KEMPER INCOME TRUST, N-1A, 1998-09-01

KEMPER INCOME TRUST
N-1A, 1998-09-01

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Filed electronically with the Securities and Exchange Commission
on September 1, 1998

File No. 811-08983
File No.___

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.____

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. ___

Kemper Income Trust
(Exact name of Registrant as Specified in Charter)

222 South Riverside Plaza Street, Chicago, IL 60606
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (312) 781-1121

Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
(Name and Address of Agent for Service)

Approximate date of proposed public offering: As soon as practicable after the
effective date of the registration statement.

Title of securities being registered: Shares of Beneficial Interest, $.01 par
value per share.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>

KEMPER INCOME TRUST
Kemper High Yield II Fund
CROSS-REFERENCE SHEET

Items Required by Form N-1A
---------------------------

PART A
- ------
<TABLE>
<S> <C> <C>
<CAPTION>

Item No. Item Caption Prospectus Caption
-------- ------------ ------------------

1. Cover Page COVER PAGE

2. Synopsis SUMMARY
SUMMARY OF EXPENSES

3. Condensed Financial NOT APPLICABLE
Information

4. General Description of INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
Registrant SUMMARY
CAPITAL STRUCTURE

5. Management of the Fund SUMMARY
INVESTMENT MANAGER AND UNDERWRITER

5A. Management's Discussion of NOT APPLICABLE
Fund Performance

6. Capital Stock and Other SUMMARY
Securities INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
DIVIDENDS AND TAXES
PURCHASE OF SHARES

7. Purchase of Securities Being PURCHASE OF SHARES
Offered SUMMARY
INVESTMENT MANAGER AND UNDERWRITER

8. Redemption or Repurchase SUMMARY
REDEMPTION OR REPURCHASE OF SHARES

9. Pending Legal Proceedings NOT APPLICABLE

1
<PAGE>

KEMPER INCOME TRUST
Kemper High Yield II Fund
(continued)

PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and History NOT APPLICABLE

13. Investment Objectives and INVESTMENT RESTRICTIONS
Policies INVESTMENT POLICIES AND TECHNIQUES

14. Management of the Fund OFFICERS AND TRUSTEES
REMUNERATION

15. Control Persons and Principal OFFICERS AND TRUSTEES
Holders of Securities

16. Investment Advisory and Other INVESTMENT MANAGER AND UNDERWRITER
Services

17. Brokerage Allocation PORTFOLIO TRANSACTIONS

18. Capital Stock and Other INVESTMENT MANAGER AND UNDERWRITER
Securities

19. Purchase, Redemption and PURCHASE AND REDEMPTION OF SHARES
Pricing of Securities Being Offered

20. Tax Status DIVIDENDS AND TAXES

21. Underwriters INVESTMENT MANAGER AND UNDERWRITER

22. Calculation of Performance Data PERFORMANCE

23. Financial Statements NOT APPLICABLE
</TABLE>

2
<PAGE>

TABLE OF CONTENTS

SUMMARY................................................................. 3

SUMMARY OF EXPENSES......................................................4

INVESTMENT MANAGER AND UNDERWRITER......................................19

DIVIDENDS AND TAXES.....................................................21

NET ASSET VALUE.........................................................24

PURCHASE OF SHARES......................................................25

REDEMPTION OR REPURCHASE OF SHARES......................................30

SPECIAL FEATURES........................................................34

PERFORMANCE.............................................................38

CAPITAL STRUCTURE.......................................................40

This prospectus contains information about the Kemper High Yield Fund II that
you should know before investing and should be retained for future reference. A
Statement of Additional Information dated November 15, 1998, has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
It is available upon request without charge from the Fund at the address or
telephone number on this cover or the firm from which this prospectus was
obtained.

The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in the
Fund's shares involves risk, including the possible loss of principal.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

Kemper
Income
Trust

PROSPECTUS November 15, 1998

KEMPER INCOME TRUST
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048

This prospectus describes the Kemper High Yield Fund II, a series of Kemper
Income Trust, a registered open-end management investments company, managed by
Scudder Kemper Investments, Inc.

Kemper High Yield Fund II
<PAGE>

The Fund invests primarily in lower rated bonds, commonly referred to as "junk
bonds." Investments of this type are subject to a greater risk of loss of
principal and interest than investments in higher rated securities. Purchasers
should carefully assess the risks associated with an investment in the Fund.

2
<PAGE>

KEMPER INCOME TRUST
222 South Riverside Plaza, Chicago, Illinois 60606, Telephone 1-800-621-1048

SUMMARY

Investment Objectives. KEMPER HIGH YIELD FUND II (the "Fund") seeks the highest
level of current income obtainable from a professionally managed, diversified
portfolio of fixed income securities which the Fund's investment manager
considers consistent with reasonable risk. As a secondary objective, the Fund
will seek capital gain where consistent with its primary objective.

