
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. B-43 107 OFFICERS AND TRUSTEES The officers and trustees of the Funds, their birthdates, their principal occupations and their affiliations, if any, with Scudder Kemper, the investment manager, and KDI, the principal underwriter, are listed below. All persons named as trustees also serve in similar capacities for other funds advised by Scudder Kemper. ALL FUNDS: DAVID W. BELIN (6/20/28), Trustee, 2000 Financial Center, 7th and Walnut, Des Moines, Iowa; Member, Belin Lamson McCormick Zumbach Flynn, P.C. (attorneys). LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida; Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice President, Anchor Glass Container Corporation. DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Boulevard, Naples, Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation (diversified manufacturer). ROBERT B. HOFFMAN (12/11/36), Trustee, 800 North Lindbergh Boulevard, St. Louis, Missouri; Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products); prior thereto, Vice President, Head of International Operations, FMC Corporation (manufacturer of machinery and chemicals). DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois; Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and components); formerly, Executive Vice President and Chief Financial Officer, Motorola, Inc. SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland; President, Hood College; formerly, partner, Steptoe & Johnson (attorneys); prior thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant Attorney General, U.S. Department of Justice; Director; Bethlehem Steel Corp. DANIEL PIERCE (3/18/34), Trustee*, 345 Park Avenue, New York, New York; Chairman of the Board and Managing Director, Scudder Kemper; Director, Fiduciary Trust Company and Fiduciary Company Incorporated. WILLIAM P. SOMMERS (7/22/33), Trustee, 333 Ravenswood Avenue, Menlo Park, California; President and Chief Executive Officer, SRI International (research and development); formerly, 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. EDMOND D. VILLANI (3/4/47), Trustee*, 345 Park Avenue, New York, New York; President, Chief Executive Officer and Managing Director, Scudder Kemper. MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York; Managing Director, Scudder Kemper. JERALD K. HARTMAN (3/1/33), Vice President*, 345 Park Avenue, New York, New York; Managing Director, Scudder Kemper. THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston, Massachusetts; Managing Director, Scudder Kemper. ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York; Senior Vice President, Scudder Kemper. KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New York; Managing Director, Scudder Kemper. STEVEN H. REYNOLDS (9/11/43), Vice President*, 222 South Riverside Plaza, Chicago, Illinois; Executive Vice President and Chief Investment Officer -- Equities, Scudder Kemper. LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston, Massachusetts; Senior Vice President, Scudder Kemper. B-44 108 \PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary*, 222 South Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and Assistant Secretary, Scudder Kemper. JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston, Massachusetts; Senior Vice President, Scudder Kemper. CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place, Boston, Massachusetts; Vice President, Scudder Kemper. MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place, Boston, Massachusetts; Vice President, Scudder Kemper. ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza, Chicago, Illinois; Vice President, Scudder Kemper; Vice President, KDI. AGGRESSIVE GROWTH FUND & SMALL CAP FUND: KURT R. STALZER (5/1/58), Vice President*, 222 South Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper; formerly, senior portfolio manager with an unaffiliated investment management firm. BLUE CHIP FUND: TRACY McCORMICK CHESTER (9/27/54), Vice President*, 222 South Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper; formerly, Portfolio Manager for Fiduciary Management; prior thereto, independent consultant managing private accounts. QUANTITATIVE FUND & VALUE+GROWTH FUND: DANIEL J. BUKOWSKI (5/6/63), Vice President*, 222 South Riverside Plaza, Chicago, Illinois; Senior Vice President and Director of Quantitative Research, Scudder Kemper. TOTAL RETURN FUND: GARY A. LANGBAUM (12/16/48), Vice President*, 222 South Riverside Plaza, Chicago, Illinois; Executive Vice President, Scudder Kemper. * Interested persons of the Fund as defined in the Investment Company Act of 1940. B-45 109 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 1997 fiscal year except that the information in the last column is for calendar year 1997.
AGGREGATE COMPENSATION FROM FUND ----------------------------------------------------------------------------------- BLUE SMALL TOTAL VALUE+ NAME OF TRUSTEE AGGRESSIVE(A) CHIP GROWTH QUANTITATIVE CAP TECH RETURN GROWTH --------------- ------------- ---- ------ ------------ ----- ---- ------ ------ David W. Belin*..................... $ 0 $3,400 $9,400 $800 $6,500 $7,400 $10,100 $1,500 Lewis A. Burnham.................... $ 0 $2,300 $5,200 $500 $3,800 $4,000 $ 5,600 $1,000 Donald L. Dunaway*.................. $ 0 $3,700 $9,300 $900 $6,400 $7,000 $ 9,800 $1,700 Robert B. Hoffman................... $ 0 $2,300 $5,200 $500 $3,800 $4,000 $ 5,600 $1,000 Donald R. Jones..................... $ 0 $2,400 $5,600 $500 $4,000 $4,100 $ 5,800 $1,000 Shirley D. Peterson................. $ 0 $2,200 $5,300 $500 $3,700 $3,900 $ 5,400 $1,000 William P. Sommers.................. $ 0 $2,200 $5,100 $500 $3,600 $3,800 $ 5,300 $1,000 TOTAL COMPENSATION FROM FUND AND KEMPER FUND COMPLEX NAME OF TRUSTEE PAID TO TRUSTEES** --------------- ------------------ David W. Belin*..................... $168,100 Lewis A. Burnham.................... $117,800 Donald L. Dunaway*.................. $162,700 Robert B. Hoffman................... $109,400 Donald R. Jones..................... $114,200 Shirley D. Peterson................. $114,000 William P. Sommers.................. $109,400
- --------------- (a) No compensation for services as fee schedule not established. It is anticipated that a fee schedule will be established in the future. * 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 Zurich Money Funds -- Zurich Money Market Fund. Total deferred amounts and interest accrued through each Fund's fiscal year are $0, $15,600, $65,900, $800, $42,600, $57,700, $77,500 and $1,500 for Mr. Belin and $0, $14,600, $44,400, $900, $26,700, $34,900, $50,200 and $1,700 for Mr. Dunaway for the Aggressive, Blue Chip, Growth, Quantitative, Small Cap, Technology, Total Return and Value+Growth Funds, respectively. ** Includes compensation for service on the boards of 25 Kemper funds with 41 fund portfolios. Each trustee currently serves as a trustee of 26 Kemper funds with 46 fund portfolios. As of January 7, 1998, except for Steven H. Reynolds, who beneficially owned 2.01 percent of the Aggressive Growth Fund, and William M. Knapp, who beneficially owned 1.31 percent of the Quantitative Fund, 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.
NAME AND ADDRESS % OWNED FUND CLASS ---------------- ------- ---- ----- ** Scudder Kemper Investments, Inc. ........................ 23.86 Quantitative A Accounting Department 222 S. Riverside Plaza Chicago, IL 60606 * NFSC..................................................... 6.32 Aggressive A One World Financial Center 200 Liberty Street, 4th Floor New York, NY 10281-1003 ** Scudder Kemper Investments, Inc. ........................ 32.62 Quantitative B Accounting Department 222 S. Riverside Plaza Chicago, IL 60606 * BHC Securities, Inc. .................................... 5.31 Quantitative B One Commerce Square 2005 Market Street Suite 1200 Philadelphia, PA 19103
B-46 110
NAME AND ADDRESS % OWNED FUND CLASS ---------------- ------- ---- ----- * NFSC..................................................... 6.25 Aggressive B One World Financial Center 200 Liberty Street, 4th Floor New York, NY 10281-1003 * PaineWebber.............................................. 9.45 Aggressive B Mutual Fund Department 1000 Harbor Blvd. 8th Floor Weehawken, NJ 07087-6727 * BHC Securities, Inc. .................................... 5.50 Aggressive B One Commerce Square 2005 Market Street Suite 1200 Philadelphia, PA 19103 * Edward D. Jones & Co. ................................... 6.58 Technology C 201 Progress Parkway Maryland Hts, MO 63043-3009 * MLPFSS................................................... 5.11 Small Cap C 4800 Deer Lake Dr. East 3rd Floor Jacksonville, FL 32246 ** Scudder Kemper Investments, Inc. ........................ 72.01 Quantitative C Accounting Department 222 S. Riverside Plaza Chicago, IL 60606 ** John E. Susong........................................... 8.10 Quantitative C 7181 Chagrin Rd. Chagrin Falls, OH 44023 * NFSC..................................................... 9.53 Aggressive C One World Financial Center 200 Liberty Street, 4th Floor New York, NY 10281-1003 * PaineWebber.............................................. 5.46 Aggressive C Mutual Fund Department 1000 Harbor Blvd. 8th Floor Weehawken, NJ 07087-6727 * PaineWebber FBO.......................................... 8.79 Aggressive C Michael Sequall 13835 North 107th Street Longmont, CO 80501 ** Wolf C. Neumann, M.D. ................................... 5.18 Aggressive C 3400 Goltingen Karl - Grueneklee - STR 4C Germany
B-47 111
NAME AND ADDRESS % OWNED FUND CLASS ---------------- ------- ---- ----- * NFSC..................................................... 5.21 Value+Growth C One World Financial Center 200 Liberty Street, 4th Floor New York, NY 10281-1003 BT Alex Brown Incorporated............................... 9.89 Value+Growth C P.O. Box 1346 Baltimore, MD 21203 Scudder Kemper Retirement Plans.......................... 100 Technology I 222 S. Riverside Plaza 100 Total Return I Chicago, IL 60606 100 Growth I 100 Small Cap I 100 Quantitative I 100 Blue Chip I
- --------------- * Record and beneficial owner. ** Record owner only. B-48 112 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 Scudder Kemper 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-49 113 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-50 114 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-51 115 PORTFOLIO OF INVESTMENTS KEMPER BLUE CHIP FUND PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1997 (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------ BASIC INDUSTRIES--2.8% Betz Dearborn, Inc. 68,700 $ 4,405 Canon, Inc. 1,000 24 Cementos Mexicanos, S.A. de C.V., "B," ADR 14,000 61 PPG Industries, Inc. 85,000 4,813 Rentokil Initial, PLC 22,000 89 RPM, Inc. 160,000 3,000 --------------------------------------------------------------------------- 12,392 - ------------------------------------------------------------------------------------------------------------------------ CAPITAL GOODS--6.8% Emerson Electric Co. 65,900 3,456 GM Corp. 70,000 4,428 General Electric Co. 50,400 3,254 Matsushita Electric Industrial Co., Ltd. 3,500 59 Murata Manufacturing 1,200 49 Raytheon Co. 85,000 4,611 Sundstrand Corp. 110,000 5,981 Technip, S.A. 704 75 United Technologies Corp. 40,000 2,800 U.S. Industries 120,000 3,225 York International Corp. 50,000 2,281 --------------------------------------------------------------------------- 30,219 - ------------------------------------------------------------------------------------------------------------------------ CONSUMER CYCLICALS--10.9% (a)Clear Channel Communication 55,000 3,630 Dillard Department Stores 105,000 4,029 Evergreen Media Corp., convertible preferred 17,500 1,078 R.R. Donnelley & Sons Co. 184,000 6,003 Harcourt General 130,000 6,508 Hudson's Bay Co. 4,100 94 May Department Stores Co. 166,700 8,981 Meredith Corp. 45,000 1,533 J.C. Penney, Inc. 115,000 6,749 Sony Corp. 500 42 Time Warner, Inc. 85,000 4,903 (a)Toys R Us 150,000 5,109 --------------------------------------------------------------------------- 48,659 - ------------------------------------------------------------------------------------------------------------------------ CONSUMER DURABLES--1.4% Honda Motor Co., Ltd. 1,000 34 Stanley Works 148,500 6,274 --------------------------------------------------------------------------- 6,308
