As filed with the Securities and Exchange Commission on November 29, 1999
1933 Act Registration No. 33-63467
1940 Act Registration No. 811-7365
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. 5
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 --------
Amendment No. 7 --------
------
KEMPER HORIZON FUND
-------------------
(Exact name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois 60606
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
-------------
Philip J. Collora,
Vice President and Secretary
Kemper Horizon Fund
222 South Riverside Plaza, Chicago, Illinois 60606
--------------------------------------------------
(Name and Address of Agent for Service)
With a copy to:
Cathy G. O'Kelly
David A. Sturms
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago, Illinois 60601
-------------------------------------------------
It is proposed that this filing will become effective
Immediately upon filing pursuant to paragraph (b)
--------
X On December 1, 1999 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:
This post-effective amendment designates a new effective date for a
previously filed post- Effective amendment
<PAGE>
KEMPER HORIZON FUNDS
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 1, 1999
-------------------------------------------
CLASS I SHARES
-------------------------------------------
KEMPER HORIZON 20+ PORTFOLIO
KEMPER HORIZON 10+ PORTFOLIO
KEMPER HORIZON 5 PORTFOLIO
-------------------------------------------
The above 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 funds' prospectus, and Class I shares, which are
described in the prospectus as supplemented hereby. When placing purchase
orders, investors must specify whether the order is for Class A, Class B, Class
C or Class I shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper Investments, Inc. ("Scudder Kemper") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Scudder Kemper and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee-based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund; and (6) investment
companies managed by Scudder Kemper that invest primarily in other investment
companies.
Class I shares currently are available for purchase only from Kemper
Distributors, Inc. ("KDI"), principal underwriter for the Funds, and, in the
case of category 4 above, selected dealers authorized by KDI. Share certificates
are not available for Class I shares.
1
<PAGE>
The following information supplements the indicated sections of the prospectus.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder fees: Fees paid directly from your investment.
Maximum
Sales Maximum
Charge Deferred
(Load) Sales Maximum Redemption
Imposed on Charge Sales Charge Fee (as %
Purchases (Load) on of amount
(as a % of (as a % of Reinvested redeemed,
offering redemption Dividends/ if Exchange
price) proceeds) Distributions applicable Fee
------ --------- ------------- ---------- ---
Kemper Horizon
20+ Portfolio None None None None None
Kemper Horizon
10+ Portfolio None None None None None
Kemper Horizon
5 Portfolio None None None None None
2
<PAGE>
Annual fund operating expenses: Expenses that are deducted from fund assets.
Investment Distribution Other Total annual fund
management fee (12b-1) fees expenses* operating expenses
-------------- ------------ --------- ------------------
Kemper
Horizon 20+
Portfolio 0.57% None 0.35% 0.92%
Kemper
Horizon 10+
Portfolio 0.57% None 0.52% 1.09%
Kemper
Horizon 5
Portfolio 0.57% None 0.58% 1.15%
* "Other Expenses" are restated to reflect current shareholder servicing
fees.
Example
This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Kemper
Horizon 20+
Portfolio $94 $293 $509 $1131
Kemper
Horizon 10+
Portfolio $111 $347 $601 $1329
Kemper
Horizon 5
Portfolio $117 $365 $633 $1398
3
<PAGE>
FINANCIAL HIGHLIGHTS
Kemper Horizon 20+ Portfolio
April 8
Year ended July 31, to July
---------------------------- 31,
CLASS I 1999 1998 1997 1996
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $13.62 12.96 9.73 10.03
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .27 .17 .19 .07
- --------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .46 1.09 3.17 (.37)
- --------------------------------------------------------------------------------
Total from investment
operations .73 1.26 3.36 (.30)
- --------------------------------------------------------------------------------
Less dividends
Distribution from net
investment income .17 .12 .13 --
- --------------------------------------------------------------------------------
Distribution from net
realized gain .02 .48 -- --
- --------------------------------------------------------------------------------
Total dividends .19 .60 .13 --
- --------------------------------------------------------------------------------
Net asset value, end of
period $14.16 13.62 12.96 9.73
- --------------------------------------------------------------------------------
Total return (not annualized) 5.43% 10.29 34.84 (2.99)
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses .84% .85 1.04 .73
- --------------------------------------------------------------------------------
Net investment income 2.01% 1.64 1.73 2.32
- --------------------------------------------------------------------------------
Dec. 29, 1995
Year ended July 31, to July 31,
-----------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period
(in thousands) $136,971 110,076 62,673 18,251
- --------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 72% 44 130 122
- --------------------------------------------------------------------------------
4
<PAGE>
Kemper Horizon 10+ Portfolio
April 8
Year ended July 31, to July 31,
-----------------------------------
CLASS I 1999 1998 1997 1996
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $12.46 11.97 9.57 9.83
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .36 .35 .26 .09
- --------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .36 .84 2.40 (.26)
- --------------------------------------------------------------------------------
Total from investment
operations .72 1.19 2.66 (.17)
- --------------------------------------------------------------------------------
Less dividends
Distribution from net
investment income .31 .29 .26 .09
- --------------------------------------------------------------------------------
Distribution from net
realized gain .11 .41 -- --
- --------------------------------------------------------------------------------
Total dividends .42 .70 .26 .09
- --------------------------------------------------------------------------------
Net asset value, end of
period $12.76 12.46 11.97 9.57
- --------------------------------------------------------------------------------
Total return (not annualized) 5.86% 10.47 28.09 (1.74)
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.07% .99 1.06 .73
- --------------------------------------------------------------------------------
Net investment income 3.10% 2.75 2.81 3.21
- --------------------------------------------------------------------------------
Dec. 29, 1995
Year ended July 31, to July 31,
-----------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period
(in thousands) $138,110 111,687 63,400 18,912
- --------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 64% 37 126 87
- --------------------------------------------------------------------------------
5
<PAGE>
Kemper Horizon 5 Portfolio
April 8
Year ended July 31, to July 31,
-----------------------------------
CLASS I 1999 1998 1997 1996
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $11.28 11.06 9.58 9.69
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .41 .41 .32 .08
- --------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .18 .47 1.49 (.11)
- --------------------------------------------------------------------------------
Total from investment
operations .59 .88 1.81 (.03)
- --------------------------------------------------------------------------------
Less dividends
Distribution from net
investment income .44 .39 .33 .08
- --------------------------------------------------------------------------------
Distribution from net
realized gain .12 .27 -- --
- --------------------------------------------------------------------------------
Total dividends .56 .66 .33 .08
- --------------------------------------------------------------------------------
Net asset value, end of
period $11.31 11.28 11.06 9.58
- --------------------------------------------------------------------------------
Total return (not annualized) 5.47% 8.29 19.27 (.31)
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.13% 1.03 1.20 .73
- --------------------------------------------------------------------------------
Net investment income 3.75% 3.89 3.61 4.11
- --------------------------------------------------------------------------------
Dec. 29, 1995
Year ended July 31, to July 31,
-----------------------------------
1999 1998 1997 1996
- --------------------------------------------------------------------------------
Supplemental data for allocation
Net assets at end of period
(in thousands) $59,953 55,335 30,700 10,831
- --------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 58% 43 150 57
- --------------------------------------------------------------------------------
6
<PAGE>
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 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.
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, typically will be higher for Class I shares than
for Class A, Class B and Class C shares.
December 1, 1999
7
<PAGE>
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
December 1, 1999
Prospectus
KEMPER ASSET ALLOCATION FUNDS
Kemper Horizon 20+ Portfolio
Kemper Horizon 10+ Portfolio
Kemper Horizon 5 Portfolio
As with all mutual funds, the Securities and
Exchange Commission (SEC) does not approve
or disapprove these shares or determine
whether the information in this prospectus
is truthful or complete. It is a criminal
offense for anyone to inform you otherwise.
[LOGO] KEMPER FUNDS
<PAGE>
HOW THE INVESTING IN
FUNDS WORK THE FUNDS
2 Kemper Horizon 20+ 28 Choosing A Share
Portfolio Class
8 Kemper Horizon 10+ 33 How To Buy Shares
Portfolio
14 Kemper Horizon 5 34 How To Exchange Or
Portfolio Sell Shares
20 Other Policies And 35 Policies You Should
Risks Know About
22 Financial Highlights 41 Understanding
Distributions And
Taxes
<PAGE>
How the funds work
The three funds in this prospectus use an asset allocation strategy. All three
funds invest in stocks and bonds, but in different proportions. As their names
suggest, each fund is designed for investors with a particular time horizon in
mind, from relatively short-term to relatively long-term.
Remember that mutual funds are investments, not bank deposits. They're not
guaranteed or insured by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
<PAGE>
TICKER SYMBOLS CLASS: A) KHOAX B) KHOBX C) KHOCX
Kemper
Horizon 20+ Portfolio
FUND GOAL To seek growth of capital, with income a secondary goal.
Fund's Main Strategy
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Net assets in fixed-income securities 20%
Net assets in equity securities: 80%
40% in large cap U.S.
16% in small cap U.S.
24% in foreign
2
<PAGE>
The Fund's Main Strategy
The fund normally allocates assets as shown in the "Fund's Main Strategy" pie
chart.
Equity portion. Most of this portion is normally invested in common stocks. In
choosing U.S. stocks, the managers use proprietary models to rank stocks
according to book value, earnings per share, expected earnings growth and other
factors. The model uses the same criteria for all stocks, but ranks growth
stocks and value stocks separately. Based on market, economic and other factors,
the managers determine their desired mix of growth and value stocks (between 40%
and 60% of each) and choose stocks from among the top-ranked in each category.
In choosing foreign stocks, the managers generally focus on established
companies in countries with developed economies, although the fund can invest in
stocks of any size and from any country.
Fixed-income portion. This portion is divided among government and agency
securities, corporate securities, bank obligations and cash equivalents. All of
the fund's fixed-income securities must be denominated in U.S. dollars, and 90%
of the fixed-income portion must be in the top four credit grades, with an
average credit quality within the top two credit grades.
Although the managers may adjust the duration (a measure of sensitivity to
interest rates) of the fund's fixed-income portion, they generally intend to
keep it between 1.5 and 3.5 years, with an average of approximately 2.5 years.
- --------------------------------------------------------------------------------
ALLOCATION ADJUSTMENTS
While the managers expect that, over time, the fund's actual allocations will
average out to be similar to its target allocations, the actual allocations may
be different from the target allocations at any given time. This is because the
managers may adjust the fund's actual allocations in seeking to take advantage
of current or expected market conditions, or to manage risk.
3
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor is how stock markets perform -- something that depends
on many influences, including economic, political and demographic trends. When
stock prices fall, the value of your investment is likely to fall as well.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. Stock risks
tend to be greater with smaller companies, which often don't have the broad
business lines or financial resources to weather hard times.
Foreign stocks tend to be more volatile than their American counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. In addition, there is the risk
with foreign investments that changing currency rates could add to market losses
or reduce market gains. These risks tend to be greater in emerging markets.
Because the fund invests some of its assets in bonds, it may perform less well
in the long run than a fund investing entirely in stocks. At the same time, the
fund's bond component means that its performance could be hurt somewhat by poor
performance in the bond market or from the particular bonds it owns.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, countries,
industries, companies, the attractiveness of asset classes or other matters
o bond prices could be hurt by rising interest rates or declines in credit
quality
o at times, it could be hard to value some investments or to get an attractive
price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
This fund may make sense for investors with a time horizon of 20 years or longer
who want an investment that uses an asset allocation strategy to pursue growth
and manage risk.
4
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has two broad-based market indices (which, unlike the
fund, have no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1996 15.11
1997 18.90
1998 10.98
Best quarter: 14.22%, Q4 1998 YTD return as of 9/30/1999: -1.10%
Worst quarter: -12.85%, Q3 1998
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since 12/31/97 Since 12/29/95
1 Year Life of Class
- ------------------------------------------------------------------------------
Class A 4.63% 12.66%
- ------------------------------------------------------------------------------
Class B 7.23 13.40
- ------------------------------------------------------------------------------
Class C 9.97 13.87
- ------------------------------------------------------------------------------
Index 1 28.58 28.23*
- ------------------------------------------------------------------------------
Index 2 9.47 7.33*
- --------------------------------------------------------------------------------
* Since 12/31/95
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns for 1995 through 1996 would have been lower if operating
expenses hadn't been reduced.
5
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your
investment
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- -------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- -------------------------------------------------------------------------------
Management Fee 0.57% 0.57% 0.57%
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
Other Expenses** 1.41 1.33 1.71
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 1.98 2.65 3.03
- ------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect current shareholder servicing fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
Class A shares $764 $1,161 $1,581 $2,749
- ------------------------------------------------------------------------------
Class B shares 668 1,123 1,605 2,673
- ------------------------------------------------------------------------------
Class C shares 406 936 1,591 3,346
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
Class A shares $764 $1,161 $1,581 $2,749
- ------------------------------------------------------------------------------
Class B shares 268 823 1,405 2,673
- ------------------------------------------------------------------------------
Class C shares 306 936 1,591 3,346
- ------------------------------------------------------------------------------
6
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.57% of average daily net assets.
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Robert D. Tymoczko Almond G. Goduti
Lead Portfolio Manager Portfolio Manager
o Began investment career o Began investment career
in 1996 in 1985
o Joined the advisor in o Joined the advisor in
1997 1996
o Joined the fund team o Joined the fund team
in 1999 in 1999
Shahram Tajbakhsh Josephine Chu
Portfolio Manager Portfolio Manager
o Began investment career o Began investment career
in 1991 in 1996
o Joined the advisor in o Joined the advisor in
1996 1997
o Joined the fund team o Joined the fund team
in 1999 in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
7
<PAGE>
TICKER SYMBOLS CLASS: A) KHRAX B) KHRBX C) KHRCX
Kemper
Horizon 10+ Portfolio
FUND GOAL To seek a balance between growth of capital and income, consistent
with moderate risk.
Fund's Main Strategy
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Net assets in fixed-income securities 40%
Net assets in equity securities: 60%
28% in large cap U.S.
14% in small cap U.S.
18% in foreign
8
<PAGE>
The Fund's Main Strategy
The fund normally allocates assets as shown in the "Fund's Main Strategy" pie
chart.
Equity portion. Most of this portion is normally invested in common stocks. In
choosing U.S. stocks, the managers use proprietary models to rank stocks
according to book value, earnings per share, expected earnings growth and other
factors. The model uses the same criteria for all stocks, but ranks growth
stocks and value stocks separately. Based on market, economic and other factors,
the managers determine their desired mix of growth and value stocks (between 40%
and 60% of each) and choose stocks from among the top-ranked in each category.
In choosing foreign stocks, the managers generally focus on established
companies in countries with developed economies, although the fund can invest in
stocks of any size and from any country.
Fixed-income portion. This portion is divided among government and agency
securities (including mortgage and asset-backed securities), corporate
securities, bank obligations and cash equivalents. All of the fund's
fixed-income securities must be denominated in U.S. dollars, and 90% of the
fixed-income portion must be in the top four credit grades, with an average
credit quality within the top two credit grades.
Although the managers may adjust the duration (a measure of sensitivity to
interest rates) of the fund's fixed-income portion, they generally intend to
keep it between 1.5 and 3.5 years, with an average of approximately 2.5 years.
- --------------------------------------------------------------------------------
ALLOCATION ADJUSTMENTS
While the managers expect that, over time, the fund's actual allocations will
average out to be similar to its target allocations, the actual allocations may
be different from the target allocations at any given time. This is because the
managers may adjust the fund's actual allocations in seeking to take advantage
of current or expected market conditions, or to manage risk.
9
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor is how stock markets perform -- something that depends
on many influences, including economic, political and demographic trends. When
stock prices fall, the value of your investment is likely to fall as well. Stock
prices can be hurt by poor management, shrinking product demand and other
business risks. Stock risks tend to be greater with smaller companies.