The Fund may engage in options and financial futures and may invest a portion of
its assets in foreign securities and engage in related foreign currency
transactions. See "Investment Objectives, Policies and Risk Factors."

Risk Factors. There is no assurance that the investment objective of the Fund
will be achieved and investment in the Fund includes risks that vary in kind and
degree. The returns and net asset value of the Fund will fluctuate. Investors
should note that investments in high yield securities entail relatively greater
risk of loss of income and principal than investments in higher rated securities
and market prices of high yield securities may fluctuate more than market prices
of higher rated securities. Foreign investments by the Fund involve risk and
opportunity considerations not typically associated with investing in U.S.
companies. The U.S. Dollar value of a foreign security tends to decrease when
the value of the U.S. Dollar rises against the foreign currency in which the
security is denominated and tends to increase when the value of the U.S. Dollar
falls against such currency. Thus, the U.S. Dollar value of foreign securities
in the Fund's portfolio, and the Fund's net asset value, may change in response
to changes in currency exchange rates even though the value of the foreign
securities in local currency terms may not have changed. The Fund's investments
in foreign securities may be in developed countries or in countries considered
by the Fund's investment manager to be developing or "emerging" markets, which
involve exposure to economic structures that are generally less diverse and
mature than in the United States, and to political systems that may be less
stable. There are special risks associated with options, financial futures,
foreign currency and other derivative transactions and there is no assurance
that use of those investment techniques will be successful. The Fund may borrow
money for leverage purposes, which can exaggerate the effect on its net asset
value of any increase or decrease in the market value of the Fund's portfolio.
The government guarantee of the U.S. Government securities in which the Fund
invests does not guarantee the market value of the Fund's shares. Normally, the
value of investments in U.S. Government securities, as with most debt
securities, varies inversely with changes in interest rates. See "Investment
Objectives, Policies and Risk Factors."

Purchases and Redemptions. The Fund provides investors with the option of
purchasing shares in the following ways:
<TABLE>
<S> <C>
<CAPTION>

Class A Shares........................................Offered at net asset value plus a maximum sales charge of 4.5% of
the offering price. Reduced sales charges apply to purchases of
$100,000 or more. Class A shares purchased at net asset value under
the Large Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge if redeemed within one year of
purchase and a 0.50% contingent deferred sales charge if redeemed
during the second year of purchase.

Class B Shares........................................Offered at net asset value, subject to a Rule 12b-1 distribution fee and a
contingent deferred sales charge that declines from 4% to zero on certain
redemptions made within six years of purchase. Class B shares automatically
convert into Class A shares (which have lower ongoing expenses) six years
after purchase.

3
<PAGE>

Class C Shares........................................Offered at net asset value without an initial sales charge, but
subject to a Rule 12b-1 distribution fee and a 1% contingent
deferred sales charge on redemptions made within one year of
purchase. Class C shares do not convert into another class.
</TABLE>

Each class of shares represents interests in the same portfolio of investments
of the Fund. The minimum initial investment is $1,000 and each investment
thereafter must be at least $100. Shares are redeemable at net asset value,
which may be more or less than original cost, subject to any applicable
contingent deferred sales charge. See "Purchase of Shares" and "Redemption or
Repurchase of Shares."

Investment Manager and Underwriter. Scudder Kemper Investments, Inc. (the
"Adviser") serves as investment manager for the Fund. The Adviser is paid an
investment management fee by the Fund based upon the average daily net assets of
the Fund at an effective annual rate of __%. Kemper Distributors, Inc. ("KDI"),
a wholly owned subsidiary of the Adviser, is principal underwriter and
administrator for the Fund. For Class B shares and Class C shares, KDI receives
a Rule 12b-1 distribution fee of 0.75 of 1% of average daily net assets. KDI
also receives the amount of any contingent deferred sales charges paid on the
redemption of shares. Administrative services are provided to shareholders under
administrative services agreements with KDI. The Fund pays an administrative
services fee at the annual rate of up to 0.25 of 1% of average daily net assets
of each class of the Fund, which KDI pays to various broker-dealer firms and
other service or administrative firms. See "Investment Manager and Underwriter."

Dividends. The Fund normally distributes monthly dividends of net investment
income and distributes any net realized capital gains at least annually. Income
and capital gain dividends of the Fund are automatically reinvested in
additional shares of the same class of the Fund, without a sales charge, unless
the shareholder makes a different election. See "Dividends and Taxes."