10 116 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- CONSUMER STAPLES--11.9% CPC International 25,000 $ 2,475 Dial Corp. 185,000 3,122 General Mills, Inc. 45,000 2,970 Gillette Co. 30,000 2,672 H.J. Heinz Co. 100,000 4,644 International Flavors & Fragrances 145,000 7,014 Kimberly-Clark Corp. 90,000 4,674 (a)MGM Grand 70,000 3,071 McCormick & Co. 38,900 972 PepsiCo 130,000 4,786 Philip Morris Co. 53,000 2,100 Procter & Gamble Co. 39,000 2,652 Seagram Co. 90,000 3,032 (a)Tricon Global Restaurants, Inc. 13,000 394 Unilever N.V., ADR 78,000 4,163 Whitman Corp. 105,000 2,756 Wm. Wrigley Jr. Co. 26,400 1,911 ---------------------------------------------------------------------------- 53,408 - ------------------------------------------------------------------------------------------------------------------------- ENERGY--7.6% AMOCO Corp. 25,000 2,292 Baker Hughes, Inc. 100,000 4,594 British Petroleum, PLC 6,504 96 Chevron Corp. 50,000 4,147 Exxon Corp. 55,000 3,379 MCN Corp., convertible preferred 40,000 2,215 Mobil Corp. 112,600 8,199 Petro-Canada 6,000 121 Unocal Corp. 161,000 6,641 (a)Western Atlas 25,000 2,155 ---------------------------------------------------------------------------- 33,839 - ------------------------------------------------------------------------------------------------------------------------- FINANCE--19.0% American Express Co. 42,000 3,276 American General Corp. 175,000 8,925 Banc One Corp. 86,000 4,483 Banco Santander, S.A. 1,950 55 BankAmerica Corp. 21,000 1,502 Bank of Ireland 11,484 145 Beneficial Corp. 80,000 6,135 CITIC Pacific, Ltd. 11,000 53 Federal National Mortgage Association 55,000 2,664 First Union Corp. 110,900 5,441 Fleet Financial Group, Inc. 60,000 3,859 General Growth Properties, Inc. 70,000 2,415 General RE Corp. 15,000 2,958 Highwood Properties, Inc. 110,000 3,795 HSBC Holdings, PLC 1,600 36 ING Groep, N.V. 3,010 126 Jefferson-Pilot Corp. common stock 80,000 6,185 convertible preferred 9,000 954 KeyCorp 50,000 3,059 Mid Ocean, Ltd. 68,000 4,412 Morgan Stanley, Dean Witter Discover & Co. 85,000 4,165 NationsBank 70,000 4,191 PNC Bank Corp. 100,000 4,750 Safeco Corp. 130,000 6,191 Summit Bancorp 30,000 1,281 U.S. Bancorp 17,500 1,780 Wilmington Trust Corp. 40,000 2,230 ---------------------------------------------------------------------------- 85,066
11 117 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- HEALTH CARE--11.3% ALZA Corp. 80,000 $ 2,085 Abbott Laboratories 90,000 5,518 American Home Products 140,000 10,378 Baxter International, Inc. 85,000 3,931 Bristol-Myers Squibb Co. 80,000 7,020 (a)British Bio-Technology Group 17,000 29 (a)Crescendo Pharmaceutical Corp. 6,181 70 (a)HealthCare COMPARE Corp. 36,000 1,935 (a)HEALTHSOUTH Corp. 155,000 3,962 McKesson Corp. common stock 27,500 2,951 convertible preferred 30,000 2,280 Perkin-Elmer Corp. 32,000 2,000 Roche Holdings, A.G., rights 9 79 (a)Tenet Healthcare Corp. 153,200 4,682 United Healthcare Corp. 75,000 3,473 ---------------------------------------------------------------------------- 50,393 - ------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY--12.2% AMP, Inc. 122,500 5,513 (a)Analog Devices, Inc. 100,000 3,056 (a)Cadence Design Systems 30,600 1,629 (a)Cisco Systems 55,000 4,512 Computer Associates International 27,000 2,013 (a)Computer Sciences Corp. 30,000 2,128 Diebold Corp. 95,000 4,186 L.M. Ericsson Telephone Co., "B" 2,459 108 (a)Gartner Group 55,000 1,554 Harris Corp. 124,200 5,418 Hewlett-Packard Co. 90,000 5,552 Intel Corp. 14,000 1,078 International Business Machines Corp. 60,000 5,884 (a)National Semiconductor Corp. 60,000 2,160 (a)Oracle Corp. 79,000 2,827 Pitney Bowes 50,000 3,966 (a)Sun Microsystems 80,400 2,754 ---------------------------------------------------------------------------- 54,338 - ------------------------------------------------------------------------------------------------------------------------- TRANSPORTATION--4.5% CSX Corp. 155,000 8,477 Canadian Pacific, Ltd. 175,000 5,217 Norfolk Southern Corp. 210,000 6,746 ---------------------------------------------------------------------------- 20,440 - ------------------------------------------------------------------------------------------------------------------------- UTILITIES--4.4% AirTouch Communications, convertible preferred 40,000 2,400 Ameritech Corp. 77,000 5,005 AT &T 80,000 3,915 SBC Communications, Inc. 131,000 8,335 (a)Telecom Italia, SpA 6,450 40 Telefonica de Espana, S.A. 3,100 85 ---------------------------------------------------------------------------- 19,780 ---------------------------------------------------------------------------- TOTAL COMMON STOCKS--92.8% (Cost: $380,687) 414,842 ----------------------------------------------------------------------------
12 118 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------- HEALTH CARE--.7% ALZA Corp., 5.00%, 2006 $ 3,000 $ 2,895 ---------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- TECHNOLOGY--.6% Kent Electronics Corp., 4.50%, 2004 2,940 2,800 ---------------------------------------------------------------------------- TOTAL CONVERTIBLE CORPORATE OBLIGATIONS--1.3% 5,695 (Cost: $5,975) ---------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS--7.0% Yield--4.89% to 5.82% Due--November and December, 1997 American Honda Finance Corp. 6,500 6,480 ConAgra 2,500 12,462 Sanwa Business Credit Corp. 4,600 4,597 Other 7,700 7,695 ---------------------------------------------------------------------------- TOTAL MONEY MARKET INSTRUMENTS--7.0% (Cost: $31,234) 31,234 ---------------------------------------------------------------------------- TOTAL INVESTMENTS--101.1% (Cost: $417,896) 451,771 ---------------------------------------------------------------------------- LIABILITIES, LESS OTHER ASSETS--(1.1%) (4,880) ---------------------------------------------------------------------------- NET ASSETS--100% $446,891 ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- (a) Non-income producing security. Based on the cost of investments of $417,896,000 for federal income tax purposes at October 31, 1997, the gross unrealized appreciation was $39,184,000, the gross unrealized depreciation was $5,309,000 and the net unrealized appreciation on investments was $33,875,000. See accompanying Notes to Financial Statements. 13 119 REPORT OF INDEPENDENT AUDITORS THE BOARD OF TRUSTEES AND SHAREHOLDERS KEMPER BLUE CHIP FUND We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Kemper Blue Chip Fund as of October 31, 1997, 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 1993. 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, 1997, 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 Blue Chip Fund at October 31, 1997, 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 1993, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois December 16, 1997 14 120 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1997 (IN THOUSANDS) - ------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------ Investments, at value (Cost: $417,896) $451,771 - ------------------------------------------------------------------------ Receivable for: Investments sold 20,592 - ------------------------------------------------------------------------ Fund shares sold 2,238 - ------------------------------------------------------------------------ Dividends and interest 654 - ------------------------------------------------------------------------ TOTAL ASSETS 475,255 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES AND NET ASSETS - ------------------------------------------------------------------------ Cash overdraft 1,237 - ------------------------------------------------------------------------ Payable for: Investments purchased 26,004 - ------------------------------------------------------------------------ Fund shares redeemed 497 - ------------------------------------------------------------------------ Management fee 219 - ------------------------------------------------------------------------ Distribution services fee 95 - ------------------------------------------------------------------------ Administrative services fee 88 - ------------------------------------------------------------------------ Custodian and transfer agent fees and related expenses 194 - ------------------------------------------------------------------------ Trustees' fees 30 - ------------------------------------------------------------------------ Total liabilities 28,364 - ------------------------------------------------------------------------ NET ASSETS $446,891 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ ANALYSIS OF NET ASSETS - ------------------------------------------------------------------------ Paid-in capital $354,029 - ------------------------------------------------------------------------ Undistributed net realized gain on investments 57,107 - ------------------------------------------------------------------------ Net unrealized appreciation on investments 33,875 - ------------------------------------------------------------------------ Undistributed net investment income 1,880 - ------------------------------------------------------------------------ NET ASSETS APPLICABLE TO SHARES OUTSTANDING $446,891 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ THE PRICING OF SHARES - ------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($307,726 / 17,403 shares outstanding) $17.68 - ------------------------------------------------------------------------ Maximum offering price per share (net asset value, plus 6.10% of net asset value or 5.75% of offering price) $18.76 - ------------------------------------------------------------------------ CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($123,449 / 7,011 shares outstanding) $17.61 - ------------------------------------------------------------------------ CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($10,609 / 600 shares outstanding) $17.69 - ------------------------------------------------------------------------ CLASS I SHARES Net asset value and redemption price per share ($5,107 / 288 shares outstanding) $17.72 - ------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 15 121 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1997 (IN THOUSANDS) - ------------------------------------------------------------------------------------------- NET INVESTMENT INCOME - ------------------------------------------------------------------------------------------- Dividends $ 6,320 - ------------------------------------------------------------------------------------------- Interest 1,687 - ------------------------------------------------------------------------------------------- Total investment income 8,007 - ------------------------------------------------------------------------------------------- Expenses: Management fee 2,018 - ------------------------------------------------------------------------------------------- Distribution services fee 708 - ------------------------------------------------------------------------------------------- Administrative services fee 834 - ------------------------------------------------------------------------------------------- Custodian and transfer agent fees and related expenses 1,325 - ------------------------------------------------------------------------------------------- Professional fees 40 - ------------------------------------------------------------------------------------------- Reports to shareholders 85 - ------------------------------------------------------------------------------------------- Trustees' fees and other 19 - ------------------------------------------------------------------------------------------- Total expenses 5,029 - ------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 2,978 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS - ------------------------------------------------------------------------------------------- Net realized gain on sales of investments and foreign currency transactions 56,879 - ------------------------------------------------------------------------------------------- Change in net unrealized appreciation on investments 14,551 - ------------------------------------------------------------------------------------------- Net gain on investments 71,430 - ------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $74,408 - -------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
YEAR ENDED OCTOBER 31, 1997 1996 - ------------------------------------------------------------------------------------------- OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY - ------------------------------------------------------------------------------------------- Net investment income $ 2,978 2,620 - ------------------------------------------------------------------------------------------- Net realized gain 56,879 48,809 - ------------------------------------------------------------------------------------------- Change in net unrealized appreciation 14,551 (3,487) - ------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 74,408 47,942 - ------------------------------------------------------------------------------------------- Net equalization credits 209 36 - ------------------------------------------------------------------------------------------- Distribution from net investment income (2,968) (2,271) - ------------------------------------------------------------------------------------------- Distribution from net realized gain (48,419) (13,966) - ------------------------------------------------------------------------------------------- Total dividends to shareholders (51,387) (16,237) - ------------------------------------------------------------------------------------------- Net increase from capital share transactions 167,489 56,165 - ------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 190,719 87,906 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- NET ASSETS - ------------------------------------------------------------------------------------------- Beginning of year 256,172 168,266 - ------------------------------------------------------------------------------------------- END OF YEAR (including undistributed net investment income of $1,880 and $1,663, respectively) $446,891 256,172 - -------------------------------------------------------------------------------------------