Foreign stocks tend to be more volatile than their American counterparts. There
is also the risk with foreign investments that changing currency rates could add
to market losses or reduce market gains. These risks tend to be greater in
emerging markets.
The fund is also affected by how bond markets perform. Bonds could be hurt by
rises in market interest rates. (As a rule, a 1% rise in interest rates means a
1% fall in value for every year of duration.) Some bonds could be paid off
earlier than expected if interest rates fall. With mortgage- or asset-backed
securities, any unexpected behavior in interest rates could increase the
volatility of the fund's share price and yield. Corporate bonds could perform
less well than other types of bonds in a weak economy.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, countries,
industries, companies, the attractiveness of asset classes or other matters
o a bond could fall in credit quality or go into default
o at times, it could be hard to value some investments or to get an attractive
price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Investors who are looking for a balanced portfolio of stock and bond investments
and whose time horizon is approximately ten or more years may be interested in
this fund.
10
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out. For context, the table has
two broad-based market indices (which, unlike the fund, have no fees or
expenses). All figures on this page assume reinvestment of dividends and
distributions. As always, past performance is no guarantee of future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1996 12.30
1997 15.98
1998 12.39
Best quarter: 10.44%, Q4 1998 YTD return as of 9/30/1999: 0.38%
Worst quarter: -7.77%, Q3 1998
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since 12/31/97 Since 12/29/95
1 Year Life of Class
- ------------------------------------------------------------------------------
Class A 5.96% 11.29%
- ------------------------------------------------------------------------------
Class B 8.36 12.05
- ------------------------------------------------------------------------------
Class C 11.38 12.50
- ------------------------------------------------------------------------------
Index 1 28.58 28.23*
- ------------------------------------------------------------------------------
Index 2 9.47 7.33*
- ------------------------------------------------------------------------------
* Since 12/31/95
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns for 1995 through 1996 would have been lower if operating
expenses hadn't been reduced.
11
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
Management Fee 0.57% 0.57% 0.57%
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
Other Expenses** 0.95 1.07 1.29
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 1.52 2.39 2.61
- ------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect current shareholder servicing fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
Class A shares $721 $1,028 $1,356 $2,283
- ------------------------------------------------------------------------------
Class B shares 642 1,045 1,475 2,311
- ------------------------------------------------------------------------------
Class C shares 364 811 1,385 2,944
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
Class A shares $721 $1,028 $1,356 $2,283
- ------------------------------------------------------------------------------
Class B shares 242 745 1,275 2,311
- ------------------------------------------------------------------------------
Class C shares 264 811 1,385 2,944
- ------------------------------------------------------------------------------
12
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.57% of average daily net assets.
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Robert D. Tymoczko Almond G. Goduti
Lead Portfolio Manager Portfolio Manager
o Began investment career o Began investment
in 1996 career in 1985
o Joined the advisor o Joined the advisor
in 1997 in 1996
o Joined the fund team o Joined the fund team
in 1999 in 1999
Shahram Tajbakhsh Josephine Chu
Portfolio Manager Portfolio Manager
o Began investment career o Began investment
in 1991 career in 1996
o Joined the advisor o Joined the advisor
in 1996 in 1997
o Joined the fund team o Joined the fund team
in 1999 in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
13
<PAGE>
TICKER SYMBOLS CLASS: A) KHZAX B) KHZBX C) KHZCX
Kemper
Horizon 5 Portfolio
FUND GOAL To seek income consistent with capital preservation; growth of capital
is a secondary goal.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Fund's Main Strategy
Net assets in equity securities: 40%
19.6% in large cap U.S.
8.4% in small cap U.S.
12% in foreign
Net assets in fixed-income securities 60%
14
<PAGE>
The Fund's Main Strategy
The fund normally allocates assets as shown by the "Fund's Main Strategy" pie
chart.
Fixed-income portion. This portion is divided among government and agency
securities, corporate securities, bank obligations and cash equivalents. All of
the fund's fixed-income securities must be denominated in U.S. dollars, and 90%
of the fixed-income portion must be in the top four credit grades, with an
average credit quality within the top two credit grades.
Although the managers may adjust the duration (a measure of sensitivity to
interest rates) of the fund's fixed-income portion, they generally intend to
keep it between 1.5 and 3.5 years, with an average of approximately 2.5 years.
Equity portion. Most of this portion is normally invested in common stocks. In
choosing U.S. stocks, the managers use proprietary models to rank stocks
according to book value, earnings per share, expected earnings growth and other
factors. The model uses the same criteria for all stocks, but ranks growth
stocks and value stocks separately. Based on market, economic and other factors,
the managers determine their desired mix of growth and value stocks (between 40%
and 60% of each) and choose stocks from among the top-ranked in each category.
In choosing foreign stocks, the managers generally focus on established
companies in countries with developed economies, although the fund can invest in
stocks of any size and from any country.
ALLOCATION ADJUSTMENTS
While the managers expect that, over time, the fund's actual allocations will
average out to be similar to its target allocations, the actual allocations may
be different from the target allocations at any given time. This is because the
managers may adjust the fund's actual allocations in seeking to take advantage
of current or expected market conditions, or to manage risk.
15
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The fund is affected by how bond markets perform. Bonds could be hurt by rises
in market interest rates. (As a rule, a 1% rise in interest rates means a 1%
fall in value for every year of duration.) Some bonds could be paid off earlier
than expected if interest rates fall. With mortgage- or asset-backed securities,
any unexpected behavior in interest rates could increase the volatility of the
fund's share price and yield. Corporate bonds could perform less well than other
types of bonds in a weak economy.
The fund is also affected by how stock markets perform -- something that depends
on many influences, including economic, political and demographic trends. When
stock prices fall, the value of your investment is likely to fall as well. Stock
prices can be hurt by poor management, shrinking product demand and other
business risks. Stock risks tend to be greater with smaller companies.
Foreign stocks tend to be more volatile than their American counterparts. There
is also the risk with foreign investments that changing currency rates could add
to market losses or reduce market gains. These risks tend to be greater in
emerging markets.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, countries,
industries, companies, the attractiveness of asset classes or other matters
o a bond could fall in credit quality or go into default
o at times, it could be hard to value some investments or to get an attractive
price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Investors who are about five years away from their financial goals, or who want
a fund that takes a more conservative asset allocation, may want to consider
this fund.
16
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out. For context, the table has
two broad-based market indices (which, unlike the fund, have no fees or
expenses). All figures on this page assume reinvestment of dividends and
distributions. As always, past performance is no guarantee of future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1996 9.43
1997 11.82
1998 10.00
Best quarter: 7.46%, Q4 1998 YTD return as of 9/30/1999: 0.73%
Worst quarter: -4.77%, Q3 1998
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since 12/31/97 Since 12/29/95
1 Year Life of Class
- ------------------------------------------------------------------------------
Class A 3.70% 8.22%
- ------------------------------------------------------------------------------
Class B 6.38 9.15
- ------------------------------------------------------------------------------
Class C 9.51 9.68
- ------------------------------------------------------------------------------
Index 1 28.58 28.23*
- ------------------------------------------------------------------------------
Index 2 9.47 7.33*
- ------------------------------------------------------------------------------
* Since 12/31/95
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns for 1995 through 1996 would have been lower if operating
expenses hadn't been reduced.
17
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
Management Fee 0.57% 0.57% 0.57%
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
Other Expenses** 1.12 0.96 1.28
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 1.69 2.28 2.60
- ------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect current shareholder servicing fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
Class A shares $737 $1,077 $1,440 $2,458
- ------------------------------------------------------------------------------
Class B shares 631 1,012 1,420 2,433
- ------------------------------------------------------------------------------
Class C shares 363 808 1,380 2,934
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
Class A shares $737 $1,077 $1,440 $2,458
- ------------------------------------------------------------------------------
Class B shares 231 712 1,220 2,433
- ------------------------------------------------------------------------------
Class C shares 263 808 1,380 2,934
- ------------------------------------------------------------------------------
18
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.57% of average daily net assets.
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Robert D. Tymoczko Almond G. Goduti
Lead Portfolio Manager Portfolio Manager
o Began investment career o Began investment career
in 1996 in 1985
o Joined the advisor in o Joined the advisor in
1997 1996
o Joined the fund team o Joined the fund team
in 1999 in 1999
Shahram Tajbakhsh Josephine Chu
Portfolio Manager Portfolio Manager
o Began investment career o Began investment career
in 1991 in 1996
o Joined the advisor in o Joined the advisor in
1996 1997
o Joined the fund team o Joined the fund team
in 1999 in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
19
<PAGE>
Other Policies And Risks
While the previous pages describe the main points of each fund's strategy and
risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, each fund's Board could change
that fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, any of these funds could shift up to 100%
of assets into investments such as money market securities. This could
prevent losses, but would mean that the fund would not be pursuing its goal.
o Scudder Kemper establishes a security's credit quality when it buys the
security, using independent ratings or, for unrated securities, its own
credit determination. When ratings don't agree, a fund may use the higher
rating. If a security's credit quality falls, the advisor will determine
whether selling it would be in the shareholders' best interests.
o Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal investments.
With derivatives there is a risk that they could produce disproportionate
losses.
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
This prospectus doesn't tell you about every policy or risk of investing in a
fund. For more information, you may want to request a copy of the Statement of
Additional Information (the back cover tells you how to do this).
20
<PAGE>
Year 2000 and euro readiness
Like all mutual funds, these funds could be affected by the inability of some
computer systems to recognize the year 2000. Also, because they invest in
foreign securities, the funds could be affected by accounting differences,
changes in tax treatment or other issues related to the conversion of certain
European currencies into the euro, which is already underway. Scudder Kemper has
readiness programs designed to address these problems, and has researched the
readiness of suppliers and business partners as well as issuers of securities
the funds own. Still, there's some risk that one or both of these problems could
materially affect a fund's operations (such as its ability to calculate net
asset value and to handle purchases and redemptions), its investments or
securities markets in general.
21
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned (or lost), assuming all
dividends and distributions were reinvested. This information has been audited
by Ernst & Young LLP, whose report, along with each fund's financial statements,
is included in that fund's annual report (see "Shareholder reports" on the back
cover).
Kemper Horizon 20+ Portfolio
Class A
- ------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $13.48 $12.89 $9.72 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .13 .04 .12 .18
- ------------------------------------------------------------------------------
Net realized and unrealized gain .44 1.07 3.15 .04
- ------------------------------------------------------------------------------
Total from investment operations .57 1.11 3.27 .22
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income .02 .04 .10 --
- ------------------------------------------------------------------------------
Distribution from net realized gain .02 .48 -- --
- ------------------------------------------------------------------------------
Total dividends .04 .52 .10 --
- ------------------------------------------------------------------------------
Net asset value, end of period $14.01 $13.48 $12.89 $9.72
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 4.21 9.04 33.90 2.32
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 1.90 2.00 1.69 1.48
- ------------------------------------------------------------------------------
Net investment income (%) .95 .49 1.08 1.51
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
22
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $13.28 $12.79 $9.65 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .03 (.03) .03 .11
- ------------------------------------------------------------------------------
Net realized and unrealized gain .43 1.00 3.15 .04
- ------------------------------------------------------------------------------
Total from investment operations .46 .97 3.18 .15
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income -- -- .04 --
- ------------------------------------------------------------------------------
Distribution from net realized gain .02 .48 -- --
- ------------------------------------------------------------------------------
Total dividends .02 .48 .04 --
- ------------------------------------------------------------------------------
Net asset value, end of period $13.72 $13.28 $12.79 $9.65
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 3.55 7.98 33.01 1.58
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.61 2.79 2.47 2.26
- ------------------------------------------------------------------------------
Net investment income (loss) (%) .24 (.30) .30 .73
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
Class C
- ------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $13.29 $12.80 $9.67 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.01) (.05) .04 .13
- ------------------------------------------------------------------------------
Net realized and unrealized gain .44 1.02 3.13 .04
- ------------------------------------------------------------------------------
Total from investment operations .43 .97 3.17 .17
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income -- -- .04 --
- ------------------------------------------------------------------------------
Distribution from net realized gain .02 .48 -- --
- ------------------------------------------------------------------------------
Total dividends .02 .48 .04 --
- ------------------------------------------------------------------------------
Net asset value, end of period $13.70 $13.29 $12.80 $9.67
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 3.24 7.97 32.80 1.79
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.88 3.03 2.48 2.23
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.03) (.54) .29 .76
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Net assets at end of period $59,953 55,335 30,700 10,831
(in thousands)
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 58 43 150 57
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
23
<PAGE>
Kemper Horizon 10+ Portfolio
Class A
- ------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $12.49 $12.01 $9.60 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .31 .24 .25 .20
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .35 .87 2.36 (.04)
- ------------------------------------------------------------------------------
Total from investment operations .66 1.11 2.61 .16
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income .25 .22 .20 .06
- ------------------------------------------------------------------------------
Distribution from net realized gain .11 .41 -- --
- ------------------------------------------------------------------------------
Total dividends .36 .63 .20 .06
- ------------------------------------------------------------------------------
Net asset value, end of period $12.79 $12.49 $12.01 $9.60
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 5.37 9.75 27.43 1.70
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 1.46 1.48 1.51 1.48
- ------------------------------------------------------------------------------
Net investment income (%) 2.47 2.26 2.36 2.40
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
Class B
- --------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $12.48 $12.00 $9.60 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .20 .15 .16 .17
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .35 .86 2.35 (.04)
- ------------------------------------------------------------------------------
Total from investment operations .55 1.01 2.51 .13
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income .14 .12 .11 .03
- ------------------------------------------------------------------------------
Distribution from net realized gain .11 .41 -- --
- ------------------------------------------------------------------------------
Total dividends .25 .53 .11 .03
- ------------------------------------------------------------------------------
Net asset value, end of period $12.78 $12.48 $12.00 $9.60
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 4.46 8.85 26.25 1.38
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.34 2.36 2.36 2.26
- ------------------------------------------------------------------------------
Net investment income (%) 1.59 1.38 1.51 1.62
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
24
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $12.44 $11.98 $9.60 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .18 .14 .14 .17
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .35 .87 2.34 (.04)
- ------------------------------------------------------------------------------
Total from investment operations .53 1.01 2.48 .13
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income .13 .14 .10 .03
- ------------------------------------------------------------------------------
Distribution from net realized gain .11 .41 -- --
- ------------------------------------------------------------------------------
Total dividends .24 .55 .10 .03
- ------------------------------------------------------------------------------
Net asset value, end of period $12.73 $12.44 $11.98 $9.60
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 4.29 8.83 25.97 1.39
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.50 2.39 2.61 2.23
- ------------------------------------------------------------------------------
Net investment income (%) 1.43 1.35 1.26 1.65
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Net assets at end of period (in thousands) $59,953 55,335 30,700 10,831
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 58 43 150 57
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
Kemper Horizon 5 Portfolio
Class A
- --------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.26 $11.06 $9.57 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .38 .35 .34 .25
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .17 .47 1.45 (.07)
- ------------------------------------------------------------------------------
Total from investment operations .55 .82 1.79 .18
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income .38 .35 .30 .11
- ------------------------------------------------------------------------------
Distribution from net realized gain .12 .27 -- --
- ------------------------------------------------------------------------------
Total dividends .50 .62 .30 .11
- ------------------------------------------------------------------------------
Net asset value, end of period $11.31 $11.26 $11.06 $9.57
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 4.94 7.74 19.02 1.84
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 1.54 1.64 1.51 1.48
- ------------------------------------------------------------------------------
Net investment income (%) 3.34 3.28 3.30 3.20
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
25
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.28 $11.06 $9.57 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .30 .30 .27 .21
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .16 .47 1.44 (.07)
- ------------------------------------------------------------------------------
Total from investment operations .46 .77 1.71 .14
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income .31 .28 .22 .07
- ------------------------------------------------------------------------------
Distribution from net realized gain .12 .27 -- --
- ------------------------------------------------------------------------------
Total dividends .43 .55 .22 .07
- ------------------------------------------------------------------------------
Net asset value, end of period $11.31 $11.28 $11.06 $9.57
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 4.24 7.27 18.15 1.44
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.20 2.17 2.15 2.26
- ------------------------------------------------------------------------------
Net investment income (%) 2.68 2.75 2.66 2.42
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
Class C
- ------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.27 $11.07 $9.57 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .28 .28 .28 .21
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .18 .47 1.43 (.07)
- ------------------------------------------------------------------------------
Total from investment operations .46 .75 1.71 .14
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net investment income .31 .28 .21 .07
- ------------------------------------------------------------------------------
Distribution from net realized gain .12 .27 -- --
- ------------------------------------------------------------------------------
Total dividends .43 .55 .21 .07
- ------------------------------------------------------------------------------
Net asset value, end of period $11.30 $11.27 $11.07 $9.57
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 4.20 7.10 18.13 1.45
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.39 2.18 2.16 2.23
- ------------------------------------------------------------------------------
Net investment income (%) 2.49 2.74 2.65 2.45
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Net assets at end of period (in thousands) $59,953 55,335 30,700 10,831
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 58 43 150 57
- ------------------------------------------------------------------------------
(a) December 29, 1995 to July 31, 1996
26
<PAGE>
Investing In The Funds
The following pages tell you about many of the services, choices and benefits of
being a Kemper Funds shareholder. You'll also find information on how to check
the status of your account using the method that's most convenient for you.