SUMMARY OF EXPENSES
<TABLE>
<S> <C> <C> <C>
<CAPTION>

Shareholder Transaction Expenses (1) Class A Class B Class C

Maximum Sales Charge on Purchases (as a percentage of offering 4.5%(2) None None
price)
Maximum Sales Charge on Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fee None None None
Maximum Contingent Deferred Sales Charge (as a percentage of None(3) 4% (4) 1% (5)
redemption proceeds)

Annual Fund Operating Expenses
(estimated as a percentage of average net assets)

Class A Shares Class B Shares Class C Shares

Management Fees .--% .--% .--%
12b-1 Fees (6) (7) None .75% .75%
Other Expenses...
Total Fund Operating Expenses % _.__% %
</TABLE>

4
<PAGE>

- ----------

(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details. The table does not include the $9.00 quarterly small
account fee. See "Redemptions or Repurchases of Shares."

(2) Reduced sales charges apply to purchases of $100,000 or more. See "Purchase
of Shares -Initial Sales Charge Alternative--Class A Shares."

(3) The redemption of Class A Shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% the first year and .50% the second year. See "Purchase
of Shares -Initial Sales Charge Alternative--Class A Shares."

(4) The maximum Contingent Deferred Sales Charge on Class B Shares applies to
redemptions during the first year. The charge is 4% during the first year,
3% during the second and third years, 2% during the fourth and fifth years
and 1% during the sixth year.

(5) The Contingent Deferred Sales Charge on Class C Shares applies to
redemptions during the first year after purchase.

(6) Long-term shareholders may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, although KDI believes that it is unlikely because of
the automatic conversion feature described under "Purchase of
Shares--Deferred Sales Charge Alternative--Class B Shares."

(7) As a result of the accrual of Rule 12b-1 fees, long-term Class C
shareholders of the Fund may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, Inc.

Example

The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.
1 year 3 years
------------------------------------- ----------- --------
Class A Shares (8)
Based on the estimated level of $__ $ __
total operating expenses listed
above, you would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return and
redemption at the end of each time
period:

Class B Shares (9)
Based on the estimated level of $ __ $ __
total operating expenses listed
above, you would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return and
redemption at the end of each time
period:

You would pay the following
expenses on
the same investment, assuming no $ __ $ __
redemption:

5
<PAGE>

Class C Shares (10)
Based on the estimated level of $__ $__
total operating expenses listed
above, you would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return and
redemption at the end of each time
period:

You would pay the following expenses
on
the same investment, assuming no
redemption: $__ $ __

(8) Assumes deduction of the maximum 4.5% initial sales charge at the time
of purchase and no deduction of a Contingent Deferred Sales Charge at
the time of redemption.

(9) Assumes that the shareholder was an owner of shares on the first day of
the first year and the contingent deferred sales charge was applied as
follows: 1 year (1%) and 3 years (0%).

(10) Assumes that the shareholder was the owner on the first day of the
first year and the contingent deferred sales charge of 1.00 % was
applied during the first year.

The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
Fund commenced operations on November 15, 1998, thus "Management Fees" and
"Other Expenses" are estimates for the fiscal year ending _____________, 1999.

The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or less than those shown.

6
<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS

The following information sets forth the Fund's investment objectives and
policies. The Fund's returns and net asset value will fluctuate and there is no
assurance that the Fund will achieve its objective.

High Yield II Fund. The primary objective of the Fund is to achieve the highest
level of current income obtainable from a professionally managed, diversified
portfolio of fixed income securities which the investment adviser considers
consistent with reasonable risk. The Fund will invest primarily in fixed income
securities and, under normal market conditions, the Fund will invest at least
65% of its total assets in high yield, fixed income securities. The Fund
anticipates that under normal conditions approximately 90 to 100% of its total
assets will be held in high yield, fixed income securities. As a secondary
objective, the Fund will seek capital gain where consistent with its primary
objective.

The high yield, fixed income securities (debt and preferred stock issues,
including convertibles and assignments or participations in loans) in which the
Fund intends to invest are commonly referred to as "junk bonds" and normally
offer a current yield or yield to maturity that is significantly higher than the
yield available from securities rated in the four highest categories assigned by
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"). The characteristics of the securities in the Fund's portfolio, such
as the maturity and the type of issuer, will affect yields and yield
differentials, which vary over time. The actual yield realized by the investor
is subject to, among other things, the Fund's expenses and the investor's
transaction costs.

There are market and investment risks with any security and the value of an
investment in the Fund may fluctuate over time. In seeking to achieve its
investment objectives, the Fund will invest in fixed income securities based on
the investment manager's analysis without relying on published ratings. The Fund
will invest in a particular security if in the view of the investment manager
the increased yield offered, regardless of published ratings, is sufficient to
compensate for a reasonable element of assumed risk. Since investments will be
based upon the investment manager's analysis rather than upon published ratings,
achievement of the Fund's goals may depend more upon the abilities of the
investment manager than would otherwise be the case. Investment in high yield
securities, while providing greater income and opportunity for gain than
investment in higher rated securities, entails relatively greater risk of loss
of income and principal. See "Special Risk Factors -- High Yield (High Risk)
Bonds" below and "Appendix -- Ratings of Investments" in the Statement of
Additional Information.