16 122 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 DESCRIPTION OF THE FUND Kemper Blue Chip Fund is an open-end management investment company organized as a business trust under the laws of Massachusetts. The Fund currently 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 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. 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. 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 17 123 NOTES TO FINANCIAL STATEMENTS 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 semi-annually 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 $2,018,000 for the year ended October 31, 1997. Zurich Investment Management Limited, an affiliate of ZKI, serves as sub-adviser with respect to foreign securities investments in the Fund and is paid by ZKI for its services. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an underwriting and distribution services agreement with Zurich Kemper Distributors, Inc. (ZKDI). Underwriting commissions paid in connection with the distribution of Class A shares are as follows:
COMMISSIONS COMMISSIONS ALLOWED BY ZKDI RETAINED BY ---------------------------- ZKDI TO ALL FIRMS TO AFFILIATES ----------- ------------ ------------- Year ended October 31, 1997 $124,000 1,101,000 7,000
For services under the distribution services agreement, the Fund pays ZKDI a fee of .75% of average daily net assets of the Class B and Class C shares. Pursuant to the agreement, ZKDI enters into related selling group agreements with various firms at various rates for sales of Class B and Class C shares. In addition, ZKDI 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 Class B and Class C shares, and the CDSC received in connection with the redemption of such shares are as follows:
DISTRIBUTION FEES AND CDSC COMMISSIONS AND RECEIVED BY DISTRIBUTION FEES PAID ZKDI BY ZKDI TO FIRMS ----------------- ---------------------- Year ended October 31, 1997 $839,000 1,957,000
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an administrative services agreement with ZKDI. For providing information and administrative services to Class A, Class B and Class C shareholders, the Fund pays ZKDI a fee at an annual rate of up to .25% of average daily net assets of each class. ZKDI in 18 124 NOTES TO FINANCIAL STATEMENTS 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:
ASF PAID BY ASF PAID BY THE FUND TO ZKDI ZKDI TO FIRMS ----------------- ------------- Year ended October 31, 1997 $834,000 886,000
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a services agreement with the Funds transfer agent, Zurich Kemper Service Company (ZKSvC) is the shareholder service agent of the Fund. Under the agreement, ZKSvC received shareholder services fees of $959,000 for the year ended October 31, 1997. OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are also officers or directors of ZKI. During the year ended October 31, 1997, the Fund made no payments to its officers and incurred trustees' fees of $17,000 to independent trustees. - -------------------------------------------------------------------------------- 4 TRANSACTIONS INVESTMENT For the year ended October 31, 1997, investment transactions (excluding short-term instruments) are as follows (in thousands): Purchases $747,839 Proceeds from sales 639,687 - -------------------------------------------------------------------------------- 5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the Fund (in thousands):
YEAR ENDED OCTOBER 31, 1997 1996 --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------ SHARES SOLD Class A 6,618 $112,272 2,996 $46,627 ------------------------------------------------------------------------------ Class B 5,184 87,500 3,136 49,419 ------------------------------------------------------------------------------ Class C 580 9,803 168 2,667 ------------------------------------------------------------------------------ Class I 407 7,030 3 39 ------------------------------------------------------------------------------ SHARES ISSUED IN REINVESTMENT OF DIVIDENDS Class A 2,615 38,297 976 13,750 ------------------------------------------------------------------------------ Class B 716 10,448 110 1,543 ------------------------------------------------------------------------------ Class C 40 586 6 80 ------------------------------------------------------------------------------ Class I 1 23 -- -- ------------------------------------------------------------------------------ SHARES REDEEMED Class A (3,646) (61,114) (2,753) (42,327) ------------------------------------------------------------------------------ Class B (1,845) (31,843) (956) (14,819) ------------------------------------------------------------------------------ Class C (201) (3,375) (51) (785) ------------------------------------------------------------------------------ Class I (121) (2,138) (2) (29) ------------------------------------------------------------------------------ CONVERSION OF SHARES Class A 209 3,585 70 1,055 ------------------------------------------------------------------------------ Class B (210) (3,585) (70) (1,055) ------------------------------------------------------------------------------ NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $167,489 $56,165 ------------------------------------------------------------------------------
19 125 FINANCIAL HIGHLIGHTS
---------------------------------------------- Class A ---------------------------------------------- YEAR ENDED OCTOBER 31, ---------------------------------------------- 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------------------- Net asset value, beginning of year $17.14 14.87 12.33 13.88 12.72 - -------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .18 .22 .19 .19 .18 - -------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 3.70 3.45 2.57 (.71) 1.13 - -------------------------------------------------------------------------------------------------- Total from investment operations 3.88 3.67 2.76 (.52) 1.31 - -------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .21 .20 .20 .19 .15 - -------------------------------------------------------------------------------------------------- Distribution from net realized gain 3.13 1.20 .02 .84 -- - -------------------------------------------------------------------------------------------------- Total dividends 3.34 1.40 .22 1.03 .15 - -------------------------------------------------------------------------------------------------- Net asset value, end of year $17.68 17.14 14.87 12.33 13.88 - -------------------------------------------------------------------------------------------------- TOTAL RETURN 26.78% 26.72 22.74 (3.82) 10.35 - -------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------------------------------- Expenses 1.19% 1.26 1.30 1.48 1.25 - -------------------------------------------------------------------------------------------------- Net investment income 1.07% 1.40 1.47 1.50 1.28 - --------------------------------------------------------------------------------------------------
--------------------------------------------- Class B --------------------------------------------- YEAR ENDED OCTOBER 31, MAY 31 ---------------------- TO OCTOBER 31, 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------- Net asset value, beginning of period $17.09 14.82 12.29 12.30 - ------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .04 .10 .09 .06 - ------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 3.67 3.45 2.56 (.01) - ------------------------------------------------------------------------------------------------- Total from investment operations 3.71 3.55 2.65 .05 - ------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .06 .08 .10 .06 - ------------------------------------------------------------------------------------------------- Distribution from net realized gain 3.13 1.20 .02 -- - ------------------------------------------------------------------------------------------------- Total dividends 3.19 1.28 .12 .06 - ------------------------------------------------------------------------------------------------- Net asset value, end of period $17.61 17.09 14.82 12.29 - ------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 25.62% 25.82 21.76 .42 - ------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ------------------------------------------------------------------------------------------------- Expenses 2.06% 2.08 2.06 2.43 - ------------------------------------------------------------------------------------------------- Net investment income .20% .58 .71 .33 - -------------------------------------------------------------------------------------------------
20 126 FINANCIAL HIGHLIGHTS [CAPTION]
--------------------------------- ------------------------------ CLASS C CLASS I --------------------------------- ------------------------------ MAY 31, NOVEMBER 22, YEAR ENDED OCTOBER 31, TO YEAR ENDED 1995 TO ---------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, 1997 1996 1995 1994 1997 1996 - ---------------------------------------------------------------------------------- ------------------------------ - ---------------------------------------------------------------------------------- ------------------------------ PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------- ------------------------------ Net asset value, beginning of period $17.15 14.88 12.32 12.30 17.18 15.30 - ---------------------------------------------------------------------------------- ------------------------------ Income from investment operations: Net investment income .03 .10 .07 .09 .32 .36 - ---------------------------------------------------------------------------------- ------------------------------ Net realized and unrealized gain (loss) 3.71 3.45 2.62 (.01) 3.58 2.96 - ---------------------------------------------------------------------------------- ------------------------------ Total from investment operations 3.74 3.55 2.69 .08 3.90 3.32 - ---------------------------------------------------------------------------------- ------------------------------ Less dividends: Distribution from net investment income .07 .08 .11 .06 .23 .24 - ---------------------------------------------------------------------------------- ------------------------------ Distribution from net realized gain 3.13 1.20 .02 -- 3.13 1.20 - ---------------------------------------------------------------------------------- ------------------------------ Total dividends 3.20 1.28 .13 .06 3.36 1.44 - ---------------------------------------------------------------------------------- ------------------------------ Net asset value, end of period $17.69 17.15 14.88 12.32 17.72 17.18 - ---------------------------------------------------------------------------------- ----------------------------- TOTAL RETURN (NOT ANNUALIZED) 25.71% 25.75 22.04 .67 26.89 21.89 - ---------------------------------------------------------------------------------- ----------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ---------------------------------------------------------------------------------- ----------------------------- Expenses 2.00% 2.05 2.01 2.33 .70 1.31 - ---------------------------------------------------------------------------------- ------------------------------ Net investment income .26% .61 .76 .43 1.56 1.33 - ---------------------------------------------------------------------------------- ------------------------------
- ------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA FOR ALL CLASSES - ------------------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, ------------------------------------------------------------- 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Net assets at end of year (in thousands) $446,891 256,172 168,266 153,172 196,327 - ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 183% 166 117 131 222 - -------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended October 31, 1997 and 1996 were $.0593 and $.0587, respectively. NOTE: Total return does not reflect the effect of any sales charges. 21 127 KEMPER BLUE CHIP 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, 1997. Statement of operations for the year ended October 31, 1997. Statement of changes in net assets for each of the two years in the period ended October 31, 1997. Portfolio of investments--October 31, 1997. 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, 1997. (b) 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. Investment Management Agreement. 99.B6. (a) Underwriting and Distribution Services Agreement. 99.B6. (b) Form of 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) Fund Accounting Agreement. 99.B10. Inapplicable. 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.