You can find out more about the topics covered here by speaking with your
financial representative or other investment provider, such as a workplace
retirement plan.
<PAGE>
Choosing A Share Class
In this prospectus, there are three share classes for each fund. Each class has
its own fees and expenses, offering you a choice of cost structures.
Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.
We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.
- --------------------------------------------------------------------------------
Classes and features Points to help you compare
- --------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, o Some investors may be able to
charged when you buy shares reduce or eliminate their sales
charges; see next page
o In most cases, no charges when you
sell shares o Annual operating expenses are
lower than those for Class B or
o No distribution fee Class C
- ------------------------------------------------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate
falls to zero after six years
o Deferred sales charge of up to
4.00%, charged when you sell shares o Shares automatically convert to
you bought within the last six years Class A after six years after
purchase, which means lower annual
o 0.75% distribution fee expenses going forward
- ------------------------------------------------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never convert
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you remain higher
bought within the last year
o 0.75% distribution fee
- ------------------------------------------------------------------------------
28
<PAGE>
Class A shares
Class A shares have a sales charge that varies with the amount you invest:
Your investment Sales charge Sales charge
as a % of as a % of your
offering price net investment
---------------------------------------------------------
Up to $50,000 5.75% 6.10%
---------------------------------------------------------
$50,000-$99,999 4.50 4.71
---------------------------------------------------------
$100,000-$249,999 3.50 3.63
---------------------------------------------------------
$250,000-$499,999 2.60 2.67
---------------------------------------------------------
$500,000-$999,999 2.00 2.04
-----------------------------------------------------------
$1 million or more See below and next page
-----------------------------------------------------------
The offering price includes the sales charge.
You may be able to lower your Class A sales charges if:
o you plan to invest at least $50,000 over the next 24 months ("letter of
intent")
o the amount of Kemper shares you already own (including shares in certain
other Kemper funds) plus the amount you're investing now is at least $50,000
("cumulative discount")
o you are investing a total of $50,000 or more in several Kemper funds at once
("combined purchases")
The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.
29
<PAGE>
You may be able to buy Class A shares without sales charges when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under which you pay a fee to
an investment advisor or other firm for portfolio management services
There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper can answer
your questions and help you determine if you are eligible.
If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper can answer your questions and help you determine if
you're eligible.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.
30
<PAGE>
Class B shares
With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% is deducted
from fund assets each year. This means the annual expenses for Class B shares
are somewhat higher (and their performance correspondingly lower) compared to
Class A shares, which don't have a 12b-1 fee. After six years, Class B shares
automatically convert to Class A, which has the net effect of lowering the
annual expenses from the seventh year on.
Class B shares have a contingent deferred sales charge (CDSC). This charge
declines over the years you own shares, and disappears completely after six
years of ownership. But for any shares you sell within those six years, you may
be charged as follows:
Year after you bought shares CDSC on shares you sell
-----------------------------------------------------------
First year 4.00%
-----------------------------------------------------------
Second or third year 3.00
-----------------------------------------------------------
Fourth or fifth year 2.00
-----------------------------------------------------------
Sixth year 1.00
-----------------------------------------------------------
Seventh year and later None (automatic conversion
to Class A)
-----------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class B shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class B shares can be a logical choice for long-term investors who prefer to see
all of their investment go to work right away, and can accept somewhat higher
annual expenses in exchange.
31
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and have a
12b-1 plan under which a distribution fee of 0.75% is deducted from fund assets
each year. Because of this fee, the annual expenses for Class C shares are
similar to those of Class B shares, but higher than those for Class A shares
(and the performance of Class C shares is correspondingly lower than that of
Class A).
Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.
Class C shares have a contingent deferred sales charge (CDSC), but only on
shares you sell within one year of buying them:
Year after you bought shares CDSC on shares you sell
----------------------------------------------------------
First year 1.00%
----------------------------------------------------------
Second year and later None
----------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class C shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.
32
<PAGE>
How to Buy Shares
Once you've chosen a share class, use these instructions to make investments.
Make out any checks to "Kemper Funds."
- ------------------------------------------------------------------------------
First investment Additional investments
- ------------------------------------------------------------------------------
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative using o Contact your representative using
the method that's most convenient the method that's most convenient
for you for you
- ------------------------------------------------------------------------------
By mail or express mail (see below)
o Fill out and sign an application o Send a check and a Kemper
investment slip to us at the
o Send it to us at the appropriate appropriate address below
address, along with an investment
check o If you don't have an investment
slip, simply include a letter with
your name, account number, the full
name of the fund and the share class
and your investment instructions
- ------------------------------------------------------------------------------
By wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
- ------------------------------------------------------------------------------
By phone
- -- o Call (800) 621-1048 for instructions
- ------------------------------------------------------------------------------
With an automatic investment plan
- -- o To set up regular investments,
call (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
Regular mail: Kemper Funds, PO Box 219415, Kansas City, MO 64121-9415
Express, registered, or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: 800-818-7526 (for exchanging and selling only)
33
<PAGE>
How to Exchange Or Sell Shares
Use these instructions to exchange or sell shares in your account.
- --------------------------------------------------------------------------------
Exchanging into another fund Selling shares
- --------------------------------------------------------------------------------
$1,000 or more to open a new account Some transactions, including most
for over $50,000, can only be
$100 or more for exchanges between ordered in writing with a signature
existing accounts guarantee; if you're in doubt, see
page 37
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by
method that's most convenient for you the method that's most convenient
for you
- ------------------------------------------------------------------------------
By phone or wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 forinstructions
- ------------------------------------------------------------------------------
By mail, express mail or fax
(see previous page)
Write a letter that includes: Write a letter that includes:
o the fund, class and account number o the fund, class and account
you're exchanging out of number from which you want to sell
shares
o the dollar amount or number of
shares you want to exchange o the dollar amount or number of
shares you want to sell
o the name and class of the fund you
want to exchange into o your name(s), signature(s) and
address, as they appear on your
o your name(s), signature(s) and account
address, as they appear on your
account o a daytime telephone number
o a daytime telephone number
- ------------------------------------------------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments
Kemper fund account, call from a Kemper fund account, call
(800) 621-1048 (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
34
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder.
If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.
KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper funds generally and on accounts held directly at Kemper. You can also use
it to make exchanges and sell shares.
35
<PAGE>
EXPRESS-Transfer lets you set up a link between a Kemper account and a bank
account. Once this link is in place, you can move money between the two with a
phone call. You'll need to make sure your bank has Automated Clearing House
(ACH) services. Transactions take two to three days to be completed, and there
is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the account
application; to add it to an existing account, call (800) 621-1048.
Share certificates are available on written request. However, we don't recommend
them unless you want them for a specific purpose, because your shares can only
be sold by mailing them in, and if they're ever lost they're difficult and
expensive to replace.
When you call us to sell shares, we may record the call, ask you for certain
information or take other steps designed to prevent fraudulent orders. It's
important to understand that, with respect to certain pre-authorized privileges,
as long as we take reasonable steps to ensure that an order appears genuine, we
are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are normally completed within 24 hours. The funds can only
send or accept wires of $1,000 or more.
Exchanges among Kemper funds are an option for most shareholders. Exchanges are
a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject or limit purchase orders, for
these or other reasons.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www. kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
36
<PAGE>
When you want to sell more than $50,000 worth of shares or send the proceeds to
a third party or to a new address, you'll usually need to place your order in
writing and include a signature guarantee. The only exception is if you want
money wired to a bank account that is already on file with us; in that case, you
don't need a signature guarantee. Also, you don't need a signature guarantee for
an exchange, although we may require one in certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
When you sell shares that have a contingent deferred sales charge (CDSC), we
calculate the CDSC as a percentage of what you paid for the shares or what you
are selling them for -- whichever results in the lowest charge to you. In
processing orders to sell shares, we turn to the shares with the lowest CDSC
first. Exchanges from one Kemper fund into another don't affect CDSCs: for each
investment you make, the date you first bought Kemper shares is the date we use
to calculate a CDSC on that particular investment.
There are certain cases in which you may be exempt from a CDSC. These include:
o the death or disability of an account owner (including a joint owner)
o withdrawals made through a systematic withdrawal plan
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship provisions or returns of
excess contributions from retirement plans
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
37
<PAGE>
In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper can answer your questions and help you determine if you are eligible.
If you sell shares in a Kemper fund and then decide to invest with Kemper again
within six months, you can take of advantage of the "reinstatement feature."
With this feature, you can put your money back into the same class of a Kemper
fund at its current NAV and for purposes of sales charges it will be treated as
if it had never left Kemper. You'll be reimbursed (in the form of fund shares)
for any CDSC you paid when you sold. Future CDSC calculations will be based on
your original investment date, rather than your reinstatement date. There is
also an option that lets investors who sold Class B shares buy Class A shares
with no sales charge, although they won't be reimbursed for any CDSC they paid.
You can only use the reinstatement feature once for any given group of shares.
To take advantage of this feature, contact Kemper or your financial
representative.
Money from shares you sell is normally sent out within one business day of when
your order is received in proper form, although it could be delayed for up to
seven days. There are also two circumstances when it could be longer: when you
are selling shares you bought recently by check and that check hasn't cleared
yet (maximum delay: 10 days) or when unusual circumstances prompt the SEC to
allow further delays. Certain expedited redemption processes are not available
when you are selling recently purchased shares.
38
<PAGE>
How the funds calculate share price for each fund
In this prospectus, the price at which you buy shares is as follows:
Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing A Share Class")
Class B and Class C shares -- net asset value per share, or NAV
To calculate NAV, each share class of each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
------------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For each fund and share class in this prospectus, the price at which you sell
shares is also the NAV, although a contingent deferred sales charge may be taken
out of the proceeds (see "Choosing A Share Class").
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.
39
<PAGE>
Other rights we reserve
For each fund in this prospectus, you should be aware that we may do any of the
following:
o withhold 31% of your distributions as federal income tax if we have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below $1,000
for the entire quarter; this policy doesn't apply to most retirement accounts
or if you have an automatic investment plan
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash; in most cases, a fund won't make a redemption
in kind unless your requests over a 90-day period total more than $250,000 or
1% of the fund's assets, whichever is less
o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)
40
<PAGE>
Understanding Distributions And Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its shareholders in
November or December, and if necessary may do so at other times as well.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you by check or have them
invested in a different fund. Tell us your preference on your application. If
you don't indicate a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans, reinvestment is the only
option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.
41
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
-------------------------------------------------------
o short-term capital gains from selling fund shares
-------------------------------------------------------
o income dividends you receive from a fund
-------------------------------------------------------
o short-term capital gains distributions received from a
fund
-------------------------------------------------------
Generally taxed at capital gains rates
-------------------------------------------------------
o long-term capital gains from selling fund shares
-------------------------------------------------------
o long-term capital gains distributions received from a
fund
-------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.
Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends- received deduction for a portion
of income dividends they receive.
42
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we mail one copy per
household.For more copies, call (800) 621-1048.
Statement of Additional Information (SAI) -- This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if
you're a shareholder and have questions, please contact Kemper or the SEC (see
below). Materials you get from Kemper are free; those from the SEC involve a
copying fee. If you like, you can look over these materials in person at the
SEC's Public Reference Room in Washington, DC.
SEC
450 Fifth Street, N.W.
Washington, DC 20549-6009
www.sec.gov
Tel (800) SEC-0330
Kemper Funds
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
Tel (800) 621-1048
SEC File Numbers
Kemper Horizon Fund 811-07365
PRINCIPAL UNDERWRITER
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[LOGO] KEMPER FUNDS
Long-term investing in a short-term world(SM)
<PAGE>
KEMPER HORIZON FUND
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
Kemper Horizon 20+ Portfolio
Kemper Horizon 10+ Portfolio
Kemper Horizon 5 Portfolio
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for each of the portfolios (the
"Portfolios") of the Kemper Horizon Fund (the "Fund"). It should be read in
conjunction with the prospectus of the Fund dated December 1, 1999. The
prospectus may be obtained without charge from the Fund and is also available
along with other related materials on the SEC's Internet web site
(http://www.sec.gov).
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS................................................2
INVESTMENT POLICIES AND TECHNIQUES.....................................3
PORTFOLIO TRANSACTIONS................................................16
INVESTMENT MANAGER AND UNDERWRITER....................................17
PURCHASE AND REDEMPTION OF SHARES.....................................23
DIVIDENDS AND TAXES...................................................25
OFFICERS AND TRUSTEES.................................................31
SHAREHOLDER RIGHTS....................................................34
APPENDIX -- RATINGS OF FIXED INCOME INVESTMENTS.......................36
The financial statements appearing in the Fund's Annual Report to Shareholders
dated July 31, 1999 are incorporated herein by reference. The Report for the
Fund accompanies this document.
<PAGE>
INVESTMENT RESTRICTIONS
Each Portfolio has adopted certain fundamental investment restrictions that,
together with its investment objective and any fundamental policies, cannot be
changed without approval of a majority of the outstanding voting shares of the
Portfolio. As defined in the Investment Company Act of 1940, this means the
lesser of the vote of (a) 67% of the shares of the Portfolio 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 Portfolio.
Each Series may not, as a fundamental policy:
(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issuer senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory having jurisdiction, from time to
time;
(3) concentrate its investments in a particular industry, as the
term is used in Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory having
jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that a Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interest therein,
except that the Fund reserves the freedom of action to hold
and to sell real estate acquired as a result of the Fund's
ownership of securities;
(6) purchase physical commodities or contracts relating to
physical commodities;
(7) make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory having jurisdiction, from time to time.
The following policies are non-fundamental, and may be changed or eliminated for
each Fund by its Board without a vote of the shareholders:
(1) purchase securities of any issuer (other than obligation of,
or guaranteed by, the U.S. Government, its agencies or
instrumentalities) if, as a result, more than 5% of the total
value of its assests would be invested in securities of that
issuer. To the extent a Portfolio invests in loan
participations, the Portfolio, as a non-fundamental policy,
considers both the lender and the borrower to be an issuer of
such loan participation;
(2) purchase more than 10% of any class of voting securities of
any issuer;
(3) pledge, hypothecate, mortgage or otherwise encumber more than
15% of its total assets and then only to secure permitted
borrowings. (The collateral arrangements with respect to the
options, financial futures and delayed delivery transactions
and any margin payments in connection therewith are not deemed
to be pledges or encumbrances.);
2
<PAGE>
(4) purchase securities on margin, except to obtain such
short-term credits as may be necessary for the clearance of
transactions; however, the Portfolio may make margin deposits
in connection with options and financial futures transactions;
(5) make short sales of securities or maintain a short position
for its account 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 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
Portfolio's total assets is held as collateral for such sales
at any one time; and
(6) invest in real estate limited partnerships.