As a secondary objective, the Fund will seek capital gain where consistent with
its primary objective. However, the Fund intends to hold portfolio securities to
maturity unless yields on alternative investments, based on current market
prices, are more attractive than those on securities held in the Fund's
portfolio or unless the investment manager determines defensive strategies
should be implemented.

The Fund may invest up to 20% of its total assets in common stocks, rights or
other equity securities generally of companies that issue high yield, fixed
income securities. The Fund anticipates that under normal circumstances,
approximately 10% of its total assets will be invested in equity securities.

The Fund may borrow money for leverage purposes, which can exaggerate the effect
on its net asset value for any increase or decrease in the market value of the
Fund's portfolio. Money borrowed for leveraging will be limited to 20% of the
total assets of the Fund, including the amount borrowed. The Fund anticipates
that under normal conditions, the Fund would keep the leverage portion under 10%
of its total assets. These borrowings are subject to interest costs which may or
may not be recovered by the return received on the securities purchased. Under
certain circumstances, the interest costs may exceed the return received on the
securities purchased.

The Fund may invest all or a portion of its assets in money market instruments
such as obligations of the U.S. Government, its agencies or instrumentalities;
other debt securities rated within the three highest grades by Moody's or S&P;

7
<PAGE>

commercial paper rated within the two highest grades by either of such rating
services; bank certificates of deposit or bankers' acceptances of domestic or
Canadian chartered banks having total assets in excess of $1 billion; and any of
the foregoing investments subject to short-term repurchase agreements (an
instrument under which the purchaser acquires ownership of the underlying
obligation and the seller agrees, at the time of sale, to repurchase the
obligation at a mutually agreed upon time and price). The Fund may also purchase
and sell options on securities, index options, financial futures contracts and
options on financial futures contracts in connection with attempts to hedge its
portfolio investments and not for speculation; and it may purchase foreign
securities and engage in foreign currency transactions. See "Special Risk
Factors -- Foreign Securities" and "Additional Investment Information" below.

Special Risk Factors -- High Yield (High Risk) Bonds. As stated above, the Fund
invests a substantial portion of its assets in fixed income securities offering
high current income. Such high yield (high risk), fixed income securities
ordinarily will be in the lower rating categories (securities rated below BBB by
S&P or below Baa by Moody's) of nationally recognized statistical rating
agencies or will be non-rated and considered by the Adviser to be of equivalent
quality ("lower rated securities). Lower rated securities, which are commonly
referred to as "junk bonds," have widely varying characteristics and quality.
These lower 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.
Accordingly, an investment in the Fund may not constitute a complete investment
program and may not be appropriate for all investors.

The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also are more sensitive to economic conditions than are
higher rated securities or securities which are unrated by considered by the
Adviser to be of equivalent quality to higher rated securities ("higher rated
securities"). Adverse publicity and investor perceptions regarding lower rated
securities, whether or not based on fundamental analysis, may depress the prices
for such securities. These and other factors adversely affecting the market
value of high yield securities may adversely affect the Fund's net asset value.

The investment philosophy of the Fund with respect to high yield (high risk)
bonds is based upon the premise that over the long term a broadly diversified
portfolio of high yield fixed income securities should, even taking into account
possible losses, provide a higher net return than that achievable on a portfolio
of higher rated securities. The Fund seeks to achieve the highest yields
possible while reducing relative risk through (a) broad diversification, (b)
credit analysis by the Adviser of the issuers in which the Fund invests, (c)
purchasing high yield securities at discounts from par or stated value when
practicable and (d) monitoring and seeking to anticipate changes and trends in
the economy and financial markets that might affect the prices of portfolio
securities. The Adviser's judgment as to the "reasonableness" of the risk
involved in any particular investment will be a function of the Adviser's
experience in managing fixed income investments and its evaluation of general
economic and financial conditions, a specific issuer's business and management,
cash flow, earnings coverage of interest and dividends, ability to operate under
adverse economic conditions, and fair market value of assets, and of such other
considerations as the Adviser may deem appropriate. The investment manager,
while seeking maximum current yield, will monitor current corporate developments
with respect to portfolio securities and potential investments and to broad
trends in the economy. In some circumstances, defensive strategies may be
implemented to preserve or enhance capital even at the expense of current yield.
Defensive strategies, which may be used singly or in any combination, may
include, but are not limited to, investments in discount securities or
investments in money market instruments as well as futures and options
strategies.

High yield (high risk) 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

8
<PAGE>

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
yield securities because such securities are generally unsecured and are often
subordinated to other creditors of the issuer. Although some risk is inherent in
all securities ownership, holders of fixed income securities have a claim on the
assets of the issuer that is superior to the holders of common stock. Therefore,
an investment in fixed income securities generally entails less risk than an
investment in common stock of the same issuer.