C-1 128
27. Financial Data Schedule. 485(B) Representation of Counsel (Rule 485).
- --------------- * Incorporated herein by reference to the Amendment to Registrant's Registration Statement on Form N-1A identified below:
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING ----------- ---------------------------- -------------- 1, 2, 4(a), 4(b), 8(a), 8(b), 9(a), 14(a), 14(b), and 12 1-30-96 16 18 and 4(c) 13 12-24-96
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT Inapplicable. ITEM 26. NUMBER OF HOLDERS OF SECURITIES As of January 7, 1998, there were holders of record of the sole series of shares of Registrant as follows: 27,899 Class A; 21,498 Class B; 2,753 Class C and 1 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. On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens & Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the capital stock of Scudder ("Scudder Representatives") entered into a transaction agreement ("Transaction Agreement") pursuant to which Zurich became the majority stockholder in Scudder with an approximately 70% interest, and ZKI was combined with Scudder ("Transaction"). In connection with the trustees evaluation of the Transaction, Zurich agreed to indemnify the Registrant and the trustees who were not interested persons of ZKI or Scudder (the "Independent Trustees") for and against any liability and expenses based upon any action or omission by the Independent Trustees in connection with their consideration of and action with respect to the Transaction. In addition, Scudder has agreed to indemnify each Fund and the Independent Trustees for and against any liability and expenses based upon any misstatements or omissions by Scudder to the Independent Trustees in connection with their consideration of the Transaction. C-2 129 Item 28 Business or Other Connections of Investment Adviser Scudder Kemper Investments, Inc. has stockholders and employees who are denominated officers but do not as such have corporation-wide responsibilities. Such persons are not considered officers for the purpose of this Item 28.
Business and Other Connections of Board Name of Directors of Registrant's Adviser ---- --------------------------------------- Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.** Vice President and Treasurer, Scudder Fund Accounting Corporation* Director, Scudder Stevens & Clark Corporation** Director and Chairman, Scudder Defined Contribution Services, Inc. Director and President, Scudder Capital Asset Corporation Director and President, Scudder Capital Stock Corporation Director and President, Scudder Capital Planning Corporation Director and President, SS&C Investment Corporation Director and President, SIS Investment Corporation Director and President, SRV Investment Corporation Lynn S. Birdsong Director and Vice President, Scudder Kemper Investment, Inc.** Director, Scudder, Stevens & Clark (Luxembourg) S.A.# Laurence W. Cheng Director, Scudder Kemper Investments, Inc.** Member Corporate Executive Board, Zunica Insurance Company of Switzerland Director, ZKI Holding Corporation Steven Gluckstern Director, Scudder Kemper Investments, Inc.** Member Corporate Executive Board, Zurich Insurance Company of Switzerland Director, Zurich Holding Company of America Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc. ** Member Corporate Executive Board, Zurich Insurance Company of Switzerland Director, Chairman of the Board, Zurich Holding Company of America Director, ZKI Holding Corporation Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper Investments, Inc.** Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.* Director, Vice President & Secretary, Scudder Fund Accounting Corporation* Director, Vice President & Secretary, Scudder Realty Holdings Corporation* Director & Assistant Clerk, Scudder Service Corporation* Director, SFA, Inc.* Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc. *** Director, Scudder, Stevens & Clark Japan, Inc.### Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.*** Director, Vice President and Secretary, Scudder Canada Investor Services Limited*** Director, Vice President and Secretary, Scudder Realty Advisers, Inc.x Director and Secretary, Scudder, Stevens & Clark Corporation** Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo Director and Secretary, SFA, Inc. Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc. Director, Vice President and Secretary, Scudder Capital Asset Corporation
130 Director, Vice President and Secretary, Scudder Capital Stock Corporation Director, Vice President and Secretary, Scudder Capital Planning Corporation Director, Vice President and Secretary, SS&C Investment Corporation Director, Vice President and Secretary, SIS Investment Corporation Director, Vice President and Secretary, SRV Investment Corporation Director, Vice President and Secretary, Scudder Brokerage Services, Inc. Director, Korea Bond Fund Management Co., Ltd. Markus Rohrbasser Director, Scudder Kemper Investments, Inc.** Member Corporate Executive Board, Zurich Insurance Company of Switzerland President, Director, Chairman of the Board, ZKI Holding Corporation Cornelia M. Small Vice President, Scudder Kemper Investments, Inc.** Edmond D. Villani Director, President, Chief Executive Officer, Scudder Kemper Investments, Inc.** Director, Scudder, Stevens & Clark Japan, Inc.### President & Director, Scudder, Stevens & Clark Overseas Corporationo oo President & Director, Scudder, Stevens & Clark Corporation** Director, Scudder Realty Advisors, Inc.x Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg * Two International Place, Boston, MA x 333 South Hope Street, Los Angeles, CA ** 345 Park Avenue, New York, NY # Socjete Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564 *** Toronto, Ontario, Canada XXX Grand Cayman, Cayman Islands, British West Indies oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan ### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
131 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 Funds, Investors Fund Series and Kemper International Bond Fund. (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.
POSITIONS AND POSITIONS AND OFFICES OFFICES WITH NAME WITH UNDERWRITER REGISTRANT ---- ---------------- ---------- James L. Greenawalt Director, President None Patrick H. Dudasik Financial Principal, Treasurer and Chief Financial Officer None Michael E. Harrington Executive Vice President None Philip D. Hausken Vice President None Elizabeth C. Werth Vice President Assistant Secretary Marc L. Hecht Assistant Secretary None Diane E. Ratekin Assistant Secretary None
(c) Not applicable. 132 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, Scudder Kemper Investments, Inc. and the principal underwriter, Kemper Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606 or at the offices of the custodian and transfer agent, Investors Fiduciary Trust Company, 801 Pennsylvania Avenue, 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-6 133 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 26th day of January 1998. KEMPER BLUE CHIP FUND By /s/ Mark S. Casady --------------------------- Mark S. Casady, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below on January 26, 1998 on behalf of the following persons in the capacities indicated. Signature Title --------- ----- /s/ Mark S. Casady President ------------------------------------- Mark S. Casady /s/ Daniel Pierce* Chairman 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/ Shirley D. Peterson* Trustee ------------------------------------- /s/ William P. Sommers* Trustee ------------------------------------- /s/ Edmond D. Villani* Trustee ------------------------------------- /s/ Philip J. Collora Treasurer ------------------------------------- Philip J. Collora *Philip J. Collora signs this document pursuant to powers of attorney filed herewith. /s/ Philip J. Collora -------------------------------- Philip J. Collora 134 KEMPER BLUE CHIP FUND INDEX TO EXHIBITS
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. Investment Management Agreement. 99.B6. (a) Underwriting and Distribution Services Agreement. 99.B6. (b) Form of 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) Fund Accounting Agreement. 99.B10. Inapplicable. 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).
- --------------- * Incorporated herein by reference to the Amendment to Registrant's Registration Statement on Form N-1A identified below:
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING ----------- ---------------------------- -------------- 1, 2, 4(a), 4(b), 8(a), 8(b), 9(a), 14(a), 14(b), and 12 1-30-96 16 18+4(c) 13 12-24-96
EX-99.B5 2 INVESTMENT MANAGEMENT AGREEMENT 1 EXHIBIT 99.B5 INVESTMENT MANAGEMENT AGREEMENT Kemper Blue Chip Fund 222 South Riverside Plaza Chicago, Illinois 60606 December 31, 1997 Scudder Kemper Investments, Inc. 345 Park Avenue New York, New York 10154 Investment Management Agreement Kemper Blue Chip Fund Ladies and Gentlemen: KEMPER BLUE CHIP FUND (the "Trust") has been established as a Massachusetts business Trust to engage in the business of an investment company. Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the "Declaration"), the Board of Trustees is authorized to issue the Trust's shares of beneficial interest (the "Shares"), in separate series, or funds. The Board of Trustees has authorized Kemper Blue Chip Fund (the "Fund"). Series may be abolished and dissolved, and additional series established, from time to time by action of the Trustees. The Trust, on behalf of the Fund, has selected you to act as the investment manager of the Fund and to provide certain other services, as more fully set forth below, and you have indicated that you are willing to act as such investment manager and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with you as follows: 1. Delivery of Documents. The Trust engages in the business of investing and reinvesting the assets of the Fund in the manner and in accordance with the investment objectives, policies and restrictions specified in the currently effective Prospectus (the "Prospectus") and Statement of Additional Information (the "SAI") relating to the Fund included in the Trust's Registration Statement on Form N-1A, as amended from time to time, (the "Registration Statement") filed by the Trust under the Investment Company Act of 1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended. Copies of the documents referred to in the preceding sentence have been furnished to you by the Trust. The Trust has also furnished you with copies properly certified or authenticated of each of the following additional documents related to the Trust and the Fund: 2 (a) The Declaration, as amended to date. (b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws"). (c) Resolutions of the Trustees of the Trust and the shareholders of the Fund selecting you as investment manager and approving the form of this Agreement. (d) Establishment and Designation of Series of Shares of Beneficial Interest relating to the Fund, as applicable. The Trust will furnish you from time to time with copies, properly certified or authenticated, of all amendments of or supplements, if any, to the foregoing, including the Prospectus, the SAI and the Registration Statement. 2. Portfolio Management Services. As manager of the assets of the Fund, you shall provide continuing investment management of the assets of the Fund in accordance with the investment objectives, policies and restrictions set forth in the Prospectus and SAI; the applicable provisions of the 1940 Act and the Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated investment companies and all rules and regulations thereunder; and all other applicable federal and state laws and regulations of which you have knowledge; subject always to policies and instructions adopted by the Trust's Board of Trustees. In connection therewith, you shall use reasonable efforts to manage the Fund so that it will qualify as a regulated investment company under Subchapter M of the Code and regulations issued thereunder. The Fund shall have the benefit of the investment analysis and research, the review of current economic conditions and trends and the consideration of long-range investment policy generally available to your investment advisory clients. In managing the Fund in accordance with the requirements set forth in this section 2, you shall be entitled to receive and act upon advice of counsel to the Trust. You shall also make available to the Trust promptly upon request all of the Fund's investment records and ledgers as are necessary to assist the Trust in complying with the requirements of the 1940 Act and other applicable laws. To the extent required by law, you shall furnish to regulatory authorities having the requisite authority any information or reports in connection with the services provided pursuant to this Agreement which may be requested in order to ascertain whether the operations of the Trust are being conducted in a manner consistent with applicable laws and regulations. You shall determine the securities, instruments, investments, currencies, repurchase agreements, futures, options and other contracts relating to investments to be purchased, sold or entered into by the Fund and place orders with broker-dealers, 2 3 foreign currency dealers, futures commission merchants or others pursuant to your determinations and all in accordance with Fund policies as expressed in the Registration Statement. You shall determine what portion of the Fund's portfolio shall be invested in securities and other assets and what portion, if any, should be held uninvested. You shall furnish to the Trust's Board of Trustees periodic reports on the investment performance of the Fund and on the performance of your obligations pursuant to this Agreement, and you shall supply such additional reports and information as the Trust's officers or Board of Trustees shall reasonably request. 