Master/feeder fund structure. The Board of Trustees of the Kemper Horizon 5
Portfolio and the Kemper Horizon 20+ Portfolio has the discretion to retain the
current distribution arrangement for a Fund while investing in a master fund in
a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
INVESTMENT POLICIES AND TECHNIQUES
Common Stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic and financial market movements. Despite the risk of price volatility,
however, common stocks have traditionally offered a greater potential for gain
on investment, compared to other classes of financial assets such as bonds or
cash equivalents.
Warrants. The Fund may invest in warrants up to 5% of the value of its total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
3
<PAGE>
The convertible securities in which the Fund may invest are either fixed income
or zero coupon debt securities which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. The
exchange ratio for any particular convertible security may be adjusted from time
to time due to stock splits, dividends, spin-offs, other corporate distributions
or scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Fund does not currently intend to borrow for investment leveraging purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by the Fund
will involve special risk considerations. Although the principal of the Fund's
borrowing will be fixed, the Fund's assets may change in value during the time a
borrowing is outstanding, thus increasing exposure to capital risk.
Illiquid Securities. The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. The absence of a
trading market can make it difficult to ascertain a market value for these
instruments. This investment practice, therefore, could have the effect of
increasing the level of illiquidity of the Fund. It is the Fund's policy that
illiquid securities (including repurchase agreements of more than seven days
duration, certain restricted securities, and other securities which are not
readily marketable) may not constitute, at the time of purchase, more than 15%
of the value of the Fund's net assets. A security is deemed illiquid if so
determined pursuant to procedures adopted by the Board of Trustees.
Generally speaking, restricted securities may be sold (i) only to qualified
institutional buyers; (ii) in a privately negotiated transaction to a limited
number of purchasers; (iii) in limited quantities after they have been held for
a specified period of time and other conditions are met pursuant to an exemption
from registration; or (iv) in a public offering for which a registration
statement is in effect under the 1933 Act. Issuers of restricted securities may
not be subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. If adverse market
conditions were to develop during the period between the Fund's decision to sell
a restricted or illiquid security and the point at which the Fund is permitted
or able to sell such security, the Fund might obtain a price less favorable than
the price that prevailed when it decided to sell. Where a registration statement
is required for the resale of restricted securities, the Fund may be required to
bear all or part of the registration expenses.
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The Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when
selling restricted securities to the public and, in such event, the Fund may be
liable to purchasers of such securities if the registration statement prepared
by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Adviser will monitor such restricted securities subject to the supervision of
the Board of Trustees. Among the factors the Adviser may consider in reaching
liquidity decisions relating to Rule 144A securities are: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
the transfer).
FOREIGN SECURITIES. Each Portfolio normally invests a portion of its assets in
foreign securities that are traded principally in securities markets outside the
United States. Each Portfolio may also invest in U.S. Dollar denominated
American Depository Receipts ("ADRs"), which are bought and sold in the United
States. For purposes of the allocation between U.S. and international
securities, ADRs are viewed as U.S. securities. In connection with its foreign
securities investments, each Portfolio 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 upon 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 Portfolio's investments in foreign securities will
principally be in developed countries, a Portfolio may make investments in
developing or "emerging" countries, which involve exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A developing or emerging
market country can be considered to be a country that is in the initial stages
of its industrialization cycle. Currently, emerging markets generally include
every country in the world other than the United States, Canada, Japan,
Australia, New Zealand, Hong Kong, Singapore and most Western European
countries. Currently, investing in many emerging markets may not be desirable or
feasible because of the lack of adequate custody arrangements for a Portfolio'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
Portfolio 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
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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 Portfolio to make intended securities purchases due to
settlement problems could cause the Portfolio to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to a Portfolio due to subsequent declines
in value of the portfolio security or, if a Portfolio 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 a Portfolio to the risk of losses
resulting from the Portfolio'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 such securities in emerging markets may
not be readily available. In that case, 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 Portfolio. 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.
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. Each Portfolio may also
invest in European Depository Receipts ("EDRs"),
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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
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 upon privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Portfolio'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 Portfolio,
to participate in privatizations may be limited by local law, or the price or
terms on which the Portfolio 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 Portfolio may invest, large blocks of
the stock of those enterprises may be held by a small group of stockholders,
even after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Portfolio 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
operate effectively in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
OPTIONS AND FUTURES. Each Portfolio may engage in options transactions and may
engage in financial futures transactions in accordance with its respective
investment objectives and policies. Each Portfolio intends to engage in such
transactions if it appears to the investment manager to be advantageous to do so
in order to pursue its investment objective and also to hedge against the
effects of market risks but not for speculative purposes. The use of futures and
options, and possible benefits and attendant risks, are discussed below along
with information concerning other investment policies and techniques.
Options on securities. Each Portfolio may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash, U.S. Government securities or other liquid high-grade debt
obligations ("eligible securities") having a value at least equal to the
fluctuating market value of the optioned securities. Each Portfolio may write
"covered" put options provided that, as long as the Portfolio is obligated as a
writer of a put option, the Portfolio 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
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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 Portfolio may write 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 Portfolio to
protect capital gains in an appreciated security it owns, without being required
to actually sell that security. At times a Portfolio would like to establish a
position in a security upon which call options are available. By purchasing a
call option, a Portfolio 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 Portfolio 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 Portfolios 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 Portfolio may experience material losses. However,
in writing options the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities, and a wider range of expiration
dates and exercise prices, than are exchange traded options. Since there is no
exchange, pricing is normally done by reference to information from market
makers, which information is carefully monitored by the investment manager and
verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Portfolio 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 Portfolio 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 Portfolio 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
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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 Fund understands 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 Portfolios 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 Portfolios. A brief description of such
procedures is set forth below.
A Portfolio will only engage in OTC options transactions with dealers that have
been specifically approved by the investment manager pursuant to procedures
adopted by the Board of Trustees of the Fund. 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 Portfolio. The
investment manager will monitor the credit-worthiness of the approved dealers on
an ongoing basis. A Portfolio currently will not engage in OTC options
transactions if the amount invested by the Portfolio in OTC options, plus a
"liquidity charge" related to OTC options written by the Portfolio, plus the
amount invested by the Portfolio in illiquid securities, would exceed 15% of the
Portfolio's net assets. The "liquidity charge" referred to above is computed as
described below.
The Portfolio anticipates entering into agreements with dealers to which a
Portfolio sells OTC options. Under these agreements the Portfolio 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 a Portfolio to repurchase a specific OTC
option written by the Portfolio, the "liquidity charge" will be the current
market value of the assets serving as "cover" for such OTC option.
Options on Securities Indices. Each Portfolio 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 Portfolio owns or intends
to purchase, and not for speculation. Through the writing or purchase of index
options, a Portfolio can achieve many of the same objectives as through the use
of options on individual securities. Options on securities indices are similar
to options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to such difference
between the closing price of the index and the exercise price of the option. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike security options, all settlements are in cash
and gain or loss depends upon price movements in the market generally (or in a
particular industry or segment of the market), rather than upon price movements
in individual securities. Price movements in securities that the Portfolio 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 Portfolio bears the risk that a
loss on an index option would not be completely offset by movements in the price
of such securities.
When a Portfolio writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities equal in value to 100% of the exercise price
in the case of a put, or the contract value in the case of a call. In addition,
where the Portfolio writes a call option on a securities index at a time when
the
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contract value exceeds the exercise price, the Portfolio 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 Portfolio 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
Portfolio may expire worthless, in which case the Portfolio would lose the
premium paid therefor.
Financial Futures Contracts. The Portfolios 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 Portfolio 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 Portfolio will incur brokerage fees when it purchases or
sells contracts, and will be required to maintain margin deposits. At the time a
Portfolio 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 Portfolio's return.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of markets or exchange rates is wrong, the overall performance
may be poorer than if no such contracts had been entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Portfolio could lose money
on the financial futures contracts and also on the value of its portfolio
assets.
Options of Financial Futures Contracts. A Portfolio 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
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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
Portfolio 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 Portfolio 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
Portfolio may expire worthless, in which case the Portfolio would lose the
premium paid therefor.
DELAYED DELIVERY TRANSACTIONS. A Portfolio may purchase or sell portfolio
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by a Portfolio to purchase or sell
securities with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price or yield to the Portfolio
at the time of entering into the transaction. When a Portfolio enters into a
delayed delivery purchase, it becomes obligated to purchase securities and it
has all the rights and risks attendant to ownership of a security, although
delivery and payment occur at a later date. The value of fixed income securities
to be delivered in the future will fluctuate as interest rates vary. At the time
a Portfolio makes the commitment to purchase a security on a when-issued or
delayed delivery basis, it will record the transaction and reflect the liability
for the purchase and the value of the security in determining its net asset
value. Likewise, at the time a Portfolio makes the commitment to sell a security
on a delayed delivery basis, it will record the transaction and include the
proceeds to be received in determining its net asset value; accordingly, any
fluctuations in the value of the security sold pursuant to a delayed delivery
commitment are ignored in calculating net asset value so long as the commitment
remains in effect. A Portfolio generally has the ability to close out or "roll
over" a purchase obligation on or before the settlement date, rather than take
delivery of the security.
REGULATORY RESTRICTIONS. To the extent required to comply with SEC Release No.
IC-10666, when purchasing a futures contract, writing a put option or entering
into a forward currency exchange purchase or a delayed delivery purchase, a
Portfolio will maintain in a segregated account cash or liquid securities equal
to the value of such contracts. A Portfolio will use cover in connection with
selling a futures contract.
A Portfolio will not engage in transactions in financial futures contracts or
options thereon for speculation, but only in an attempt to hedge against changes
in interest rates or market conditions affecting the value of securities which
the Portfolio holds or intends to purchase.
FOREIGN CURRENCY OPTIONS. The Portfolios 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 Portfolio 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
Portfolio 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 Portfolio had entered into a contract to purchase a security denominated in
a foreign currency and had purchased a foreign currency call to hedge against a
rise in value of the currency but instead the currency had depreciated in value
between the date of purchase and the settlement date, the Portfolio would not
have to exercise its call but could acquire in the spot market the amount of
foreign currency needed for settlement.
11
<PAGE>
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of their financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Portfolios may use foreign currency futures
contracts and options on such futures contracts. Through the purchase or sale of
such contracts, a Portfolio 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 Portfolio. A Portfolio
will not speculate in foreign currency exchange.
If a Portfolio retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Portfolio will incur a gain
or a loss (as described below) to the extent that there has been movement in
forward contract prices. If the Portfolio 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 Portfolio'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 Portfolio 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 Portfolio 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 Portfolio may have to convert its holdings of foreign
currencies into U.S. Dollars from time to time in order to meet such needs as
Portfolio 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 Portfolio will not enter into forward contracts or maintain a net exposure in
such contracts when the Portfolio would be obligated to deliver an amount of
foreign currency in excess of the value of the Portfolio's securities or other
assets denominated in that currency. A Portfolio 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 Portfolio generally does not enter into a forward contract
with a term longer than one year.
REPURCHASE AGREEMENTS. A Portfolio may invest in repurchase agreements, which
are instruments under which the Portfolio 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 Portfolio's holding period. In the
event of a bankruptcy or other default of a seller of a repurchase agreement,
the Portfolio 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 Portfolio currently intends to invest more than 5%
of its net assets in repurchase agreements during the current year.
SHORT SALES AGAINST-THE-BOX. A Portfolio 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 the Portfolio owns at least an equal
12
<PAGE>
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
Portfolio may engage in such short sales only to the extent that not more than
10% of the Portfolio's total assets (determined at the time of the short sale)
is held as collateral for such sales. No Portfolio currently intends, 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.
Fixed Income. The fixed income portion of each Portfolio may be invested in a
broad variety of fixed income securities including, without limitation: (a)
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities; (b) bonds, debentures, convertible debt instruments,
assignments or participation in loans, notes, commercial paper, and other debt
securities of corporations, trusts and other entities; (c) certificates of
deposit, bankers' acceptances and time deposits and (d) cash and cash
equivalents, including repurchase agreements. The fixed income portion of each
Portfolio will be comprised of U.S. Dollar denominated instruments.
Each portfolio attempts to limit its exposure to credit risk by imposing limits
on the quality of specific securities in the Portfolio and by maintaining a
relatively high average weighted credit quality. Credit quality refers to a
fixed income security issuer's expected ability to make all required interest
and principal payments in a timely manner. Higher rated fixed income securities
generally represent less risk than lower or non-rated securities. Ratings
published by nationally recognized rating agencies such as Standard & Poor's
("S&P") and Moody's Investors Service, Inc. ("Moody's") are widely accepted
measures of credit risk. The fixed income portion of each Portfolio will be
invested in securities that are rated at the time of purchase within the four
highest grades assigned by Moody's, S&P, Fitch Investors Service, Inc. ("Fitch")
or Duff & Phelps Credit Rating Co. ("Duff") or any other Nationally Recognized
Statistical Rating Organization ("NRSRO") as designated by the Securities and
Exchange Commission, or will be of comparable quality as determined by the
Fund's investment manager, provided that up to 10% of the fixed income portion
of each Portfolio may be invested in securities that are lower rated ("junk
bonds"). The top four ratings currently assigned by these organizations are as
follows: Moody's (Aaa, Aa, A or Baa), S&P (AAA, AA, A or BBB), Fitch (AAA, AA, A
or BBB) and Duff (AAA, AA, A or BBB). In addition, under normal conditions, each
Portfolio expects to maintain a relatively high average dollar-weighted credit
quality (i.e., within the top two rating categories of an NRSRO or comparable as
determined by the investment manager). Average dollar-weighted credit quality is
calculated by averaging the ratings of each fixed income security held by a
Portfolio with each rating "weighted" according to the percentage of assets that
it represents. Average dollar-weighted credit quality is not a precise measure
of the credit risk presented by a Portfolio of fixed income securities. For
instance, a combination of securities that are rated AAA and securities that are
rated BB that together result in an average weighted credit quality of AA may
present more risk than a group of just AA rated securities.
After a Portfolio purchases a security, its quality level may fall below that at
which it was purchased (i.e., downgraded). In such instance, the Portfolio would
not be required to sell the security, but the investment manager will consider
such an event in determining whether the Portfolio should continue to hold the
security. The ratings of NRSROs represent their opinions as to the quality of
the securities that they undertake to rate. It should be emphasized, however,
that ratings, and other opinions as to quality, are relative and subjective and
are not absolute standards of quality. For a discussion of lower rated and
non-rated securities and related risks, see "Other Considerations -- High Yield
(High Risk) Bonds" below.
Each Portfolio attempts to limit its exposure to interest rate risk by
maintaining a relatively short duration. Interest rate risk is the risk that the
value of the fixed income securities may rise or fall as interest rates change.
Under normal conditions, the target duration of the fixed-income portion of the
Portfolio is approximately 2.5 years, although it may range from 1.5 to 3.5
years depending upon market conditions. "Duration," and the more traditional
"average dollar-weighted maturity," are measures of how a fixed income portfolio
tend to react to interest rate changes. Each fixed income security held by a
Portfolio has a stated maturity. The stated maturity is the date when the issuer
must repay the entire principal amount to an investor. A security's term to
maturity is the time remaining to maturity. A security will be treated as having
a maturity earlier than its stated maturity date if the security has technical
features (such as puts or demand features) or a variable rate of interest that,
in the judgment of the investment manager, will result in
13
<PAGE>
the security being valued in the market as though it has the earlier maturity.