The Fund may have difficulty disposing of certain high yield (high risk)
securities because they may have a thin trading market. Because not all dealers
maintain markets in all high yield securities, the Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market may have an adverse effect on
the market price and the Fund's ability to dispose of particular issues and may
also make it more difficult for the Fund to obtain accurate market quotations
for purposes of valuing the Fund's portfolio assets. Market quotations generally
are available on many high yield issues only from a limited number of dealers
and may not necessarily represent firm bids of such dealers or prices from
actual sales.

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 having similar maturities
and credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that, unlike bonds that pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment.

Current federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds) to accrue income with respect to these securities prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income and excise taxes, the
Fund will be required to distribute income accrued with respect to these
securities and may be required to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.

Additional information concerning high yield (high risk) securities appears
under "Appendix -- Portfolio Composition of High Yield Bonds" below and
"Appendix -- Ratings of Investments" in the Statement of Additional Information.

Special Risk Factors -- Foreign Securities. The Fund has the discretion to
invest a portion of its assets in foreign securities that are traded principally
in securities markets outside the United States. The Fund currently limits
investment in foreign securities not publicly traded in the United States to 25%
of total assets. The Fund may also invest without limit in U.S. Dollar
denominated American Depository Receipts ("ADRs"), which are bought and sold in
the United States and are not subject to the preceding limitation. In connection
with its foreign securities investments, the Fund may, to a limited extent,
engage in foreign currency exchange, options and futures transactions as a hedge
and not for speculation. See "Additional Investment Information -- Options and

9
<PAGE>

Financial Futures Transactions and Foreign Currency Transactions."

Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.

Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.

Emerging Markets. The Fund's investments in foreign securities may be in
developed countries or in countries considered by the Fund's investment manager
to be developing or "emerging" markets, which involve exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A 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, United Kingdom, 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
the Fund's assets, overly burdensome repatriation and similar restrictions, the
lack of organized and liquid securities markets, unacceptable political risks or
other reasons. As opportunities to invest in securities in emerging markets
develop, the Fund may expand and further broaden the group of emerging markets
in which it invests. In the past, markets of developing or emerging market
countries have been more volatile than the markets of developed countries;
however, such markets often have provided higher rates of return to investors.
The investment manager believes that these characteristics can be expected to
continue in the future.

Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross 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

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<PAGE>

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 the Fund to make intended securities purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Certain
emerging markets may lack clearing facilities equivalent to those in developed
countries. Accordingly, settlements can pose additional risks in such markets
and ultimately can expose the Fund to the risk of losses resulting from the
Fund's inability to recover from a counterparty.

The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.

Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of the Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.

Fixed Income. Since most foreign fixed income securities are not rated, the Fund
will invest in foreign fixed income securities based on the Adviser's analysis
without relying on published ratings. Since such investments will be based upon
the Adviser's analysis rather than upon published ratings, achievement of the
Fund's goals may depend more upon the abilities of the Adviser than would
otherwise be the case.

The value of the foreign fixed income securities held by the Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which the Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of the Fund's
investments in foreign fixed income securities, and the extent to which the Fund
hedges its interest rate, credit and currency exchange rate risks. Many of the
foreign fixed income obligations in which the Fund will invest will have long
maturities. A longer average maturity generally is associated with a higher
level of volatility in the market value of such securities in response to
changes in market conditions.

Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to

11
<PAGE>

the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and the Fund may be unable to
collect all or any part of its investment in a particular issue.

Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceeds of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of the Fund. A significant
portion of the sovereign debt in which the Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.

Privatized Enterprises. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government or state-owned or controlled company or enterprise that has not yet
conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.

In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.

In the case of the enterprises in which the Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.

Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or 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 enterprises'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 the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.

Depository Receipts. For many foreign securities, there are U.S. Dollar
denominated ADRs, which are bought and sold in the United States and are issued
by domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in the domestic bank or a correspondent bank. ADRs do not
eliminate all of the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by

12
<PAGE>

investing in ADRs, rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. The Fund may also
invest in securities of foreign issuers in the form of European Depository
Receipts ("EDRs") and Global Depository Receipts ("GDRs") which are receipts
evidencing an arrangement with a European bank similar to that for ADRs and are
designed for use in the European and other foreign securities markets. EDRs and
GDRs are not necessarily denominated in the currency of the underlying security.

Additional Investment Information. The Fund will not normally engage in the
trading of securities for the purpose of realizing short-term profits, but will
adjust its portfolio as considered advisable in view of prevailing or
anticipated market conditions and its investment objective. Accordingly, the
Fund may sell fixed income securities in anticipation of a rise in interest
rates and purchase such securities for inclusion in its portfolio in
anticipation of a decline in interest rates. Frequency of portfolio turnover
will not be a limiting factor should the Adviser deem it desirable to purchase
or sell securities. It is anticipated that, under normal circumstances, the
portfolio turnover rate for the Fund will not exceed [xxx]% during its initial
fiscal year. Higher portfolio turnover may result in the realization of greater
net short-term capital gains. See "Dividends and Taxes" in the Statement of
Additional Information.