3. Administrative Services. In addition to the portfolio management services specified above in section 2, you shall furnish at your expense for the use of the Fund such office space and facilities in the United States as the Fund may require for its reasonable needs, and you (or one or more of your affiliates designated by you) shall render to the Trust administrative services on behalf of the Fund necessary for operating as an open end investment company and not provided by persons not parties to this Agreement including, but not limited to, preparing reports to and meeting materials for the Trust's Board of Trustees and reports and notices to Fund shareholders; supervising, negotiating contractual arrangements with, to the extent appropriate, and monitoring the performance of, accounting agents, custodians, depositories, transfer agents and pricing agents, accountants, attorneys, printers, underwriters, brokers and dealers, insurers and other persons in any capacity deemed to be necessary or desirable to Fund operations; preparing and making filings with the Securities and Exchange Commission (the "SEC") and other regulatory and self-regulatory organizations, including, but not limited to, preliminary and definitive proxy materials, post-effective amendments to the Registration Statement, semi-annual reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the tabulation of proxies by the Fund's transfer agent; assisting in the preparation and filing of the Fund's federal, state and local tax returns; preparing and filing the Fund's federal excise tax return pursuant to Section 4982 of the Code; providing assistance with investor and public relations matters; monitoring the valuation of portfolio securities and the calculation of net asset value; monitoring the registration of Shares of the Fund under applicable federal and state securities laws; maintaining or causing to be maintained for the Fund all books, records and reports and any other information required under the 1940 Act, to the extent that such books, records and reports and other information are not maintained by the Fund's custodian or other agents of the Fund; assisting in establishing the accounting policies of the Fund; assisting in the resolution of accounting issues that may arise with respect to the Fund's operations and consulting with the Fund's independent accountants, legal counsel 3 4 and the Fund's other agents as necessary in connection therewith; establishing and monitoring the Fund's operating expense budgets; reviewing the Fund's bills; processing the payment of bills that have been approved by an authorized person; assisting the Fund in determining the amount of dividends and distributions available to be paid by the Fund to its shareholders, preparing and arranging for the printing of dividend notices to shareholders, and providing the transfer and dividend paying agent, the custodian, and the accounting agent with such information as is required for such parties to effect the payment of dividends and distributions; and otherwise assisting the Trust as it may reasonably request in the conduct of the Fund's business, subject to the direction and control of the Trust's Board of Trustees. Nothing in this Agreement shall be deemed to shift to you or to diminish the obligations of any agent of the Fund or any other person not a party to this Agreement which is obligated to provide services to the Fund. 4. Allocation of Charges and Expenses. Except as otherwise specifically provided in this section 4, you shall pay the compensation and expenses of all Trustees, officers and executive employees of the Trust (including the Fund's share of payroll taxes) who are affiliated persons of you, and you shall make available, without expense to the Fund, the services of such of your directors, officers and employees as may duly be elected officers of the Trust, subject to their individual consent to serve and to any limitations imposed by law. You shall provide at your expense the portfolio management services described in section 2 hereof and the administrative services described in section 3 hereof. You shall not be required to pay any expenses of the Fund other than those specifically allocated to you in this section 4. In particular, but without limiting the generality of the foregoing, you shall not be responsible, except to the extent of the reasonable compensation of such of the Fund's Trustees and officers as are directors, officers or employees of you whose services may be involved, for the following expenses of the Fund: organization expenses of the Fund (including out of-pocket expenses, but not including your overhead or employee costs); fees payable to you and to any other Fund advisors or consultants; legal expenses; auditing and accounting expenses; maintenance of books and records which are required to be maintained by the Fund's custodian or other agents of the Trust; telephone, telex, facsimile, postage and other communications expenses; taxes and governmental fees; fees, dues and expenses incurred by the Fund in connection with membership in investment company trade organizations; fees and expenses of the Fund s accounting agent for which the Trust is responsible pursuant to the terms of the Fund Accounting Services Agreement, custodians, subcustodians, transfer agents, dividend disbursing agents and registrars; payment for portfolio pricing or valuation services 4 5 to pricing agents, accountants, bankers and other specialists, if any; expenses of preparing share certificates and, except as provided below in this section 4, other expenses in connection with the issuance, offering, distribution, sale, redemption or repurchase of securities issued by the Fund; expenses relating to investor and public relations; expenses and fees of registering or qualifying Shares of the Fund for sale; interest charges, bond premiums and other insurance expense; freight, insurance and other charges in connection with the shipment of the Fund's portfolio securities; the compensation and all expenses (specifically including travel expenses relating to Trust business) of Trustees, officers and employees of the Trust who are not affiliated persons of you; brokerage commissions or other costs of acquiring or disposing of any portfolio securities of the Fund; expenses of printing and distributing reports, notices and dividends to shareholders; expenses of printing and mailing Prospectuses and SAIs of the Fund and supplements thereto; costs of stationery; any litigation expenses; indemnification of Trustees and officers of the Trust; and costs of shareholders' and other meetings. You shall not be required to pay expenses of any activity which is primarily intended to result in sales of Shares of the Fund if and to the extent that (i) such expenses are required to be borne by a principal underwriter which acts as the distributor of the Fund's Shares pursuant to an underwriting agreement which provides that the underwriter shall assume some or all of such expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some other party) shall assume some or all of such expenses. You shall be required to pay such of the foregoing sales expenses as are not required to be paid by the principal underwriter pursuant to the underwriting agreement or are not permitted to be paid by the Fund (or some other party) pursuant to such a plan. 5. Management Fee. For all services to be rendered, payments to be made and costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust on behalf of the Fund shall pay you in United States Dollars on the last day of each month the unpaid balance of a fee equal to the excess of (a) 1/12 of .58 of 1 percent of the average daily net assets as defined below of the Fund for such month; provided that, for any calendar month during which the average of such values exceeds $250,000,000, the fee payable for that month based on the portion of the average of such values in excess of $250,000,000 shall be 1/12 of .55 of 1 percent of such portion; provided that, for any calendar month during which the average of such values exceeds $1,000,000,000, the fee payable for that month based on the portion of the average of such values in excess of $1,000,000,000 shall be 1/12 of .53 of 1 percent of such portion; provided that, for any calendar month during which the average of such values exceeds 5 6 $2,500,000,000, the fee payable for that month based on the portion of the average of such values in excess of $2,500,000,000 shall be 1/12 of .51 of 1 percent of such portion; provided that, for any calendar month during which the average of such values exceeds $5,000,000,000, the fee payable for that month based on the portion of the average of such values in excess of $5,000,000,000 shall be 1/12 of .48 of 1 percent of such portion; provided that, for any calendar month during which the average of such values exceeds $7,500,000,000, the fee payable for that month based on the portion of the average of such values in excess of $7,500,000,000 shall be 1/12 of .46 of 1 percent of such portion; provided that, for any calendar month during which the average of such values exceeds $10,000,000,000, the fee payable for that month based on the portion of the average of such values in excess of $10,000,000,000 shall be 1/12 of .44 of 1 percent of such portion; and provided that, for any calendar month during which the average of such values exceeds $12,500,000,000, the fee payable for that month based on the portion of the average of such values in excess of $12,500,000,000 shall be 1/12 of .42 of 1 percent of such portion; over any compensation waived by you from time to time (as more fully described below). You shall be entitled to receive during any month such interim payments of your fee hereunder as you shall request, provided that no such payment shall exceed 75 percent of the amount of your fee then accrued on the books of the Fund and unpaid. The "average daily net assets" of the Fund shall mean the average of the values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on which the net asset value of the Fund is determined consistent with the provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines the value of its net assets as of some other time on each business day, as of such time. The value of the net assets of the Fund shall always be determined pursuant to the applicable provisions of the Declaration and the Registration Statement. If the determination of net asset value does not take place for any particular day, then for the purposes of this section 5, the value of the net assets of the Fund as last determined shall be deemed to be the value of its net assets as of 4:00 p.m. (New York time), or as of such other time as the value of the net assets of the Fund's portfolio may be lawfully determined on that day. If the Fund determines the value of the net assets of its portfolio more than once on any day, then the last such determination thereof on that day shall be deemed to be the sole determination thereof on that day for the purposes of this section 5. You may waive all or a portion of your fees provided for hereunder and such waiver shall be treated as a reduction in purchase price of your services. You shall be contractually bound hereunder by the terms of any publicly announced waiver of 6 7 your fee, or any limitation of the Fund's expenses, as if such waiver or limitation were fully set forth herein. 6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection with purchases or sales of portfolio securities and other investments for the account of the Fund, neither you nor any of your directors, officers or employees shall act as a principal or agent or receive any commission. You or your agent shall arrange for the placing of all orders for the purchase and sale of portfolio securities and other investments for the Fund's account with brokers or dealers selected by you in accordance with Fund policies as expressed in the Registration Statement. If any occasion should arise in which you give any advice to clients of yours concerning the Shares of the Fund, you shall act solely as investment counsel for such clients and not in any way on behalf of the Fund. Your services to the Fund pursuant to this Agreement are not to be deemed to be exclusive and it is understood that you may render investment advice, management and services to others. In acting under this Agreement, you shall be an independent contractor and not an agent of the Trust. Whenever the Fund and one or more other accounts or investment companies advised by you have available funds for investment, investments suitable and appropriate for each shall be allocated in accordance with procedures believed by you to be equitable to each entity. Similarly, opportunities to sell securities shall be allocated in a manner believed by you to be equitable. The Fund recognizes that in some cases this procedure may adversely affect the size of the position that may be acquired or disposed of for the Fund. 7. Limitation of Liability of Manager. As an inducement to your undertaking to render services pursuant to this Agreement, the Trust agrees that you shall not be liable under this Agreement for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, provided that nothing in this Agreement shall be deemed to protect or purport to protect you against any liability to the Trust, the Fund or its shareholders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties, or by reason of your reckless disregard of your obligations and duties hereunder. 8. Duration and Termination of This Agreement. This Agreement shall remain in force until March 1, 1998, and continue in force from year to year thereafter, but only so long as such continuance is specifically approved at least annually (a) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the Trustees of the Trust, or by the 7 8 vote of a majority of the outstanding voting securities of the Fund. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the 1940 Act and the rules and regulations thereunder and any applicable SEC exemptive order therefrom. This Agreement may be terminated with respect to the Fund at any time, without the payment of any penalty, by the vote of a majority of the outstanding voting securities of the Fund or by the Trust's Board of Trustees on 60 days' written notice to you, or by you on 60 days' written notice to the Trust. This Agreement shall terminate automatically in the event of its assignment. This Agreement may be terminated with respect to the Fund 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 the Fund in the event that it shall have been established by a court of competent jurisdiction that you or any of your officers or directors has taken any action which results in a breach of your covenants set forth herein. 9. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought, and no amendment of this Agreement shall be effective until approved in a manner consistent with the 1940 Act and rules and regulations thereunder and any applicable SEC exemptive order therefrom. 10. Limitation of Liability for Claims. The Declaration, a copy of which, together with all amendments thereto, is on file in the Office of the Secretary of the Commonwealth of Massachusetts, provides that the name "Kemper Blue Chip Fund" refers to the Trustees under the Declaration collectively as Trustees and not as individuals or personally, and that no shareholder of the Fund, or Trustee, officer, employee or agent of the Trust, shall be subject to claims against or obligations of the Trust or of the Fund to any extent whatsoever, but that the Trust estate only shall be liable. You are hereby expressly put on notice of the limitation of liability as set forth in the Declaration and you agree that the obligations assumed by the Trust on behalf of the Fund pursuant to this Agreement shall be limited in all cases to the Fund and its assets, and you shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Fund or any other series of the Trust, or from any Trustee, officer, employee or agent of the Trust. You understand that the rights 8 9 and obligations of each Fund, or series, under the Declaration are separate and distinct from those of any and all other series. 11. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In interpreting the provisions of this Agreement, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated person," "assignment" and "majority of the outstanding voting securities"), as from time to time amended, shall be applied, subject, however, to such exemptions as may be granted by the SEC by any rule, regulation or order. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, or in a manner which would cause the Fund to fail to comply with the requirements of Subchapter M of the Code. This Agreement shall supersede all prior investment advisory or management agreements entered into between you and the Trust on behalf of the Fund. 9 10 If you are in agreement with the foregoing, please execute the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Trust, whereupon this letter shall become a binding contract effective as of the date of this Agreement. Yours very truly, KEMPER BLUE CHIP FUND, on behalf of Kemper Blue Chip Fund By: Jack E. Neal ----------------------------- Vice President The foregoing Agreement is hereby accepted as of the date hereof. SCUDDER KEMPER INVESTMENTS, INC. By: Lynn S. Birdsong ----------------------------- Vice President 10 EX-99.B6.(A) 3 UNDERWRITING AND DIST. SERVICES AGREEMENT 1 EXHIBIT 99.B6(a) UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT AGREEMENT made this 31st day of December, 1997, between KEMPER BLUE CHIP 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 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 contemplated such shares as KDI shall reasonably request and as - 2 - 3 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 - 4 time in any way require, limit, restrict, prohibit or otherwise regulate any action on 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 - 4 - 5 asset value is not calculated, the net asset value of a 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, 1998; 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 -5- 6 agreement related to this Agreement, cast in person at a meeting called for such purpose. 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 the laws of the Commonwealth of Massachusetts. -6- 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 BLUE CHIP FUND By: /s/ John E. Neal ----------------------- Title: Vice President -------------------- ATTEST: /s/ Philip J. Collora - -------------------------- Title: Secretary -------------------- KEMPER DISTRIBUTORS, INC. By: /s/ James L. Greenawalt ------------------------- Title: President ---------------------- ATTEST: /s/ Charles R. Manzoni - ----------------------- Title: Secretary - ----------------------- - 7 - EX-99.B6.(B) 4 SELLING GROUP AGREEMENT 1 EXHIBIT 99.B6(b) SELLING GROUP AGREEMENT KEMPER DISTRIBUTORS, INC. 222 South Riverside Plaza, Chicago, Illinois 60606 Dear Financial Services Firm: As principal underwriter and distributor, we invite you to join a Selling Group for the distribution of shares of the Kemper Funds (herein called "Funds"), but only in those states in which the shares of the respective Funds may legally be offered for sale. As exclusive agent of each of the Funds, we offer to sell to you shares of the Funds on the following terms: 1. In all sales of these shares to the public you shall act as dealer for your own account, and in no transaction shall you have any authority to act as agent for the issuer, for us, or for any other member of the Selling Group. 2. Orders received from you will be accepted by us only at the public offering price applicable to each order, as established by the Prospectus of each Fund, subject to the discount, commission or other concession, if any, as provided in such Prospectus. Upon receipt from you of any order to purchase shares of a Fund, we shall confirm to you in writing or by wire to be followed by a confirmation in writing. Additional instructions may be forwarded to you from time to time. All orders are subject to acceptance or rejection by us in our sole discretion. 3. You may offer and sell shares to your customers only at the public offering price determined in the manner described in the applicable Prospectus. The public offering price is the net asset value per share as provided in the applicable Prospectus plus, with respect to certain Funds, a sales charge from which you shall receive a discount equal to a percentage of the applicable offering price as provided in the applicable Prospectus. You shall receive a sales commission, with respect to certain Funds, equal to a percentage of the amount invested as provided in the applicable Prospectus. You shall receive a distribution service fee, for certain Funds for which such fees are available, as provided in the applicable Prospectus which fee shall be payable with respect to such assets, for such periods and at such intervals as are from time to time specified by us. The discounts or other concessions to which you may be entitled in connection with sales to your customers pursuant to any special features of a Fund (such as cumulative discounts, letters of intent, etc., the terms of which shall be as described in the applicable Prospectus and related forms) shall be in accordance with the terms of such features. You may receive an administrative service fee, with respect to certain Funds for which such fees are available, as provided in the applicable Prospectus, which fee shall be payable with respect to such assets, for such periods and at such intervals as are from time 2 to time specified by us. 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. 4. By accepting this agreement, you agree: (a) To purchase shares only from us or from your customers. (b) That you will purchase shares from us only to cover purchase orders already received from your customers, or for your own bona fide investments. (c) That you will not purchase shares from your customers at a price lower than the bid price then quoted by or for the Fund involved. You may, however, sell shares for the account of your customer to the Fund, or to us as agent for the Fund, at the bid price currently quoted by or for the Fund and charge your customer a fair commission for handling the transaction. (d) That you will not withhold placing with us orders received from your customers so as to profit yourself as a result of such withholding. 5. We will not accept from you any conditional orders for shares. 6. If any shares confirmed to you under the terms of this agreement are repurchased by the issuing Fund or by us as agent for the Fund, or are tendered for repurchase, within seven business days after the date of our confirmation of the original purchase order, you shall forthwith refund to us the full discount, commission, finder's fee or other concession, if any, allowed or paid to you on such shares. 7. Payment for shares ordered from us shall be in New York clearing house funds and must be received by the appropriate Fund's shareholder service agent within seven days after our acceptance of your order (or such shorter time period as may be required by applicable regulations). If such payment is not received, we reserve the right, without notice, forthwith to cancel the sale or, at our option, to sell the shares ordered back to the Fund, in which case we may hold you responsible for any loss, including loss of profit suffered by us as a result of your failure to make such payment. 8. Shares sold to you hereunder shall be available in negotiable form for delivery at the appropriate Fund's shareholder services agent, against payment, unless other instructions have been given. 9. All sales will be made subject to our receipt of shares from the Fund. We reserve the right, in our discretion, without notice, to suspend sales or withdraw the offering of shares entirely. We reserve the right to modify, cancel or change the terms of this agreement, upon 15 days prior written notice to you. Also, the sales charges, discounts, commissions or other concessions, service fees of any kind provided for hereunder are subject to change at any time by the Funds and us. 3 10. All communications to us should be sent to the address in the heading above. Any notice to you shall be duly given if mailed or telegraphed to you at the address specified by you below. 11. This agreement shall be construed in accordance with the laws of Illinois. This agreement is subject to the Prospectuses of the Funds from time to time in effect, and, in the event of a conflict, the terms of the Prospectuses shall control. References herein to the "Prospectus" of a Fund shall mean the prospectus and statement of additional information of such Fund as from time to time in effect. Any changes, modifications or additions reflected in any such Prospectus shall be effective on the date of such Prospectus (or supplement thereto) unless specified otherwise. 12. This agreement is subject to the Additional Stipulations and Conditions on the reverse side hereof, all of which are a part of this agreement. Kemper Distributors, Inc. By ---------------------------- Authorized Signature Title ------------------------- We have read the foregoing agreement and accept and agree to the terms and conditions thereof. Firm ------------------------- Witness ------------------------ By ---------------------------- Authorized Representative Dated Title ------------------------- ------------------------- 4 ADDITIONAL STIPULATIONS AND CONDITIONS 13. No person is authorized to make any representations concerning shares of any Fund except those contained in the Prospectus of such Fund and in printed information subsequently issued by the Fund or by us as information supplemental to such Prospectus. If you wish to use your own advertising with respect to a Fund, all such advertising must be approved by us or by the Fund prior to use. You shall be responsible for any required filing of such advertising. 14. Your acceptance of this agreement constitutes a representation (i) that you are a registered security dealer and a member in good standing of the National Association of Securities Dealers, Inc. and that you agree to comply with all state and federal laws, rules and regulations applicable to transactions hereunder and to the Rules of Fair Practice of the National Association of Securities Dealers, Inc., or (ii) if you are offering and selling shares of the Funds only in jurisdictions outside of the several states, territories and possessions of the United States and are not otherwise required to be a member of the National Association of Securities Dealers, Inc., that you nevertheless agree to conduct your business in accordance with the spirit of the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and to observe the laws and regulations of the applicable jurisdiction. You likewise agree that you will not offer to sell shares of any Fund in any state or other jurisdiction in which they may not lawfully be offered for sale. 15. You shall make available an investment management account for your customers through the Funds and shall provide such office space and equipment, telephone facilities, personnel and literature distribution as is necessary or appropriate for providing information and services to your customer. Such services and assistance may include, but not be limited to, establishment and maintenance of shareholder accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding the Funds, and such other services as may be agreed upon from time to time and as may be permitted by applicable statute, rule, or regulation. You agree to release, indemnify and hold harmless the Funds, us and our respective representatives and agents from any and all direct or indirect liabilities or losses resulting from requests, directions, actions or inactions of or by you, your officers, employees or agents regarding the purchase, redemption or transfer of registration of shares of the Funds for accounts of you, your customers and other shareholders or from any unauthorized or improper use of any on-line computer facilities. You shall prepare such periodic reports for us as shall reasonably be requested by us. You shall immediately inform the Funds or us of all written complaints received by you from Fund shareholders relating to the maintenance of their accounts and shall promptly answer all such complaints and other similar correspondence. You shall provide the Funds and us on a timely 5 basis with such information as may be required to complete various regulatory forms. 