Average dollar-weighted maturity is calculated by averaging the terms to
maturity of each fixed income security held by the Portfolio with each maturity
"weighted" according to the percentage of assets that it represents. Unlike
average dollar-weighted maturity, duration reflects both principal and interest
payments and is designed to measure more accurately a portfolio's sensitivity to
incremental changes in interest rates than does average weighted maturity. By
way of example, if the duration of a Portfolio's fixed income securities were
two years, and interest rates decreased by 100 basis points (a basis point is
one-hundredth of one percent), the market price of that portfolio of fixed
income securities would be expected to increase by approximately 2%.
OTHER CONSIDERATIONS -- HIGH YIELD (HIGH RISK) BONDS. As reflected in the
prospectus, a Portfolio may invest a portion of its assets in fixed income
securities that are in the lower rating categories of recognized rating agencies
(i.e., junk bonds) or are non-rated. No Portfolio currently intends to invest
more than 5% of its net assets in junk bonds. 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 a
Portfolio'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, a Portfolio will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Portfolio
may obtain no return at all on its investment.
Additional information concerning high yield securities appears under "Appendix
- -- Ratings of Fixed Income Investments."
14
<PAGE>
Collateralized Obligations. Each Portfolio will currently invest in only those
collateralized obligations that are fully collateralized and that meet the
quality standards otherwise applicable to the Portfolio's investments. Fully
collateralized means that the collateral will generate cash flows sufficient to
meet obligations to holders of the collateralized obligations under even the
most conservative prepayment and interest rate projections. Thus, the
collateralized obligations are structured to anticipate a worst case prepayment
condition and to minimize the reinvestment rate risk for cash flows between
coupon dates for the collateralized obligations. A worst case prepayment
condition generally assumes immediate prepayment of all securities purchased at
a premium and zero prepayment of all securities purchased at a discount.
Reinvestment rate risk may be minimized by assuming very conservative
reinvestment rates and by other means such as by maintaining the flexibility to
increase principal distributions in a low interest rate environment. The
effective credit quality of the collateralized obligations in such instances is
the credit quality of the issuer of the collateral. The requirements as to
collateralization are determined by the issuer or sponsor of the collateralized
obligation in order to satisfy rating agencies, if rated. None of the Portfolios
currently intends to invest more than 5% of its net assets in collateralized
obligations that are collateralized by a pool of credit card or automobile
receivables or other types of assets rather than a pool of mortgages,
mortgage-backed securities or U.S. Government securities. Currently, none of the
Portfolios intends to invest more than 5% of its net assets in inverse floaters.
Payments of principal and interest on the underlying collateral securities are
not passed through directly to the holders of the collateralized obligations as
such. Collateralized obligations often are issued in two or more classes with
varying maturities and stated rates of interest. Because interest and principal
payments on the underlying securities are not passed through directly to holders
of collateralized obligations, such obligations of varying maturities may be
secured by a single portfolio or pool of securities, the payments on which are
used to pay interest on each class and to retire successive maturities in
sequence. These relationships may in effect "strip" the interest payments from
principal payments of the underlying securities and allow for the separate
purchase of either the interest or the principal payments, sometimes called
interest only ("IO") and principal only ("PO") securities. Collateralized
obligations are designed to be retired as the underlying securities are repaid.
In the event of prepayment on or call of such securities, the class of
collateralized obligation first to mature generally will be paid down first.
Therefore, although in most cases the issuer of collateralized obligations will
not supply additional collateral in the event of such prepayment, there will be
sufficient collateral to secure collateralized obligations that remain
outstanding. It is anticipated that no more than 5% of a Portfolio's net assets
will be invested in IO and PO securities. Governmentally-issued and
privately-issued IO's and PO's will be considered illiquid for purposes of a
Portfolio's limitation on illiquid securities, however, the Board of Trustees
may adopt guidelines under which governmentally-issued IO's and PO's may be
determined to be liquid.
In reliance on an interpretation by the SEC, a Portfolio's investments in
certain qualifying collateralized obligations are not subject to the limitations
in the 1940 Act regarding investments by a registered investment company, such
as the Fund, in another investment company.
Zero Coupon Government Securities. Subject to its investment objective and
policies, a Portfolio may invest in zero coupon U.S. Government securities. Zero
coupon bonds are purchased at a discount from the face amount. The buyer
receives only the right to receive a fixed payment on a certain date in the
future and does not receive any periodic interest payments. These securities may
include those created directly by the U.S. Treasury and those created as
collateralized obligations through various proprietary custodial, trust or other
relationships. The effect of owning instruments which do not make current
interest payments is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount accretion during the life of the
obligations. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest distributions at a rate as high as the
implicit yield on the zero coupon bond, but at the same time eliminates any
opportunity to reinvest earnings at higher rates. For this reason, zero coupon
bonds are subject to substantially greater price fluctuations during periods of
changing market interest rates than those of comparable securities that pay
interest currently, which fluctuation is greater as the period to maturity is
longer. Zero coupon bonds created as collateralized obligations are similar to
those created through the U.S. Treasury, but the former investments do not
provide absolute certainty of maturity or of cash flows after prior classes of
the collateralized obligations are retired.
15
<PAGE>
PORTFOLIO TRANSACTIONS
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase and sale
of securities for the Portfolio is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
Scudder Investor Services ("SIS") with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Adviser routinely reviews commission rates,
execution and settlement services makingperformed and makes internal and
external comparisons.
The Portfolio's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Portfolio. 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 the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or the
Fund. The term "research services" 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. The
Adviser is authorized when placing portfolio transactions, if applicable, for
the Portfolio to pay a brokerage commission in excess of that which another
broker might charge for executing the same transaction on account of execution
services and the receipt of research services. The Adviser has negotiated
arrangements, which are not applicable to most fixed-income transactions, with
certain broker/dealers pursuant to which a broker/dealer will provide research
services, to the Adviser or the Portfolio in exchange for the direction by the
Adviser of brokerage transactions to the broker/dealer. These arrangements
regarding receipt of research services generally apply to equity security
transactions. The Adviser may place orders with a broker/dealer on the basis
that the broker/dealer has or has not sold shares of the Portfolio. 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.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through SIS, which is a corporation registered
as a broker/dealer and a subsidiary of the Adviser; SIS will place orders on
behalf of the Portfolio with issuers, underwriters or other brokers and dealers.
SIS will not receive any commission, fee or other remuneration from the
Portfolio for this service.
Although certain research services from broker/dealers may be useful to the
Portfolio and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Fund, and not all such information is used by the Adviser
in connection with the Portfolio. Conversely, such information provided to the
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to
the Portfolio.
The Trustees review, from time to time, whether the recapture for the benefit of
the Portfolio of some portion of the brokerage commissions or similar fees paid
by the Fund on portfolio transactions is legally permissible and advisable.
16
<PAGE>
The table below shows total brokerage commissions paid by each Portfolio for the
fiscal years ended July 31 1999, 1998 and 1997 respectively and, for the most
recent fiscal year, the percentage thereof that was allocated to firms based
upon research information provided.
<TABLE>
<CAPTION>
Allocated to Firms Based on
Portfolio Fiscal 1999 Research in Fiscal 1999 Fiscal 1998 Fiscal 1997
--------- ----------- ----------------------- ----------- -----------
<S> <C> <C>
Horizon 20+ $188,000 $137,000
Horizon 10+ $141,000 $104,000
Horizon 5 $52,000 $ 43,000
</TABLE>
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), 345 Park Avenue, New York, New York, is the Fund's investment
manager. Scudder Kemper is approximately 70% owned by Zurich Financial Services,
Inc., a newly formed global insurance and financial services company. The
balance of the Adviser is owned by its officers and employees. Pursuant to an
investment management agreement , Scudder Kemper acts as the Fund's investment
adviser, manages its investments, administers its business affairs, furnishes
office facilities and equipment, provides clerical, administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Fund if elected to such positions. The investment
management agreement provides that the Fund pays the charges and expenses of its
operations, including the fees and expenses of the trustees (except those who
are officers or employees of 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 thereto,
taxes and membership dues. The Fund bears the expenses of registration of its
shares with the Securities and Exchange Commission and, effective January 1,
2000, pays the cost of qualifying and maintaining the qualification of the
Fund's shares for sale under the securities laws of the various states ("Blue
Sky expenses"). Prior to January 1, 2000, Kemper Distributors, Inc. ("KDI"), as
principal underwriter, paid the Blue Sky expenses.
The investment management agreement provides that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the 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.
The 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. The Fund's investment management
agreement may be terminated at any time for a Portfolio upon 60 days notice by
either party, or by a majority vote of the outstanding shares of the Portfolio,
and will terminate automatically upon assignment. If additional Portfolios
become subject to the investment management agreement, the provisions concerning
continuation, amendment and termination shall be on a Portfolio-by-Portfolio
basis. Additional Portfolios may be subject to a different agreement.
At December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed a new
global organization by combining Scudder with Zurich Kemper Investments, Inc., a
former subsidiary of Zurich and former investment manager of the Fund, and
Scudder changed it name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owned approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
On September 7, 1998, Zurich Insurance Company ("Zurich") the majority owner of
the Adviser, entered into an agreement with B.A.T. Industries p.l.c. ("B.A.T."),
pursuant to which the financial services
17
<PAGE>
business of B.A.T. were combined with Zurich's businesses to form a new global
insurance and financial services company known as Zurich Financial Services.
Upon consummation of the transaction, theeach Fund'sexisting investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board of Trustees of each Fund and the shareholders
of each Fund have approved a new investment management agreement with the
Adviser, which is substantially identical to the former investment management
agreement, except for the dates of execution and termination.
Scudder Kemper is paid a monthly investment management fee, by each Portfolio,
at the annual rates shown below.
Average Daily Net Assets of a Portfolio Management Fee Rates
--------------------------------------- --------------------
$0 - $250 million 0.58%
$250 million - $1 billion 0.55%
$1 billion - $2.5 billion 0.53%
$2.5 billion - $5 billion 0.51%
$5 billion - $7.5 billion 0.48%
$7.5 billion - $10 billion 0.46%
$10 billion - $12.5 billion 0.44%
Over $12.5 billion 0.42%
The table below shows investment management fees paid by each Portfolio for the
fiscal year ended July 31, 1999, July 31, 1998 and
July 31 1997.
<TABLE>
<CAPTION>
Portfolio Fiscal 1999 Fiscal 1998 Fiscal 1997
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Horizon 20+ $713,000 495,000 225,000
Horizon 10+ $732,000 495,000 234,000
Horizon 5 $333,000 242,000 130,000
</TABLE>
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 Fund and maintaining all accounting records related
thereto. Currently, SFAC receives no fee for its services to the Fund; 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 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 the Fund and acts as agent of the
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. The 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.
The 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. The agreement automatically terminates in the event of its assignment
and may be terminated for a class or a Portfolio at any time without penalty by
the Fund or by KDI upon 60 days' notice. Termination by the Fund with respect to
a class or a Portfolio 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 or the Portfolio, as defined
under the Investment Company Act of 1940. The agreement may not be amended for
18
<PAGE>
a class to increase the fee to be paid by the Portfolio with respect to such
class without approval by a majority of the outstanding voting securities of
such class of such Portfolio 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
Portfolio-by-Portfolio basis and for the Portfolio on a class by class basis.
Class A Shares. The following information concerns the underwriting commissions
paid in connection with the distribution of each Portfolio's Class A shares for
the fiscal year ended July 31, 1999, July 31, 1998 and July 31, 1997.
<TABLE>
<CAPTION>
Commissions Commissions
Commissions Retained KDI Paid Paid to KDI
Portfolio Year by KDI to All Firms Affiliated Firms
--------- ---- ------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Horizon 20+ 1999 $18,000 637,000 0
1998 $26,000 303,000 0
1997 $23,000 198,000 0
Horizon 10+ 1999 $20,000 546,000 0
1998 $30,000 300,000 0
1997 $31,000 219,000 0
Horizon 5 1999 $12,000 271,000 0
1998 $13,000 156,000 0
1997 $20,000 127,000 0
</TABLE>
Class B Shares and Class C Shares. Each Portfolio has adopted a plan under Rule
12b-1 (the "Rule 12b-1 Plan") that provides for fees payable as an expense of
the Class B shares and Class C shares that are used by KDI to pay for
distribution and services for those classes. Because 12b-1 fees are paid out of
fund assets on an ongoing basis they will, over time, increase the cost of the
investment and may cost more than other types of sales charges. Expenses of the
Portfolios and of KDI, in connection with the Rule 12b-1 Plans for the Class B
and Class C shares for the fiscal year ended July 31, 1998,1999, July 31, 1998
and July 31, 1997and are set forth below. A portion of the marketing, sales and
operating expenses shown below could be considered overhead expenses.
19
<PAGE>
Portfolio Class B Shares
------------------------
<TABLE>
<CAPTION>
Horizon 20+ Horizon 10+ Horizon 5
----------- ----------- ---------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Fees Paid $413,648 305,000 148,000 365,457 265,000 141,000 180,042 150,000 90,000
- ----------------------
by Fund to KDI
- --------------
Contingent Deferred $142,315 72,000 20,000 93,073 49,000 19,000 52,033 20,000 14,000
Sales Charges to KDI
Total Commissions $619,815 689,000 565,000 493,125 555,000 490,000 276,552 312,000 264,000
Paid by KDI to Firms
Distribution Fees Paid 0 0 0 0 0 0 0 0 0
by KDI to Affiliated
Firms
Advertising and $50,228 81,000 106,000 42,129 61,000 90,000 25,655 29,000 50,000
Literature
Other Distribution
Expenses Paid by KDI
Prospectus Printing $6,405 6,000 8,000 5,299 5,000 6,000 3,153 2,000 4,000
Marketing and Sales $131,022 162,000 260,000 109,887 128,000 223,000 66,540 62,000 122,000
Expenses
Misc. Operating $29,268 41,000 43,000 26,018 38,000 38,000 21,417 27,000 29,000
Expenses
Interest Expenses $194,510 149,000 80,000 169,735 131,000 75,000 83,641 79,000 49,000
</TABLE>
Portfolio Class C Shares
------------------------
<TABLE>
<CAPTION>
Horizon 20+ Horizon 10+ Horizon 5
----------- ----------- ---------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Fees Paid $87,689 45,000 17,000 94,943 61,000 27,000 42,629 31,000 14,000
- ----------------------
by Fund to KDI
- -------------
Contingent Deferred $2,574 1,000 0 1,249 1,000 4,000 3,963 1,000 1,000
Sales Charges to KDI
Total Distribution Fees $89,757 60,000 22,000 102,425 70,000 24,000 46,981 34,000 15,000
Paid by KDI to Firms
Distribution Fees Paid 0 0 0 0 0 0 0 0 0
by KDI to Affiliated
Firms
Distribution Fees Paid 0 0 0 0 0 0 0 0 0
by KDI to Affiliated
Firms
Advertising and
Literature $16,655 19,000 18,000 16,039 20,000 24,000 7,080 11,000 12,000
Other Distribution
Expenses Paid by KDI
Prospectus Printing $2,135 1,000 1,000 2,016 1,000 2,000 875 1,000 1,000
Marketing and Sales $44,765 27,000 44,000 42,660 40,000 58,000 18,808 22,000 28,000
Expenses
Misc. Operating $16,499 7,000 15,000 15,323 10,000 16,000 12,100 19,000 14,000
Expenses
Interest Expenses $18,693 12,000 5,000 19,902 13,000 6,000 12,441 8,000 4,000
</TABLE>
20
<PAGE>
ADMINISTRATIVE SERVICES. Administrative services are provided to the 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 the Fund, including the payment of service fees. Each
Portfolio pays KDI an administrative services fee, payable monthly, at an annual
rate of up to 0.25% of average daily net assets of the Class A, B and C shares
of each Portfolio.