The Fund may take full advantage of the entire range of maturities of fixed
income securities and may adjust the average maturity of its portfolio from time
to time, depending upon its assessment of relative yields on securities of
different maturities and its expectations of future changes in interest rates.
Thus, the average maturity of the Fund's portfolio may be relatively short
(under 5 years, for example) at some times and relatively long (over 10 years,
for example) at other times. Generally, since shorter term debt securities tend
to be more stable than longer term debt securities, the portfolio's average
maturity will be shorter when interest rates are expected to rise and longer
when interest rates are expected to fall.

The Fund has adopted certain fundamental investment restrictions which are
presented in the Statement of Additional Information and which cannot be changed
without approval by holders of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940 ("1940 Act"), this means the
lesser of the vote of (a) 67% of the shares of a Fund present at a meeting where
more than 50% of the outstanding shares are present in person or by proxy; or
(b) more than 50% of the outstanding shares of the Fund. Unless otherwise
indicated, the investment objectives and policies of the Fund are not
fundamental and can be changed by the Board of Trustees of the Trust without a
shareholder vote.

As a matter of fundamental policy, the Fund may not borrow money except as
permitted under Federal law. In addition, as a matter of fundamental policy, the
Fund may not make loans except through the lending of portfolio securities, the
purchase of debt instruments or interests in indebtedness or through repurchase
agreements.

A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.

The Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities. See "Investment Policies and Techniques -- Over-the-Counter
Options" in the Statement of Additional Information for a description of the
extent to which over-the-counter traded options are in effect considered
illiquid for purposes of the Fund's limit on illiquid securities. The Fund may
invest in securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933. This rule permits otherwise restricted securities to be
sold to certain institutional buyers, such as the Fund. Such securities may be
illiquid and subject to the Fund's limitation on illiquid securities. A "Rule
144A" security may be treated as liquid, however, if so determined pursuant to
procedures adopted by the Board of Trustees. Investing in Rule 144A securities
could have the effect of increasing the level of illiquidity in the Fund to the

13
<PAGE>

extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A securities.

Common Stocks. Subject to its investment objectives and policies, the Fund may
invest 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 or financial market movements. Smaller
companies are especially sensitive to these factors. An investment in common
stock entails greater risk of becoming valueless than does an investment in
fixed-income securities. Despite the risk of price volatility, however, common
stock also offers the greatest potential for long-term gain on investment,
compared to other classes of financial assets such as bonds or cash equivalents.

Convertible Securities. Subject to its investment objectives and policies, the
Fund may invest in convertible securities which may offer higher income than the
common stocks into which they are convertible. The convertible securities in
which the Fund may invest include 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. Prior to their conversion, convertible
securities may have characteristics similar to both nonconvertible debt
securities and equity securities. While convertible securities generally offer
lower yields than nonconvertible debt securities of similar quality, their
prices may reflect changes in the value of the underlying common stock.
Convertible securities generally entail less credit risk than the issuer's
common stock.

Options and Financial Futures Transactions. The Fund may deal in options on
securities and securities indexes, which options may be listed for trading on a
national securities exchange or traded over-the-counter. In connection with its
foreign securities investments, the Fund may also purchase and sell foreign
currency options.

The Fund may write (sell) covered call and secured put options on up to 25% of
its net assets. The Fund may purchase put and call options provided that no more
than 5% of its net assets may be invested in premiums on such options.

A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying security or
other asset at the exercise price during or at the end of the option period. The
writer of a covered call owns securities or other assets that are acceptable for
escrow and the writer of a secured put invests an amount not less than the
exercise price in eligible securities or other assets to the extent that it is
obligated as a writer. If a call written by the Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying security or other asset over the exercise price plus the premium
received. In writing puts, there is a risk that the Fund may be required to take
delivery of the underlying security or other asset at a disadvantageous price.

Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
the Fund may experience material losses. However, in writing options the premium
is paid in advance by the dealer. OTC options are available for a greater
variety of securities and other assets, and a wider range of expiration dates
and exercise prices, than for exchange traded options.

The Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to take
or make delivery of a specified quantity of a financial instrument, such as a
security, or the cash value of a securities index during a specified future

14
<PAGE>

period at a specified price. The Fund will "cover" futures contracts sold by the
Fund and maintain in a segregated account certain liquid assets in connection
with futures contracts purchased by the Fund as described under "Investment
Policies and Techniques" in the Statement of Additional Information. In
connection with its foreign securities investments, the Fund may also engage in
foreign currency financial futures transactions. The Fund will not enter into
any futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund.