16. As a result of the necessity to compute the amount of any contingent deferred sales charge due with respect to the redemption of shares, you may not hold shares of a Fund imposing such a charge in an account registered in your name or in the name of your nominee for the benefit of certain of your customers except with our prior written consent. Except as otherwise permitted by us, shares of such a Fund owned by a shareholder must be in a separate identifiable account for such shareholder. 17. Shares of certain Funds have been divided into separate classes: Class A Shares, Class B Shares and Class C Shares. Class A Shares are offered at net asset value plus an initial sales charge. Class B 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 a conversion feature. 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. Please see the appropriate Prospectuses for a more complete description of the distinctions between the classes of shares. It is important to investors not only to choose Funds appropriate for their investment objectives, but also to choose the appropriate distribution arrangement, based on the amount invested and the expected duration of the investment. To assist investors in these decisions, we have instituted the following policies with respect to orders for shares of the Funds. The following policies and procedures with respect to sales of classes of shares of the Funds apply to each broker/dealer that distributes shares of the Funds. 1. All purchase orders for $500,000 or more (not including street name or omnibus accounts) should be for Class A Shares. 2. Any purchase order of less than $500,000 may be for either Class A, Class B or Class C Shares in light of the relevant facts and circumstances, including: a. the specific purchase order dollar amount; b. the length of time the investor expects to hold the shares; and c. any other relevant circumstances such as the availability of purchases under a Letter of Intent, Combined Purchases or Cumulative Discount Privilege. There are instances when one pricing structure may be more appropriate than another. For example, investors who would qualify for a reduced sales charge on Class A Shares may determine that payment of a reduced front-end sales charge is preferable to payment of an ongoing Rule 12b-1 fee. On the other hand, investors whose orders would not qualify for such a discount and who plan to hold their investment for more than six years may wish to defer the sales charge and would consider Class B Shares. Investors who prefer not to pay an initial sales charge and who plan to redeem their shares within six years might consider Class C Shares. 6 Appropriate supervisory personnel within your organization must ensure that all employees receiving investor inquiries about the purchase of shares of the Funds advise the investor of the available pricing structures offered by the Funds and the impact of choosing one method over another, including breakpoints and the availability of Letters of Intent, Combined Purchases and Cumulative Discounts. In some instances it may be appropriate for a supervisory person to discuss a purchase with the investor. 18. This agreement shall be in substitution of any prior selling group agreement between you and us regarding these shares. This agreement shall not be applicable to the provision of services for Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Tax-Exempt New York Money Market Fund, Investors Cash Trust and similar wholesale money market funds. The payment of related distribution and services fees, shall be subject to separate services agreements. EX-99.B9.(B) 5 SUPPLEMENT TO AGENCY AGREEMENT 1 EXHIBIT 99.B9(b) SUPPLEMENT TO AGENCY AGREEMENT Supplement to Agency Agreement ("Supplement") made as of June 1, 1997 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 BLUE CHIP FUND By: /s/ Philip J. Collora -------------------------------- Title: Vice President ----------------------------- INVESTORS FIDUCIARY TRUST COMPANY By: /s/ Stephen R. Hilliard ------------------------------ Title: EVP/CFO --------------------------- 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. 3 TRANSFER AGENCY FEE SCHEDULE SUPPLEMENT 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 .46% .43% EX-99.B9.(C) 6 ADMINISTRATIVE SERVICES AGREEMENT 1 EXHIBIT 99.B9(c) ADMINISTRATIVE SERVICES AGREEMENT AGREEMENT dated this 1st day of April, 1997, by and between KEMPER BLUE CHIP 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 provide information and administrative services for the benefit of the Fund and its shareholders. In this regard, KDI shall appoint various broker- dealer firms and other service or administrative firms ("Firms") to provide related services and facilities for persons who are investors in the Fund ("investors"). The Firms shall provide such office space and equipment, telephone facilities, personnel or other services as may be necessary or beneficial for providing information and services to investors in the Fund. Such services and assistance may include, but are not limited to, establishing and maintaining accounts and records, processing purchase and redemption transactions, answering routine inquiries regarding the Fund and its special features, assistance to investors in changing dividend and investment options, account designations and addresses, and such other administrative services as the Fund or KDI may reasonably request. Firms may include affiliates of KDI. KDI may also provide some of the above services for the Fund directly. KDI accepts such appointment and agrees during such period 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 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. KDI, by separate agreement with the Fund, may also serve the Fund in other capacities. In carrying out its duties and responsibilities hereunder, KDI will appoint various Firms to provide administrative and other services described herein directly to or for the benefit of investors in the Fund. Such Firms shall at all times be deemed to be independent contractors retained by KDI and not the Fund. KDI and not the Fund will be responsible for the payment of compensation to such Firms for such services. 2. For the administrative services and facilities described in Section 1, the Fund will pay to KDI at the end of each calendar month an administrative service fee computed at an annual rate of 2 up to 0.25 of 1% of the average daily net assets of the Fund (except assets attributable to Class I Shares). The current fee schedule is set forth as Appendix I hereto. The administrative service fee will be calculated separately for each class of each series of the Fund as an expense of each such class; provided, however, no administrative service fee shall be payable with respect to Class I Shares. 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 such month and year, respectively. 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. The net asset value for each share of the Fund 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 share 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 day on which such calculation was made for the purpose of the foregoing computations. 3. 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. 4. This Agreement 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. Termination of this Agreement shall not affect the right of KDI to receive payments on any unpaid balance of the compensation described in Section 2 hereof earned prior to such termination. This Agreement may not be amended for any class of any series of the Fund to increase the amount to be paid to KDI for services hereunder above .25 of 1% of the average daily net assets of such class 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 vote of the Board of the Fund. 5. 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. 6. 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. 7. 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 2 3 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. 8. This Agreement shall be construed in accordance with applicable federal law and (except as to Section 7 hereof which shall be construed in accordance with the laws of The Commonwealth of Massachusetts) the laws of the State of Illinois. IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed as of the day and year first above written. KEMPER BLUE CHIP FUND KEMPER DISTRIBUTORS, INC. By: /s/ John E. Neal By: /s/ James L. Greenawalt ____________________________ __________________________ Title: Vice President Title: President _________________________ _______________________ 3 4 APPENDIX I KEMPER BLUE CHIP FUND FEE SCHEDULE FOR ADMINISTRATIVE SERVICES AGREEMENT Pursuant to Section 2 of the Administrative Services Agreement to which this Appendix is attached, the Fund and KDI agree that the administrative service fee will be computed at an annual rate of .25 of 1% (the "Fee Rate") based upon assets with respect to which a Firm provides administrative services. Dated: April 1, 1997 KEMPER BLUE CHIP FUND KEMPER DISTRIBUTORS, INC. By: /s/ John E. Neal By: /s/ James L. Greenawalt ___________________________ __________________________ Title: Vice President Title: President ________________________ _______________________ EX-99.B9.(D) 7 FUND ACCOUNT AGREEMENT 1 EXHIBIT-99.B9(d) FUND ACCOUNTING SERVICES AGREEMENT THIS AGREEMENT is made on the 31st day of December, 1997 between Kemper Blue Chip Fund (the "Fund"), on behalf of the Initial Portfolio (hereinafter called the "Portfolio"), a registered open-end management investment company with its principal place of business in 222 South Riverside Plaza, Chicago, Illinois 60606 and Scudder Fund Accounting Corporation, with its principal place of business in Boston, Massachusetts (hereinafter called "FUND ACCOUNTING"). WHEREAS, the Portfolio has need to determine its net asset value which service FUND ACCOUNTING is willing and able to provide; NOW THEREFORE in consideration of the mutual promises herein made, the Fund and FUND ACCOUNTING agree as follows: Section 1. Duties of FUND ACCOUNTING - General FUND ACCOUNTING is authorized to act under the terms of this Agreement to calculate the net asset value of the Portfolio as provided in the prospectus of the Portfolio and in connection therewith shall: a. Maintain and preserve all accounts, books, financial records and other documents as are required of the Fund under Section 31 of the Investment Company Act of 1940 (the "1940 Act") and Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal and state laws and any other law or administrative rules or procedures which may be applicable to the Fund on behalf of the Portfolio, other than those accounts, books and financial records required to be maintained by the Fund's investment adviser, custodian or transfer agent and/or books and records maintained by all other service providers necessary for the Fund to conduct its business as a registered open-end management investment company. All such books and records shall be the property of the Fund and shall at all times during regular business hours be open for inspection by, and shall be surrendered promptly upon request of, duly authorized officers of the Fund. All such books and records shall at all times during regular business hours be open for inspection, upon request of duly authorized officers of the Fund, by employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. b. Record the current day's trading activity and such other proper bookkeeping entries as are necessary for determining that day's net asset value and net income. 2 c. Render statements or copies of records as from time to time are reasonably requested by the Fund. d. Facilitate audits of accounts by the Fund's independent public accountants or by any other auditors employed or engaged by the Fund or by any regulatory body with jurisdiction over the Fund. e. Compute the Portfolio's public offering price and/or its daily dividend rates and money market yields, if applicable, in accordance with Section 3 of the Agreement and notify the Fund and such other persons as the Fund may reasonably request of the net asset value per share, the public offering price and/or its daily dividend rates and money market yields. Section 2. Valuation of Securities Securities shall be valued in accordance with (a) the Fund's Registration Statement, as amended or supplemented from time to time (hereinafter referred to as the "Registration Statement"); (b) the resolutions of the Board of Trustees of the Fund at the time in force and applicable, as they may from time to time be delivered to FUND ACCOUNTING, and (c) Proper Instructions from such officers of the Fund or other persons as are from time to time authorized by the Board of Trustees of the Fund to give instructions with respect to computation and determination of the net asset value. FUND ACCOUNTING may use one or more external pricing services, including broker-dealers, provided that an appropriate officer of the Fund shall have approved such use in advance. Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend Rates and Yields FUND ACCOUNTING shall compute the Portfolio's net asset value, including net income, in a manner consistent with the specific provisions of the Registration Statement. Such computation shall be made as of the time or times specified in the Registration Statement. FUND ACCOUNTING shall compute the daily dividend rates and money market yields, if applicable, in accordance with the methodology set forth in the Registration Statement. Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice In maintaining the Portfolio's books of account and making the necessary computations FUND ACCOUNTING shall be entitled to receive, and may rely upon, information furnished it by means of Proper Instructions, including but not limited to: a. The manner and amount of accrual of expenses to be recorded on the books of the Portfolio; 2 3 b. The source of quotations to be used for such securities as may not be available through FUND ACCOUNTING's normal pricing services; c. The value to be assigned to any asset for which no price quotations are readily available; d. If applicable, the manner of computation of the public offering price and such other computations as may be necessary; e. Transactions in portfolio securities; f. Transactions in capital shares. FUND ACCOUNTING shall be entitled to receive, and shall be entitled to rely upon, as conclusive proof of any fact or matter required to be ascertained by it hereunder, a certificate, letter or other instrument signed by an authorized officer of the Fund or any other person authorized by the Fund's Board of Trustees. FUND ACCOUNTING shall be entitled to receive and act upon advice of Counsel for the Fund at the reasonable expense of the Portfolio and shall be without liability for any action taken or thing done in good faith in reliance upon such advice. FUND ACCOUNTING shall be entitled to receive, and may rely upon, information received from the Transfer Agent. Section 5. Proper Instructions "Proper Instructions" as used herein means any certificate, letter or other instrument or telephone call reasonably believed by FUND ACCOUNTING to be genuine and to have been properly made or signed by any authorized officer of the Fund or person certified to FUND ACCOUNTING as being authorized by the Board of Trustees. The Fund, on behalf of the Portfolio, shall cause oral instructions to be confirmed in writing. Proper Instructions may include communications effected directly between electro-mechanical or electronic devices as from time to time agreed to by an authorized officer of the Fund and FUND ACCOUNTING. The Fund, on behalf of the Portfolio, agrees to furnish to the appropriate person(s) within FUND ACCOUNTING a copy of the Registration Statement as in effect from time to time. FUND ACCOUNTING may conclusively rely on the Fund's most recently delivered Registration Statement for all purposes under this Agreement and shall not be liable to the Portfolio or the Fund in acting in reliance thereon. 3 4 Section 6. Standard of Care FUND ACCOUNTING shall exercise reasonable care and diligence in the performance of its duties hereunder. The Fund agrees that FUND ACCOUNTING shall not be liable under this Agreement for any error of judgment or mistake of law made in good faith and consistent with the foregoing standard of care, provided that nothing in this Agreement shall be deemed to protect or purport to protect FUND ACCOUNTING against any liability to the Fund, the Portfolio or its shareholders to which FUND ACCOUNTING would otherwise be subject by reason of willful misfeasance, bad faith or negligence in the performance of its duties, or by reason of its reckless disregard of its obligations and duties hereunder. Section 7. Compensation and FUND ACCOUNTING Expenses FUND ACCOUNTING shall be paid as compensation for its services pursuant to this Agreement such compensation as may from time to time be agreed upon in writing by the two parties. FUND ACCOUNTING shall be entitled, if agreed to by the Fund on behalf of the Portfolio, to recover its reasonable telephone, courier or delivery service, and all other reasonable out-of-pocket, expenses as incurred, including, without limitation, reasonable attorneys' fees and reasonable fees for pricing services. Section 8. Amendment and Termination This Agreement shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by an instrument in writing delivered or mailed to the other party. Such termination shall take effect not sooner than sixty (60) days after the date of delivery or mailing of such notice of termination. Any termination date is to be no earlier than four months from the effective date hereof. Upon termination, FUND ACCOUNTING will turn over to the Fund or its designee and cease to retain in FUND ACCOUNTING files, records of the calculations of net asset value and all other records pertaining to its services hereunder; provided, however, FUND ACCOUNTING in its discretion may make and retain copies of any and all such records and documents which it determines appropriate or for its protection. Section 9. Services Not Exclusive FUND ACCOUNTING's services pursuant to this Agreement are not to be deemed to be exclusive, and it is understood that FUND ACCOUNTING may perform fund accounting services for 4 5 others. In acting under this Agreement, FUND ACCOUNTING shall be an independent contractor and not an agent of the Fund or the Portfolio. Section 10. Limitation of Liability for Claims The Fund's Amended and Restated Declaration of Trust, as amended to date (the "Declaration"), a copy of which, together with all amendments thereto, is on file in the Office of the Secretary of State of the Commonwealth of Massachusetts, provides that the name "Kemper Blue Chip Fund" refers to the Trustees under the Declaration collectively as trustees and not as individuals or personally, and that no shareholder of the Fund or the Portfolio, or Trustee, officer, employee or agent of the Fund shall be subject to claims against or obligations of the Trust or of the Portfolio to any extent whatsoever, but that the Trust estate only shall be liable. FUND ACCOUNTING is expressly put on notice of the limitation of liability as set forth in the Declaration and FUND ACCOUNTING agrees that the obligations assumed by the Fund and/or the Portfolio under this Agreement shall be limited in all cases to the Portfolio and its assets, and FUND ACCOUNTING shall not seek satisfaction of any such obligation from the shareholders or any shareholder of the Fund or the Portfolio or any other series of the Fund, or from any Trustee, officer, employee or agent of the Fund. FUND ACCOUNTING understands that the rights and obligations of the Portfolio under the Declaration are separate and distinct from those of any and all other series of the Fund. Section 11. Notices Any notice shall be sufficiently given when delivered or mailed to the other party at the address of such party set forth below or to such other person or at such other address as such party may from time to time specify in writing to the other party. If to FUND ACCOUNTING: Scudder Fund Accounting Corporation Two International Place Boston, Massachusetts 02110 Attn: Vice President If to the Fund - Portfolio: Kemper Blue Chip Fund 222 South Riverside Plaza Chicago, Illinois 60606 Attn: President, Secretary or Treasurer 5 6 Section 12. Miscellaneous This Agreement may not be assigned by FUND ACCOUNTING without the consent of the Fund as authorized or approved by resolution of its Board of Trustees. In connection with the operation of this Agreement, the Fund and FUND ACCOUNTING may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as in their joint opinions may be consistent with this Agreement. Any such interpretive or additional provisions shall be in writing, signed by both parties and annexed hereto, but no such provisions shall be deemed to be an amendment of this Agreement. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof, and supersedes any and all prior understandings. 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized and its seal to be hereunder affixed as of the date first written above. [SEAL] KEMPER BLUE CHIP FUND on behalf of the Initial Portfolio By: ------------------------------- President [SEAL] SCUDDER FUND ACCOUNTING CORPORATION By: ------------------------------- Vice President 7 EX-99.B11 8 REPORT AND CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 99.B11 REPORT OF INDEPENDENT AUDITORS The Board of Trustees and Shareholders Kemper Blue Chip Fund We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Kemper Blue Chip Fund as of October 31, 1997, 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 1988. 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, 1997, 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 Blue Chip Fund at October 31, 1997, 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 1988, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois December 16, 1997 2 EXHIBIT 99.B11 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 16, 1997 in the Registration Statement (Form N-1A) of Kemper Blue Chip Fund and its incorporation by reference in the related Prospectus of Kemper Equity Funds, filed with the Securities and Exchange Commission in this Post-Effective Amendment No. 14 to the Registration Statement under the Securities Act of 1933 (File No. 33-17777) and in this Amendment No. 14 to the Registration Statement under the Investment Company Act of 1940 (File No. 811-5357). ERNST & YOUNG LLP Chicago, Illinois January 22, 1998 EX-99.B24 9 POWER OF ATTORNEY 1 EXHIBIT 99.B24 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ David W. Belin Trustee January 20, 1998 -------------------- 2 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ Lewis A. Burnham Trustee January 20, 1998 ---------------------- 3 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ Donald L. Dunaway Trustee January 20, 1998 4 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ Robert B. Hoffman Trustee January 20, 1998 ---------------------- 5 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ Donald R. Jones Trustee January 20, 1998 ---------------------- 6 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ Shirley D. Peterson Trustee January 20, 1998 ----------------------- 7 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ Daniel Pierce Trustee January 20, 1998 ---------------------- 8 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ William P. Sommers Trustee January 20, 1998 -------------------------- 9 POWER OF ATTORNEY The person whose signature appears below hereby appoints Kathryn L. Quirk, Caroline Pearson, 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 Blue Chip Fund. Signature Title Date /s/ Edmond D. Villani Trustee January 20, 1998 ---------------------- EX-27 10 FDS - CLASS A
6 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 1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000823342 KEMPER BLUE CHIP FUND 001 CLASS A 1,000 12-MOS OCT-31-1997 NOV-01-1996 OCT-31-1997 417,896 451,771 23,484 0 0 475,255 26,004 0 2,360 28,364 0 354,029 17,403 11,607 1,880 0 57,107 0 33,875 446,891 6,320 1,687 0 (5,029) 2,978 56,879 14,551 74,408 209 (2,709) (37,297) 0 6,827 (3,646) 2,615 190,719 1,663 48,645 0 0 2,018 0 5,029 349,807 17.14 0.18 3.70 (0.21) (3.13) 0 17.68 1.19 0 0
EX-27.1 11 FDS - CLASS B
6 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 1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000823342 KEMPER BLUE CHIP FUND 002 CLASS B 1,000 12-MOS OCT-31-1997 NOV-01-1996 OCT-31-1997 417,896 451,771 23,484 0 0 475,255 26,004 0 2,360 28,364 0 354,029 7,011 3,166 1,880 0 57,107 0 33,875 446,891 6,320 1,687 0 (5,029) 2,978 56,879 14,551 74,408 209 (226) (10,548) 0 5,184 (2,055) 716 190,719 1,663 48,645 0 0 2,018 0 5,029 349,807 17.09 0.04 3.67 (0.06) (3.13) 0 17.61 2.06 0 0
EX-27.2 12 FDS - CLASS C
6 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 1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000823342 KEMPER BLUE CHIP FUND 003 CLASS C 1,000 12-MOS OCT-31-1997 NOV-01-1996 OCT-31-1997 417,896 451,771 23,484 0 0 475,255 26,004 0 2,360 28,364 0 354,029 600 181 1,880 0 57,107 0 33,875 446,891 6,320 1,687 0 (5,029) 2,978 56,879 14,551 74,408 209 (20) (570) 0 580 (201) 40 190,719 1,663 48,645 0 0 2,018 0 5,029 349,807 17.15 0.03 3.71 (0.07) (3.13) 0 17.69 2.00 0 0
EX-27.3 13 FDS - CLASS I
6 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 1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000823342 KEMPER BLUE CHIP FUND 004 CLASS I 1,000 12-MOS OCT-31-1997 NOV-01-1996 OCT-31-1997 417,896 451,771 23,484 0 0 475,255 26,004 0 2,360 28,364 0 354,029 288 1 1,880 0 57,107 0 33,875 446,891 6,320 1,687 0 (5,029) 2,978 56,879 14,551 74,408 209 (13) (4) 0 407 (121) 1 190,719 1,663 48,645 0 0 2,018 0 5,029 349,807 17.18 0.32 3.58 (0.23) (3.13) 0 17.72 0.70 0 0
EX-99.485.(B) 14 REPRESENTATION OF COUNSEL (RULE 485(B)) 1 EXHIBIT 99.485(b) [VEDDER PRICE LETTERHEAD] January 23, 1998 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Kemper Blue Chip 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. 14 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)(l)(ix) for certain of the disclosures to be contained in the amendment, we hereby represent that such amendment does not contain disclosures that would render it ineligible to become effective pursuant to paragraph (b) thereof. Very truly yours, /s/ Vedder, Price, Kaufman & Kammholz VEDDER, PRICE, KAUFMAN & KAMMHOLZ DAS/COK/dme -----END PRIVACY-ENHANCED MESSAGE-----