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 investors of the 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 administrative 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 0.25% of the net assets in each
Portfolio account that it maintains and services attributable to Class A shares,
commencing with the month after investment. For Class B and Class C shares, KDI
currently advances to firms the first-year service fee at a rate of up to 0.25%
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 0.25%
(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. Firms to which service fees may
be paid include broker-dealers affiliated with KDI.
21
<PAGE>
The following information concerns the administrative services fee paid by each
Portfolio for the fiscal year ended July 31, 1999, July 31, 1998 and July 31,
1997.
<TABLE>
<CAPTION>
Service Fees Service Fees
Paid by Paid by KDI to
Portfolio Year Administrative Service Fees Paid by Fund KDI to Firms Affiliated Firms
--------- ---- ---------------------------------------- ------------- ----------------
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Horizon 20+ 1999 $82,305 83,683 18,577 184,559 0
1998 $86,000 103,000 15,000 213,000 0
1997 $34,000 49,000 5,000 96,000 0
Horizon 10+ 1999 $97,180 73,398 19,578 190,150 0
1998 $98,000 88,000 20,000 212,000 0
1997 $40,000 47,000 9,000 100,000 0
Horizon 5 1999 $41,785 35,538 8,441 85,765 0
1998 $41,000 50,000 10,000 109,000 0
1997 $19,000 30,000 5,000 57,000 0
</TABLE>
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 the Portfolio. Currently, the
administrative services fee payable to KDI is payable at an annual rate of 0.25%
based upon Portfolio assets in accounts for which a firm provides administrative
services and , effective January 1, 2000, at the annual rate of 0.15% based upon
Fund assets in accounts for which there is no firm of record (other than KDI)
listed on the Fund's records. The effective administrative services fee rate to
be charged against all assets of a Portfolio while this procedure is in effect
will depend upon the proportion of Portfolio assets that is in accounts for
which a firm of record provides administrative services. The Board of Trustees,
in its discretion, may approve paying the fee to KDI at the annual rate of 0.25%
on all Portfolio assets in the future.
Certain trustees or officers of the Fund are also directors or officers of
Scudder Kemper or KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of the Fund . It attends to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by each Portfolio. Investors Fiduciary Trust
Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, is the
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 the 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 as follows: prior to January 1, 1999, 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 and effective January 1, 1999
annual account fees of $10 ($18 for retirement plans) for set up charges and
annual fees associated with the contingent deferred sales charge and an
asset-based fee of 0.08% plus an out of pocket expense reimbursement. IFTC's fee
is reduced by certain earnings credits in favor of the Portfolios.
. IFTC's fee is reduced by certain earnings credits in favor of the Portfolios.
The following shows for each Portfolio, for the fiscal year ended July 31, 1999,
July 31, 1998 and July 31, 1997 the shareholder service fees IFTC remitted to
KSvC.
22
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
Portfolio Fees IFTC Paid to KSvC Fees IFTC Paid to KSvC Fees IFTC Paid to KSvC
--------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Horizon 20+ $1,202,000 756,000 224,000
Horizon 10+ $788,000 441,000 179,000
Horizon 5 $331,000 167,000 65,000
</TABLE>
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. 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 Fund.
PURCHASE AND REDEMPTION OF SHARES
As described in the Fund's prospectus, shares of a Portfolio are sold at their
public offering price, which is the net asset value per share of the Portfolio
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 Portfolio will be redeemed by the Fund at the applicable net asset
value per share of such Portfolio as described in the Fund's 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 shares or Class C shares by certain classes of persons or
through certain types of transactions as described in the prospectus is provided
because of anticipated economies in sales and sales related efforts.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Portfolio's investments
is not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of a Portfolio's net assets, or (c) for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of the Fund's shareholders.
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 the 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 a Portfolio'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
23
<PAGE>
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.
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than Kemper Distributors, Inc. ("KDI")
to accept purchase and redemption orders for the Fund's shares. Those brokers
may also designate other parties to accept purchase and redemption orders on the
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the Fund and the broker,
ordinarily orders will be priced as the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the Fund's shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
member may, at its discretion, charge a fee for that service. The Board of
Trustees or Directors as the case may be ("Board") of the Fund and KDI each has
the right to limit the amount of purchases by, and to refuse to sell to, any
person. The Board and KDI may suspend or terminate the offering of shares of the
Fund at any time for any reason.
DIVIDENDS AND TAXES
DIVIDENDS. Each Portfolio normally distributes dividends of net investment
income as follows: annually for the Horizon 20+ Portfolio; semi-annually for the
Horizon 10+ Portfolio and quarterly for the Horizon 5 Portfolio. Each Portfolio
distributes any net realized short-term and long-term capital gains at least
annually.
The 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 a Portfolio's net investment income and net short-term and
long-term capital gains as the Board of Trustees determines appropriate under
the then current circumstances. In particular, and without limiting the
foregoing, the Fund may make additional distributions of a Portfolio's 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 Portfolio 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
proportion for each class.
TAXES. Each Portfolio intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, a Portfolio
generally will not be liable for federal income taxes to the extent its earnings
are distributed. To so qualify, each Portfolio must satisfy certain income and
asset diversification requirements, and must distribute to its shareholders at
least 90% of its investment company taxable income (including net short-term
capital gain).
Each Portfolio is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of the each Portfolio's ordinary income for each calendar year, at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) realized during the one-year period ending October 31
during such year, and all ordinary income and capital gains for prior years that
were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Portfolios.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by a Portfolio for reinvestment, requiring federal
income taxes to be paid thereon by the Portfolio, the Portfolios intend to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative
24
<PAGE>
share of federal income taxes paid by the Portfolio on such gains as a credit
against personal federal income tax liability, and will be entitled to increase
the adjusted tax basis on Portfolio shares by the difference between a pro rata
share of such gains owned and the individual tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Portfolio have
been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long- term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder Kemper
fund, may result in tax consequences (gain or loss) to the shareholder and are
also subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any taxable
year only if (i) the individual is not an active participant in an employer's
retirement plan, or (ii) if the individual is an active participant in an
employee retirement plan and the individual has an adjusted gross income below a
certain level ($50,000 for married individuals filing a joint return, with a
phase-out of the deduction for adjusted gross income between $50,000 and
$60,000; $30,000 for a single individual, with a phase-out for adjusted gross
income between $30,000 and $40,000). An individual is not considered an active
participant in an employer's retirement plan if the individual's spouse is an
active participant in such a plan. However, in the case of a joint return, the
amount of the deductible contribution by the individual who is not an active
participant (but whose spouse is) is phased out for adjusted gross income
between $150,000 and $160,000. However, an individual not permitted to make a
deductible contribution to an IRA for any such taxable year may nonetheless make
nondeductible contributions up to $2,000 to an IRA (up to $2,000 per individual
for married couples if only one spouse has earned income) for that year. There
are special rules for determining how withdrawals are to be taxed if an IRA
contains both deductible and nondeductible amounts. In general, a proportionate
amount of each withdrawal will be deemed to be made from nondeductible
contributions; amounts treated as a return of nondeductible contributions will
not be taxable. Also, annual contributions may be made to a spousal IRA even if
the spouse has earnings in a given year if the spouse elects to be treated as
having no earnings (for IRA contribution purposes) for the year.
If shares are held in a tax-deferred account, such as a retirement plan, income
and gain will not be taxable each year. Instead, the taxable portion of amounts
held in a tax-deferred account generally will be subject to tax as ordinary
income only when distributed from that account.
Distributions by a Portfolio result in a reduction in the net asset value of the
Portfolio's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Dividend and interest income received by the Portfolios from sources outside the
U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain
25
<PAGE>
countries and the U.S. may reduce or eliminate these foreign taxes, however, and
foreign countries generally do not impose taxes on capital gains respecting
investments by foreign investors.
The Portfolios may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
a Portfolio receives a so-called "excess distribution" with respect to PFIC
stock, the Portfolio itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Portfolio held the PFIC shares. The Portfolio
will be subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Portfolio taxable years and an interest factor will be added
to the tax, as if the tax had been payable in such prior taxable years. Excess
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Portfolios may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, a
Portfolio would report as ordinary income the amount by which the fair market
value of the foreign company's stock exceeds the Portfolio's adjusted basis in
these shares; any mark to market losses and any loss from an actual disposition
of shares would be deductible as ordinary loss to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to the Portfolio level tax when distributed to shareholders
as a dividend. Alternatively, the Portfolios may elect to include as income and
gain its share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock) written or
purchased by the Portfolios will be subject to tax under Section 1234 of the
Code. In general, no loss is recognized by a Portfolio upon payment of a premium
in connection with the purchase of a put or call option. The character of any
gain or loss recognized (i.e., long-term or short-term) will generally depend,
in the case of a lapse or sale of the option, on the Portfolio's holding period
for the option and, in the case of an exercise of the option, on the Portfolio's
holding period for the underlying security. The purchase of a put option may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or substantially identical
security in the Portfolio's portfolio. If a Portfolio writes a call option, no
gain is recognized upon its receipt of a premium. If the option lapses or is
closed out, any gain or loss is treated as a short-term capital gain or loss. If
a call option is exercised, any resulting gain or loss is short-term or
long-term capital gain or loss depending on the holding period of the underlying
security. The exercise of a put option written by a Portfolio is not a taxable
transaction for the Portfolio.
Many futures and forward contracts entered into by a Portfolio and all listed
nonequity options written or purchased by a Portfolio (including covered call
options written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of the Portfolio's fiscal year (and generally, on October
31 for purposes of the 4% excise tax), all outstanding Section 1256 positions
will be marked-to-market (i.e., treated as if such positions were closed out at
their closing price on such day), with any resulting gain or loss recognized as
60% long-term and 40% short-term. Under Section 988 of the Code, discussed
below, foreign currency gain or loss from foreign currency-related forward
contracts, certain futures and options and similar financial instruments entered
into or acquired by a Portfolio will be treated as ordinary income or loss.
Under certain circumstances, entry into a futures contract to sell a security
may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a substantially
identical security in the Portfolio's portfolio.
Positions of the Portfolios consisting of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Portfolios' risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by a Portfolio.
26
<PAGE>
Positions of a Portfolio consisting of at least one position not governed by
Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Portfolio's
risk of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. Each Portfolio will monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require a
Portfolio to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if a Portfolio enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Portfolio's taxable year, if
certain conditions are met.
Similarly, if a Portfolio enters into a short sale of property that becomes
substantially worthless, the Portfolio will be required to recognize gain at
that time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Portfolio accrues receivables or liabilities
denominated in a foreign currency and the time the Portfolio actually collects
such receivables or pays such liabilities generally are treated as ordinary
income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency, and on disposition of certain futures,
forward or options contracts, gains or losses attributable to fluctuations in
the value of foreign currency between the date of acquisition of the security or
contracts and the date of disposition are also treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "Section 988" gains or
losses, may increase or decrease the amount of a Portfolio's investment company
taxable income to be distributed to its shareholders as ordinary income.
If a Portfolio holds zero coupon securities or other securities which are issued
at a discount a portion of the difference between the issue price and the face
value of such securities ("original issue discount") will be treated as income
to the Portfolio each year, even though the Portfolio will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Portfolio which must be distributed to shareholders in order to maintain the
qualification of the Portfolio as a regulated investment company and to avoid
federal income tax at the Portfolio level. In addition, if a Portfolio invests
in certain high yield original issue discount obligations issued by
corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such an event, properly designated dividends of investment
company taxable income received from the Portfolio by its corporate
shareholders, to the extent attributable to such portion of the accrued original
issue discount, may be eligible for the deduction received by corporations.
If a Portfolio acquires a debt instrument at a market discount, a portion of the
gain recognized (if any) on disposition of such instrument may be treated as
ordinary income.
The Portfolios will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of Portfolio shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Portfolios are notified by the IRS or a broker that the taxpayer identification
number furnished by the shareholder is incorrect or that the shareholder has
previously failed to report interest or dividend income. If the withholding
provisions are applicable, any such distributions
27
<PAGE>
and proceeds, whether taken in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld.
A shareholder who redeems shares of a Portfolio 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 Portfolio 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 Portfolio or any 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 a Portfolio or in shares of the other
Kemper Mutual Funds within six months of the redemption as described in the
prospectus under "Redemption or Repurchase of Shares-Reinvestment Privilege." If
redeemed shares were held less than 91 days, then the lesser of (a) the sales
charge waived on the reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested shares and is not
included in the basis of the redeemed shares. If a shareholder realizes a loss
on the redemption or exchange of a Portfolio's shares and reinvests in shares of
another Portfolio within 30 days before or after the redemption or exchange, the
transactions may be subject to the wash sale rules resulting in a postponement
of the recognition of such loss for federal income tax purposes. An exchange of
a Portfolio'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.
Shareholders of each Portfolio may be subject to state and local taxes on
distributions received from the Portfolio and on redemptions of the Portfolio's
shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Portfolios issue to
each shareholder a statement of the federal income tax status of all
distributions.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Portfolio, including the possibility that such a shareholder may
be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under
an applicable income tax treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from U.S.
sources under the Code.
Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.
PERFORMANCE
As described in the prospectus, each Portfolio'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 of each Portfolio.
Each Portfolio'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 Portfolio for a specific
period is found by first taking a hypothetical $1,000 investment ("initial
investment") in the Portfolio's shares on the first day of the period, adjusting
to deduct the maximum sales charge (in the case of Class A shares), and
computing the "redeemable value" of that investment at the end of the period.
The redeemable value in the case of Class B shares 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 Portfolio 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.
28
<PAGE>
Average Annual Total Return for the year ended July 31, 1999
(Adjusted for the maximum sales charge)
1-Year Life of
Fund*
Horizon 20+ Class A -1.77% 11.27%
Class B 0.55 11.77
Class C 3.24 12.10
Horizon 10+ Class A -0.67% 10.10%
Class B 1.46 10.59
Class C 4.29 10.90
Horizon 5 Class A -1.12% 7.39%
Class B 1.24 8.05
Class C 4.20 8.44
* Since 12/29/95.
Calculation of a Portfolio's total return is not subject to a standardized
formula, except when calculated for purposes of the Portfolio'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 ("initial investment") in a Portfolio'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 shares 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 Portfolio have been
reinvested at net asset value on the reinvestment dates during the period. Total
return may also be shown as the increased dollar value of the hypothetical
investment over the period. Total return calculations that do not include the
effect of the sales charge for Class A shares or the contingent deferred sales
charge for Class B shares and Class C shares would be reduced if such charges
were included.
A Portfolio's performance figures are based upon historical results and are not
representative of future performance. Each Portfolio'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
Portfolio'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 Portfolio are redeemable at the then current net asset value,
which may be more or less than original cost.
Investors may want to compare the performance of a Portfolio 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 Index 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.
29
<PAGE>
Investors also may want to compare the performance of a Portfolio 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 Portfolio to the performance
of two indexes, such as, in the case of the Horizon 10+ Portfolio, 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). For the percentage of a Portfolio's assets
invested in each type of security, see "Investment Objectives, Policies and Risk
Factors" in the Prospectus.
Investors may want to compare the performance of a Portfolio 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.
From time to time the Portfolios may include in their sales communications,
ranking and rating information received from various organizations, to include
but not be limited to ratings from Morningstar, Inc. and rankings from Lipper
Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service.
The following tables compare the performance of the Class A shares of each
Portfolio over various periods with that of other mutual funds within the
categories described below according to data reported by Lipper. 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.