The Fund may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, if the Fund owned
long-term bonds and interest rates were expected to rise, it could sell
financial futures contracts. If interest rates did increase, the value of the
bonds in the Fund would decline, but this decline would be offset in whole or in
part by an increase in the value of the Fund's futures contracts. If, on the
other hand, long-term interest rates were expected to decline, the Fund could
hold short-term debt securities and benefit from the income earned by holding
such securities, while at the same time the Fund could purchase futures
contracts on long-term bonds or the cash value of a securities index. Thus, the
Fund could take advantage of the anticipated rise in the value of long-term
bonds without actually buying them. The futures contracts and short-term debt
securities could then be liquidated and the cash proceeds used to buy long-term
bonds.

Futures contracts entail risks. If the Adviser's judgment about the general
direction of interest rates, markets or exchange rates is wrong, the overall
performance may be poorer than if no such contracts had been entered into. There
may be an imperfect correlation between movements in prices of futures contracts
and portfolio assets being hedged. In addition, the market prices of futures
contracts may be affected by certain factors. For example, if participants in
the futures market elect to close out their contracts rather than meet margin
requirements, distortions in the normal relationship between the underlying
assets and futures market could result. Price distortions also could result if
investors in futures contracts decide to make or take delivery of underlying
securities or other assets rather than engage in closing transactions because of
the resultant reduction in the liquidity of the futures market. In addition,
because, from the point of view of speculators, margin requirements in the
futures market are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities or other assets and movements in the prices of futures
contracts, a correct forecast of market trends by the investment manager still
may not result in a successful hedging transaction. If any of these events
should occur, the Fund could lose money on the financial futures contracts and
also on the value of its portfolio assets. The costs incurred in connection with
futures transactions could reduce the Fund's return.

Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.

The Fund may engage in futures transactions only on commodities exchanges or
boards of trade. The Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.

Foreign Currency Transactions. The Fund may invest a limited portion of its
assets in securities denominated in foreign currencies. The Fund may engage in
foreign currency transactions in connection with their investments in foreign
securities but will not speculate in foreign currency exchange.

The value of the foreign securities investments of the Fund measured in U.S.
Dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or through

15
<PAGE>

forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded directly between currency traders (usually
large commercial banks) and their customers.

When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the Fund is able to protect itself against a
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. Dollar and such foreign currency.
However, this tends to limit potential gains that might result from a positive
change in such currency relationships. The Fund may also hedge its foreign
currency exchange rate risk by engaging in foreign currency financial futures
and options transactions.

When the Adviser believes that the currency of a particular foreign country may
suffer a substantial decline against the U.S. Dollar, it may enter into a
forward contract to sell an amount of foreign currency approximating the value
of some or all of the Fund's securities denominated in such foreign currency.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain.

It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.

The Fund will not enter into forward contracts or maintain a net exposure in
such contracts where the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. The Fund does not intend to enter into forward
contracts for the purchase of a foreign currency if they would have more than
15% of the value of its total assets committed to such contracts. The Fund
segregates cash or liquid securities to the extent required by applicable
regulation in connection with forward foreign currency exchange contracts
entered into for the purchase of a foreign currency. The Fund generally does not
enter into a forward contract with a term longer than one year.

Derivatives. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate or a foreign currency
("derivatives"). Derivatives are most often used to manage investment risk, to
increase or decrease exposure to an asset class or benchmark (as a hedge or to
enhance return), or to create an investment position indirectly (often because
it is more efficient or less costly than direct investment). The types of
derivatives used by the Fund and the techniques employed by the Adviser may
change over time as new derivatives and strategies are developed or regulatory
changes occur.

Special Risk Factors -- Options, Futures, Foreign Currencies and other
Derivatives. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures or other derivatives contracts and

16
<PAGE>

movements in the prices of the securities or currencies hedged, used for cover
or that the derivatives intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; and (e) the possible non-performance of
the counter-party to the derivative contract.

To the extent the Fund engages in when-issued or delayed delivery transactions,
it will do so for the purpose of acquiring portfolio securities consistent with
the Fund's investment objective and policies. The Fund reserves the right to
sell these securities before the settlement date if deemed advisable.

In when-issued or delayed delivery transactions, delivery of the securities
occurs beyond normal settlement periods, but the Fund would not pay for such
securities or start earning interest on them until they are delivered. However,
when the Fund purchases securities on a when-issued or delayed delivery basis,
it immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure to deliver a security purchased on a when-issued or delayed
delivery basis may result in a loss or missed opportunity to make an alternative
investment. Depending on market conditions, the Fund's when-issued and delayed
delivery purchase commitments could cause its net asset value per share to be
more volatile, because such securities may increase the amount by which its
total assets, including the value of when-issued and delayed delivery securities
it holds, exceed its net assets.