Lipper Perfomance Analysis
Horizon 20+ A Shares Flexible Portfolio Funds
-------------------- ------------------------
One year (period ended 7/31/99) -1.77% 10.09%
Lipper Perfomance Analysis
Horizon 10+ A Shares Balanced Portfolio Funds
-------------------- ------------------------
One year (period ended 7/31/99) -0.67% 9.73%
Lipper Perfomance Analysis
Horizon 5 A Shares Income Portfolio Funds
------------------ ----------------------
One year (period ended 7/31/99) -1.12% 5.52%
30
<PAGE>
OFFICERS AND TRUSTEES
The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with the Adviser and KDI are listed
below:
JAMES E. AKINS (10/15/26) , Trustee, 2904 Garfield Terrace, N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly, a
career United States Foreign Service Officer, Energy Adviser for the White
House; United States Ambassador to Saudi Arabia, 1973-76.
JAMES R. EDGAR (7/22/46), Trustee, 1927 County Road 150 E, Seymour, IL;
Distinguished Fellow, University of Illinois Institute of Government and Public
Affairs; formerly, Governor of the State of Illinois, 1991-1998; Illinois
Secretary of State, 1981-1990; Director of Legislative Affairs, Office of the
Governor of Illinois, 1979-1980; Representative in Illinois General Assembly,
1976-1979.
ARTHUR R. GOTTSCHALK (2/13/25) , Trustee, 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelly Corp.
FREDERICK T. KELSEY (4/25/27) , Trustee, 4010 Arbor Lane, Unit 402, Northfield,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Benchmark Funds; formerly, Trustee of
the Pilot Funds.
FRED B. RENWICK (2/1/30), Trustee, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Investment Program, Inc.; Director, the Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church of America.
JOHN G. WEITHERS (8/8/33), Trustee, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering, Inc.
MARK S. CASADY (9/21/60), President*, Two International Place, Boston,
Massachusetts; Managing Director, Adviser; formerly, Institutional Sales Manager
of an unaffiliated mutual fund distributor.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, Scudder Kemper.
THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Adviser; Head of Broker Dealer Division of an
unaffiliated investment management firm during 1997; prior thereto, President of
Client Management Services of an unaffiliated investment management firm from
1991 to 1996.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Adviser.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
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<PAGE>
JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
BRENDA LYONS (2/21/63) Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Adviser; formerly, Associate,
Dechert Price & Rhoads (law firm) 1989 to 1997.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
* "Interested persons" as defined in the Investment Company Act of 1940 .
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts estimated
to be paid or accrued to those trustees who are not designated "interested
persons" during the Fund's 1998 fiscal year and the total compensation that the
Kemper funds paid to such trustees during the calendar year 1998.
Total Compensation
Aggregate Compensation Kemper Funds Paid
Name of Board Member From Fund to Board Members(2)
- -------------------- --------- -------------------
James E. Akins $ $
James R. Edgar $ $
Arthur R. Gottschalk(1) $ $
Frederick T. Kelsey $ $
Fred B. Renwick $ $
John B. Tingleff $ $
John G. Weithers $ $
(1) Includes deferred fees pursuant to deferred compensation agreements with the
Fund. Deferred amounts accrue interest monthly at a rate equal to the yield of
Zurich Money Funds -- Zurich Money Market Fund. Total deferred fees and interest
accrued for the latest and prior fiscal years for this Fund are $_____ for Mr.
Gottschalk.
(2) Includes compensation for service on the Boards of 13 Kemper funds, with 36
fund portfolios. Each trustee currently serves as a board member of 15 Kemper
Funds with 51 fund portfolios. As of November 2, 1999, the officers and trustees
of the Fund as a group owned less than 1% of each Portfolio.
Principal Holders of Securities
As of October 30, 1999 the following owned of record more than 5% of the
outstanding stock of the Portfolios as set forth below.
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<PAGE>
HORIZON 20+
- --------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
- --------------------------------------------------------------------------------
National Financial Services Corp. B 5.03%
200 Liberty Street
New York, NY 10281
- --------------------------------------------------------------------------------
Scudder Kemper Investments I 16.06%
Money Purchase Plan
345 Park Avenue
New York, NY 10154
- --------------------------------------------------------------------------------
Scudder Kemper Investments I 77.84%
Profit Sharing Plan
345 Park Avenue
New York, NY 10154
- --------------------------------------------------------------------------------
KSVC Non-Qualified Defined I 5.35%
Contribution
LaSalle Nat. Bank, TTEE
811 Main Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
HORIZON 10+
- --------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
- --------------------------------------------------------------------------------
Prudential Trust A 12.02%
FBO/Defined Contribution Plan
Customers
30 Scranton Office Park
Scranton, PA 18507
- --------------------------------------------------------------------------------
National Financial Services Corp. B 8.95%
200 Liberty Street
New York, NY 10281
- --------------------------------------------------------------------------------
Scudder Kemper Investments I 13.01%
Money Purchase Plan
345 Park Avenue
New York, NY 10154
- --------------------------------------------------------------------------------
Scudder Kemper Investments I 61.69%
Profit Sharing Plan
345 Park Avenue
New York, NY 10154
- --------------------------------------------------------------------------------
ZKDI Inc. Non-Qualified Defined I 24.60%
Contribution
LaSalle Nat. Bank, TTEE
811 Main Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
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<PAGE>
HORIZON 5+
- -------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
- -------------------------------------------------------------------------------
National Financial Services Corp. B 8.45%
200 Liberty Street
New York, NY 10281
- -------------------------------------------------------------------------------
First Union Securities B 5.12%
Commission Accounting
77 W. Wacker Drive
Chicago, IL 60601
- -------------------------------------------------------------------------------
Investors Fiduciary Trust C 5.55%
720 President Street
Brooklyn, NY 11215
- -------------------------------------------------------------------------------
Donaldson, Lufkin, Jenrette C 6.73%
P.O. Box 2052
Jersey City, NJ 07303
- -------------------------------------------------------------------------------
Scudder Kemper Investments I 10.11%
Money Purchase Plan
345 Park Avenue
New York, NY 10154
- -------------------------------------------------------------------------------
Scudder Kemper Investments I 56.44%
Profit Sharing Plan
345 Park Avenue
New York, NY 10154
- -------------------------------------------------------------------------------
ZKI Inc. Non-Qualified Defined I 33.40%
Contribution
LaSalle Nat. Bank, TTEE
222 S. Riverside Plaza
Chicago, IL 60606
- -------------------------------------------------------------------------------
SHAREHOLDER RIGHTS
The Fund is an open-end management investment company, organized on October 17,
1995 as a business trust under the laws of Massachusetts. The Fund generally is
not required to hold meetings of the shareholders. Under the Agreement and
Declaration of Trust of the 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, a Portfolio
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) the 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.
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<PAGE>
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares of the Fund at a meeting called for that purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding shares. Upon the written request of ten or more
shareholders who have been such for at least six months and who hold shares
constituting at least 1% of the outstanding shares of the 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, the Fund has undertaken to disseminate appropriate materials at the
expense of the requesting shareholders.
The 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 the Fund
could take place even if less than a majority of the shareholders was
represented on its scheduled date. Shareholders would in such a case be
permitted to take action that does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
auditors. Some matters requiring a larger vote under the Declaration of Trust,
such as termination or reorganization of the Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
that under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The 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 the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the 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 the Fund and the 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 the Fund itself is unable to meet its obligations.
35
<PAGE>
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
36
<PAGE>
well safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
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.
Fitch Investors Service, Inc. Bond Ratings
AAA. Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA. Bonds rated AA are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA.
A. Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB. Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment.
BB. Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B. Bonds rated B are considered highly speculative. While these bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC. Bonds rated CCC have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC. Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C. Bonds rated C are in imminent default in payment of interest or principal.
DDD, DD and D. Bonds rated DDD, DD and D are in default on interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
37
<PAGE>
Duff & Phelps Rating Co. Bond Ratings
AAA. Bonds rated AAA have the highest rating assigned to a debt obligation. They
are of the highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA. Bonds rated AA are of high credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of economic
conditions.
A. Bonds rated A have protection factors that are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
BBB. Bonds rated BBB have below average protection factors but are still
considered sufficient for prudent investment. They have considerable volatility
in risk during economic cycles.
BB. Bonds rated BB are below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B. Bonds rated B are below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC. Bonds rated CCC are well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal or interest. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
D. Bonds rated D are in default. The issuer failed to meet scheduled principal
and/or principal payments.
38
<PAGE>
KEMPER HORIZON FUND
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23.
- --------
Exhibits:
<S> <C> <C>
(a)(1) Agreement and Declaration of Trust. (Incorporated by reference to
Registrant's Registration Statement on Form N-1A which was filed
on October 17, 1995.)
(a)(2) Written Instrument Amending the Agreement and Declaration of
Trust. (Incorporated by reference to Registrant's Registration
Statement on Form N-1A which was filed on October 17, 1995.)
(a)(3) Written Instrument Establishing and Designating Separate Classes
of Shares. (Incorporated by reference to Pre-effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A filed on
December 14, 1995.)
(a)(4) Written Instrument Changing the Name of the Existing Series and
Establishing and Designating Two Additional Series. (Incorporated
by reference to Pre-effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A filed on December 14, 1995.)
(a)(5) Written Instrument Changing the Name of the Series of the Trust.
(Incorporated by reference to Pre-effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A filed on
December 14, 1995.)
(a)(6) Amended and Restated Written Instrument Establishing and
Designating Separate Classes of Shares. (Incorporated herein by
reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on August 29, 1996.)
(b) By-Laws. (Incorporated by reference to Pre-effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A filed on
December 14, 1995.)
(c) Inapplicable.
(d)(1) Investment Management Agreement. (Incorporated herein by
reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on August 29, 1996.)
(d)(2) Investment Management Agreement dated December 31, 1997 on behalf
of Kemper Horizon 20+ Fund. (Incorporated by reference to
Post-effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A filed on November 30, 1998.)
(d)(3) Investment Management Agreement dated December 31, 1997 on behalf
of Kemper Horizon 10+ Fund. (Incorporated by reference to
Post-effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A filed on November 30, 1998.)
Part C - Page 1
<PAGE>
(d)(4) Investment Management Agreement dated December 31, 1997 on behalf
of Kemper Horizon 5 Fund. (Incorporated by reference to
Post-effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A filed on November 30, 1998.)
(d)(5) Investment Management Agreement dated September 7, 1998 on behalf
of Kemper Horizon 20+ Fund is filed herein.
(d)(6) Investment Management Agreement dated September 7, 1998 on behalf
of Kemper Horizon 10+ Fund is filed herein.
(d)(7) Investment Management Agreement dated September 7, 1998 on behalf
of Kemper Horizon 5 Fund is filed herein.
(e)(1) Underwriting and Distribution Services Agreement. (Incorporated
by reference to Post Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A filed on November 17, 1997.)
(e)(2) Underwriting and Distribution Services Agreement dated January 20,
1998 on behalf of Kemper Horizon Fund. (Incorporated by reference
to Post-effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A filed on November 30, 1998.)
(e)(3) Underwriting and Distribution Services Agreement dated August 1,
1998 on behalf of Kemper Horizon Fund. (Incorporated by reference
to Post-effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A filed on November 30, 1998.)
(e)(4) Underwriting and Distribution Services Agreement dated September
7, 1998 on behalf of Kemper Horizon Fund. (Incorporated by
reference to Post-effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A filed on November 30, 1998.)
(f) Not applicable.
(g)(1) Custodian Contract between Kemper Horizon Fund and State Street
Bank and Trust Company dated March 22, 1999 is filed herein.
(g)(2) Foreign Custody Agreement. (Incorporated by reference to
Pre-effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed on December 14, 1995.)
(h)(1) Form of Selling Group Agreement. (Incorporated by reference to
Pre-effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed on December 14, 1995.)
(h)(2) Fund Accounting Services Agreement dated December 31, 1997, on
behalf of Kemper Horizon 20+ Portfolio. (Incorporated by
reference to Post-effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A filed on November 30, 1998.)
Part C - Page 2
<PAGE>
(h)(3) Fund Accounting Services Agreement dated December 31, 1997, on
behalf of Kemper Horizon 10+ Portfolio. (Incorporated by
reference to Post-effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A filed on November 30, 1998.)
(h)(4) Fund Accounting Services Agreement dated December 31, 1997, on
behalf of Kemper Horizon 5 Portfolio. (Incorporated by reference
to Post-effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A filed on November 30, 1998.)
(h)(5) Agency Agreement. (Incorporated by reference to Pre-effective
Amendment No. 2 to Registrant's Registration Statement on
Form N-1A filed on December 14, 1995.)
(h)(6) Administrative Services Agreement. (Incorporated by reference to
Post-effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed on November 17, 1997.)
(h)(7) Supplement to Agency Agreement. (Incorporated by reference to
Post-effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A filed on November 17, 1997.)
(i) Opinion of Counsel is filed herein.
(j) Consent of Independent Accountants is filed herein.
(k) Not applicable.
(l) Not applicable.
(m)(1) Rule 12b-1 Plan dated August 1, 1998 for Class B shares on behalf
of Horizon 20+ Fund. (Incorporated by reference to Post-effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A filed on November 30, 1998.)
(m)(2) Rule 12b-1 Plan dated August 1, 1998 for Class C shares on behalf
of Horizon 20+ Fund. (Incorporated by reference to Post-effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A filed on November 30, 1998.)
(m)(3) Rule 12b-1 Plan dated August 1, 1998 for Class B shares on behalf
of Horizon 10+ Fund. (Incorporated by reference to Post-effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A filed on November 30, 1998.)
(m)(4) Rule 12b-1 Plan dated August 1, 1998 for Class C shares on behalf
of Horizon 10+ Fund. (Incorporated by reference to Post-effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A filed on November 30, 1998.)
(m)(5) Rule 12b-1 Plan dated August 1, 1998 for Class B shares on behalf
of Horizon 5 Fund. (Incorporated by reference to Post-effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A filed on November 30, 1998.)
(m)(6) Rule 12b-1 Plan dated August 1, 1998 for Class C shares on behalf
of Horizon 5 Fund. (Incorporated by reference to Post-effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A filed on November 30, 1998.)
Part C - Page 3
<PAGE>
Powers of Attorney for the following Trustees are incorporated by
reference to Post Effective Amendment No. 2 to the Registration
Statement: James E. Atkins, Arthur R. Gottschalk, Frederick T.
Kelsey, Frederick B. Renwick, John B. Tingleff, and John G.
Weithers.
Power of Attorney for James R. Edgar is filed herein.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
Inapplicable.
Item 25. 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 questions 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
the Registrant 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.
Item 26. 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 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Part C - Page 4
<PAGE>
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 Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##
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 o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk 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**
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.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
Part C - Page 5
<PAGE>
President and 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
# Societe 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
Xx 222 S. Riverside, Chicago, IL
O Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the Registrant's
shares and also acts as principal underwriter for other funds managed by Scudder
Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an operational
area. Such persons do not have corporation-wide responsibilities and are not
considered officers for the purpose of this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer Vice President
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice None
President
Linda J. Wondrack Vice President and Chief Compliance Vice President
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Todd N. Gierke Assistant Treasurer None
Part C - Page 6
<PAGE>
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Philip J. Collora Assistant Secretary Vice President and Secretary
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director, Vice Chairman President
Stephen R. Beckwith Director None
(c) Not applicable.
</TABLE>
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
All such accounts, books and other documents are maintained
at the offices of the Registrant, the offices of the
investment manager, Scudder Kemper Investments, Inc. and the
principal underwriter, Scudder Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60603, 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 29. Management Services.
- -------- --------------------
Not applicable.
Item 30. 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.
Part C - Page 7
<PAGE>
SIGNATURES
----------
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 22nd day
of November, 1999.
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 the 22nd day of November, 1999
on behalf of the following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/Thomas W. Littauer Chairman and Trustee
- --------------------------------------
Thomas W. Littauer*
/s/James E. Akins Trustee
- --------------------------------------
James E. Akins*
/s/James R. Edgar Trustee
- --------------------------------------
James R. Edgar*
/s/Arthur R. Gottschalk Trustee
- --------------------------------------
Arthur R. Gottschalk*
/s/Frederick T. Kelsey Trustee
- --------------------------------------
Frederick T. Kelsey*
/s/Fred B. Renwick Trustee
- --------------------------------------
Fred B. Renwick*
/s/John G. Weithers Trustee
- --------------------------------------
John G. Weithers*
/s/John R. Hebble Treasurer (Principal Financial
- --------------------------------------
John R. Hebble and Accounting Officer)
*By: /s/Philip J. Collora
------------------------
Philip J. Collora**
** Attorney-in-fact pursuant to powers of
attorney contained in the signature pages of
Post Effective Amendment No. 2 to the Registration
Statement, filed November 17, 1997 and in the signature
Post Effective Amendment No. 5 to the Registration
Statement, filed herein.
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Caroline Pearson, Maureen E. Kane, and Philip J. Collora and any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement of Kemper Horizon
Fund, a Massachusetts business trust, on Form N-1A under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and any or
all amendments thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
DATED: May 27, 1999
------------
/s/James R. Edgar
---------------------------
James R. Edgar
Trustee
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Caroline Pearson, Maureen E. Kane, and Philip J. Collora and any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement of Kemper Horizon
Fund, a Massachusetts business trust, on Form N-1A under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and any or
all amendments thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
DATED: June 30, 1999
-------------
/s/Thomas W. Littauer
---------------------------
Thomas W. Littauer
Trustee
<PAGE>
File No. 33-63467
File No. 811-7365
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 5
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 7
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER HORIZON FUND
<PAGE>
KEMPER HORIZON FUND
EXHIBIT INDEX
Exhibit (d)(5)
Exhibit (d)(6)
Exhibit (d)(7)
Exhibit (g)(1)
Exhibit (i)
Exhibit (j)
Exhibit (d)(5)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Horizon Fund
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Horizon 20+ Portfolio
Ladies and Gentlemen:
KEMPER HORIZON 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 Horizon 20+ Portfolio (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:
(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
<PAGE>
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, 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
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
2
<PAGE>
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 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.
3
<PAGE>
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
$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 (b) 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 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.
4
<PAGE>
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 September 30, 1999, 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 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 Horizon
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
5
<PAGE>
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 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.
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 HORIZON FUND, on behalf of
Kemper Horizon 20+ Portfolio
By: /s/Mark S. Casady
-------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S. R. Beckwith
--------------------------------
Treasurer
6
Exhibit (d)(6)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Horizon Fund
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Horizon 10+ Portfolio
Ladies and Gentlemen:
KEMPER HORIZON 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 Horizon 10+ Portfolio (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:
(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
<PAGE>
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, 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
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
2
<PAGE>
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 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.
3
<PAGE>
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
$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 (b) 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 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.
4
<PAGE>
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 September 30, 1999, 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 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 Horizon
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
5
<PAGE>
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 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.
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 HORIZON FUND, on behalf of
Kemper Horizon 10+ Portfolio
By: /s/Mark S. Casady
-----------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S. R. Beckwith
-----------------------------
Treasurer
6
Exhibit (d)(7)
INVESTMENT MANAGEMENT AGREEMENT
Kemper Horizon Fund
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Horizon 5 Portfolio
Ladies and Gentlemen:
KEMPER HORIZON 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 Horizon 5 Portfolio (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:
(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
<PAGE>
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, 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
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
2
<PAGE>
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 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.
3
<PAGE>
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
$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 (b) 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 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.
4
<PAGE>
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 September 30, 1999, 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 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 Horizon
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
5
<PAGE>
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 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.
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 HORIZON FUND, on behalf of
Kemper Horizon 5 Portfolio
By: /s/Mark S. Casady
------------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S.R. Beckwith
------------------------------------
Treasurer
6
Exhibit (g)(1)
CUSTODIAN CONTRACT
between
KEMPER HORIZON FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It ................1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States ..................2
2.1 Holding Securities ..........................................2
2.2 Delivery of Securities ......................................2
2.3 Registration of Securities ..................................4
2.4 Bank Accounts ...............................................5
2.5 Availability of Federal Funds ...............................5
2.6 Collection of Income ........................................5
2.7 Payment of Fund Monies ......................................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased ........................................7
2.9 Appointment of Agents .......................................7
2.10 Deposit of Securities in U.S. Securities System .............7
2.11 Fund Assets Held in the Custodian's
Direct Paper System .........................................8
2.12 Segregated Account ..........................................9
2.13 Ownership Certificates for Tax Purposes ....................10
2.14 Proxies ....................................................10
2.15 Communications Relating to Portfolio Securities ............10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside the United States .............................10
3.1 Appointment of Foreign Sub-Custodians ......................10
3.2 Assets to be Held ..........................................11
3.3 Foreign Securities Depositories ............................11
3.4 Agreements with Foreign Banking Institutions ...............11
3.5 Access of Independent Accountants of the Fund ..............11
3.6 Reports by Custodian .......................................11
3.7 Transactions in Foreign Custody Account ....................12
3.8 Liability of Foreign Sub-Custodians ........................12
3.9 Liability of Custodian .....................................12
3.10 Reimbursement for Advances .................................13
3.11 Monitoring Responsibilities ................................13
3.12 Branches of U.S. Banks .....................................13
3.13 Tax Law ....................................................14
<PAGE>
TABLE OF CONTENTS
Page
4. Payments for Sales or Repurchases or Redemptions
of Shares ...........................................................14
5. Proper Instructions .................................................14
6. Actions Permitted without Express Authority .........................15
7. Evidence of Authority ...............................................15
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income ..................16
9. Records..............................................................16
10. Opinion of Fund's Independent Accountants ...........................16
11. Reports to Fund by Independent Public Accountants ...................16
12. Compensation of Custodian ...........................................17
13. Responsibility of Custodian .........................................17
14. Effective Period, Termination and Amendment .........................18
15. Successor Custodian .................................................19
16. Interpretive and Additional Provisions ..............................19
17. Additional Funds ....................................................20
18. Massachusetts Law to Apply ..........................................20
19. Prior Contracts .....................................................20
20. Shareholder Communications Election .................................20
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CUSTODIAN CONTRACT
This Contract between Kemper Horizon Fund, a business trust organized
and existing under the laws of The Commonwealth of Massachusetts and having its
principal place of business at 222 South Riverside Plaza, Chicago, Illinois
60606 (the "Fund"), and State Street Bank and Trust Company, a Massachusetts
trust company having its principal place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently intends to offer shares in three (3)
series, Kemper Horizon 5 Portfolio, Kemper Horizon 10+ Portfolio, and Kemper
Horizon 20+ Portfolio (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
Article 17, being herein referred to as the "Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
of America ("domestic securities") and securities it desires to be held outside
the United States of America ("foreign securities") pursuant to the provisions
of the Fund's declaration of trust (the "Declaration of Trust"). The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Fund on behalf of the Portfolio and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians located in the
United States of America, including any state or political subdivision thereof
and any territory over which its political sovereignty extends (the "United
States" or
<PAGE>
"U.S."), but only in accordance with an applicable vote by the board of trustees
of the Fund (the "Board of Trustees") on behalf of the applicable Portfolio(s)
and provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodians for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by such
Portfolio other than (a) securities which are maintained in a "U.S.
Securities System" (as such term is defined in Section 2.10 of this
Contract) and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Custodian's Direct
Paper System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and held by the Custodian or
in a U.S. Securities System account of the Custodian, which account
shall not include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account") or in the Custodian's Direct Paper book-entry system
account, which account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
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5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's U.S. Securities System Account,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
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12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information related to the Portfolio (the
"Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the executive committee thereof
signed by an officer of the Fund and certified by the Fund's
Secretary or Assistant Secretary specifying the securities of
the Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize reasonable efforts only to
(i) timely collect income
4
<PAGE>
due the Fund on such securities and (ii) notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended. Funds
held by the Custodian for a Portfolio may be deposited by it to its
credit as Custodian in the banking department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940, as amended (the "Investment Company
Act") and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States-registered securities held hereunder to
which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to domestic bearer
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Collection of income due each Portfolio on
domestic securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund; the Custodian will have
no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data in its possession as may
be necessary to assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Portfolio is properly
entitled.
5
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2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or
in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with
the conditions set forth in Section 2.10 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management
fees, accounting fees, transfer agent fees, legal fees and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6
<PAGE>
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies (a "U.S.
Securities System") in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Portfolio in
a U.S. Securities System provided that such securities are
represented in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for
the account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that such
7
<PAGE>
securities have been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Portfolio; the Custodian shall transfer securities sold
for the account of the Portfolio upon (i) receipt of advice
from the U.S. Securities System that payment for such
securities has been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund on behalf of the
Portfolio(s) with any report obtained by the Custodian on the
U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
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2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper System Account which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio; and
6) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls which had been prepared
as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
a U.S. Securities System Account by the Custodian pursuant to Section
2.10 hereof (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered Contract
Market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or
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any subsequent release or releases of the SEC relating to the
maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
this clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a certified copy
of a resolution of the Board of Trustees or of the executive committee
thereof signed by an officer of the Fund and certified by the Fund's
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund on behalf of the Portfolio such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three (3) business days prior to the date on which
the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto (the "foreign sub-custodians"). Upon
receipt
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of Proper Instructions, together with a certified resolution of the
Board of Trustees, the Custodian and the Fund on behalf of the
Portfolio(s) may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such foreign sub-custodians for
maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership of the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Custodian
on behalf of its customers; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use reasonable efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records
of any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the
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Portfolio(s) held by foreign sub-custodians, including but not limited
to an identification of entities having possession of Portfolio
securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of its
customers indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Portfolio(s) held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund on behalf of the Portfolio, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Portfolio has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency
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<PAGE>
restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding
the foregoing provisions of this Section 3.9, in delegating custody
duties to State Street London Ltd., the Custodian shall not be relieved
of any responsibility to the Fund for any loss due to such delegation,
except such loss as may result from (a) political risk (including, but
not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or insolvency
of State Street London Ltd. not caused by political risk) due to Acts
of God, nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund (during the month of June) information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
Portfolio assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article 1 of this Contract.
13
<PAGE>
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund on behalf of each Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be
14
<PAGE>
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. If given pursuant to procedures to be agreed upon by the Custodian
and the Fund, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
15
<PAGE>
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per share of the
outstanding Shares of each Portfolio or, if directed in writing to do so by the
Fund on behalf of the Portfolio(s), shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Prospectus and shall advise the Fund and the Transfer Agent daily of the total
amount of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Prospectus.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the SEC. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountants
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N- 1A and N-SAR or other annual reports to the SEC and with respect to any
other SEC requirements.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting
16
<PAGE>
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by Section 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
17
<PAGE>
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement) for the benefit of a
Portfolio, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of the date of its execution,
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 either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a Portfolio act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has approved
the initial use of a particular Securities System by such Portfolio, as required
by Rule 17f-4 under the Investment Company Act and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System by such Portfolio; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of the Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
18
<PAGE>
15. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees,
the Custodian shall, upon termination, deliver to such successor custodian at
the offices of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System. If no such successor custodian shall
be appointed, the Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Trustees, deliver at the offices of the Custodian
and transfer such securities, funds and other properties in accordance with such
vote. In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act, doing
business in Boston, Massachusetts, or New York, New York, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of each applicable Portfolio
and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of each applicable Portfolio
and to transfer to an account of such successor custodian all of the securities
of each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
19
<PAGE>
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Kemper Horizon 5 Portfolio, Kemper Horizon 10+ Portfolio and Kemper
Horizon 20+ Portfolio with respect to which it desires to have the Custodian
render services as custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
20. Shareholder Communications Election
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of March 22, 1999.
ATTEST KEMPER HORIZON FUND
/s/Maureen Kane By: /s/Mark S. Casady
- --------------- ---------------------
Name: Maureen Kane Name: Mark S. Casady
Ass't Sec. Title: President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/Marc L. Parsons By: /s/Ronald E. Logue
- ------------------ ------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Vice Chairman
21
Exhibit (i)
[LOGO] VEDDER PRICE VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1003
312-609-7500
FACSIMILE: 312-609-5005
A PARTNERSHIP INCLUDING VEDDER, PRICE,
KAUFMAN & KAMMHOLZ, P.C.
WITH OFFICES IN CHICAGO AND NEW YORK CITY
November 18, 1999
Kemper Horizon Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A under the Securities Act of 1933 being filed by Kemper
Horizon Fund (the "Fund") in connection with the public offering from time to
time of units of beneficial interest, no par value ("Shares"), in the Kemper
Horizon 20+ Portfolio, Kemper Horizon 10+ Portfolio and Kemper Horizon 5
Portfolio (each, a "Portfolio" and collectively, the "Portfolios").
We have acted as counsel to the Fund, and in such capacity are familiar
with the Fund's organization and have counseled the Fund regarding various legal
matters. We have examined such Fund records and other documents and certificates
as we have considered necessary or appropriate for the purposes of this opinion.
In our examination of such materials, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us.
Based upon the foregoing and assuming that the Fund's Agreement and
Declaration of Trust dated June 12, 1995 as amended by the Written Instrument
Amending the Agreement and Declaration of Trust dated September 7, 1995, and the
Written Instrument Changing the Name of the Existing Series and Establishing and
Designating Two Additional Series dated September 8, 1995, the Written
Instrument Establishing and Designating Separate Classes of Shares dated
September 16, 1995, the Written Instrument Changing the Name of the Existing
Series, dated November 10, 1995 and the Amended and Restated Written Instrument
Establishing and Designating Separate Classes of Shares dated March 6, 1996 and
the By-Laws of the Fund adopted
<PAGE>
September 16, 1995, are presently in full force and effect and have not been
amended in any respect and that the resolutions adopted by the Board of Trustees
of the Fund on September 16, 1995, November 10, 1995 and March 6, 1996 relating
to organizational matters, securities matters and the issuance of shares are
presently in full force and effect and have not been amended in any respect, we
advise you and opine that (a) the Fund is a validly existing voluntary
association with transferrable shares under the laws of the Commonwealth of
Massachusetts and is authorized to issue an unlimited number of Shares in the
Portfolios; and (b) presently and upon such further issuance of the Shares in
accordance with the Fund's Agreement and Declaration of Trust and the receipt by
the Fund of a purchase price not less than the net asset value per Share and
when the pertinent provisions of the Securities Act of 1933 and such "blue-sky"
and securities laws as may be applicable have been complied with, and assuming
that the Fund continues to validly exist as provided in (a) above, the Shares
are and will be legally issued and outstanding, fully paid and nonassessable.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund or the
Portfolios. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts and obligations of the Fund or a Portfolio and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate share or undertaking made or issued by the Trustees or
officers of the Fund. The Agreement and Declaration of Trust provides for
indemnification out of the property of the Portfolios for all loss and expense
of any shareholder of that Portfolio held personally liable for the obligations
of such Portfolio. Thus, the risk of liability is limited to circumstances in
which the Portfolios would be unable to meet its obligations.
This opinion is solely for the benefit of the Fund, the Fund's Board of
Trustees and the Fund's officers and may not be relied upon by any other person
without our prior written consent. We hereby consent to the use of this opinion
in connection with said Post-Effective Amendment.
Very truly yours,
/s/Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN &
KAMMHOLZ
COK/DAS
Exhibit (j)
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 September 20, 1999 in the Registration Statement (Form
N-1A) of Kemper Horizon Fund and its incorporation by reference in the related
Prospectus and Statement of Additional Information filed with the Securities and
Exchange Commission in this Post-Effective Amendment No. 5 to the Registration
Statement under the Securities Act of 1933 (File No. 33-63467) and in this
Amendment No. 5 to the Registration Statement under the Investment Company Act
of 1940 (File No. 811-7365).
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
November 23, 1999