Repurchase Agreements. The Fund may invest in repurchase agreements, under which
it acquires ownership of a security and the broker-dealer or bank agrees to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
might have 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. In addition, the Fund must take physical possession of
the security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through the Federal Reserve Book-Entry System. Repurchase agreements
will be limited to transactions with financial institutions believed by the
investment manager to present minimal credit risk. The investment manager will
monitor on an on-going basis the creditworthiness of the broker-dealers and
banks with which the Fund may engage in repurchase agreements. Repurchase
agreements maturing in more than seven days will be considered as illiquid for
purposes of the Fund's limitations on illiquid securities.

Borrowings. The Fund is authorized to borrow money for purposes of liquidity and
to provide for redemptions and distributions. Although the principal of the
Fund's borrowings will be fixed, the Fund's assets may change in value during
the time a borrowing is outstanding, thus increasing exposure to capital risk.

The Fund may also borrow money for leverage purposes, which can exaggerate the
effect on its net asset value for any increase or decrease in the market value
of the Fund's portfolio. These borrowings are subject to interest costs which

17
<PAGE>

may or may not be recovered by the return received on the securities purchased.
Under certain circumstances, the interest costs may exceed the return received
on the securities purchased.

Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend securities (principally to broker-dealers)
without limit where such loans are callable at any time and are continuously
secured by segregated collateral (cash or other liquid securities) equal to no
less than the market value, determined daily, of the securities loaned. The Fund
will receive amounts equal to dividends or interest on the securities loaned.
The Fund will also earn income for having made the loan. Any cash collateral
pursuant to these loans will be invested in short-term money market instruments.
As with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
investment manager to be of good standing, and when the investment manager
believes the potential earnings to justify the attendant risk.

Collateralized Obligations. Subject to its investment objective and policies,
the Fund may purchase collateralized obligations, including interest only ("IO")
and principal only ("PO") securities. A collateralized obligation is a debt
security issued by a corporation, trust or custodian, or by a U.S. Government
agency or instrumentality, that is collateralized by a portfolio or pool of
mortgages, Mortgage-Backed Securities, U.S. Government Securities or other
assets. The issuer's obligation to make interest and principal payments is
secured by the underlying pool or portfolio of securities. Collateralized
obligations issued or guaranteed by a U.S. Government agency or instrumentality,
such as the Federal Home Loan Mortgage Corporation, are considered to be U.S.
Government Securities for purposes of this prospectus. Privately-issued
collateralized obligations collateralized by a portfolio of U.S. Government
Securities are not direct obligations of the U.S. Government or any of its
agencies or instrumentalities and are not considered U.S. Government Securities
for purposes of this prospectus. A variety of types of collateralized
obligations are available currently and others may become available in the
future.

Since the collateralized obligations may be issued in classes with varying
maturities and interest rates, the investor may obtain greater predictability of
maturity than with direct investments in mortgage-backed securities. Classes
with shorter maturities may have lower volatility and lower yield while those
with longer maturities may have higher volatility and higher yield. This
provides the investor with greater control over the characteristics of the
investment in a changing interest rate environment. With respect to interest
only and principal only securities, an investor has the option to select from a
pool of underlying collateral the portion of the cash flows that most closely
corresponds to the investor's forecast of interest rate movements. These
instruments tend to be highly sensitive to prepayment rates on the underlying
collateral and thus place a premium on accurate prepayment projections by the
investor. The prices if certain collateralized obligations, depending on their
structure and the rate of prepayments, can be volatile. Some collateralized
obligations may also not be as liquid as other securities.

The Fund may invest in collateralized obligations whose yield floats inversely
against a specified index rate. These "inverse floaters" are more volatile than
conventional fixed or floating rate collateralized obligations and the yield
thereon, as well as the value thereof, will fluctuate in inverse proportion to
changes in the index upon which interest rate adjustments are based. As a
result, the yield on an inverse floater will generally increase when market
yields (as reflected by the index) decrease and decrease when market yields
increase. The extent of the volatility of inverse floaters depends on the extent
of anticipated changes in market rates of interest. Generally, inverse floaters
provide for interest rate adjustments based upon a multiple of the specified
interest index, which further increases their volatility. The degree of
additional volatility will be directly proportional to the size of the multiple
used in determining interest rate adjustments.

Additional information concerning collateralized obligations is contained in the
Statement of Additional Information under "Investment Policies and Techniques --
Collateralized Obligations."

18
<PAGE>

INVESTMENT MANAGER AND UNDERWRITER

Investment Manager. Scudder Kemper Investments, Inc. (the "Adviser" or "Scudder
Kemper"), 345 Park Avenue, New York, New York,, is the investment manager of the
Fund and provides the Fund with continuous professional investment supervision.
The Adviser is one of the largest investment managers in the country with more
than $200 billion in assets under management and has been engaged in the
management of investment funds for more than seventy years. Zurich Insurance
Company, a leading internationally recognized provider of insurance and
financial services in property/casualty and life insurance, reinsurance and
structured financial solutions as well as asset management, owns approximately
70% of the Adviser, with the balance owned by the Adviser's officers and
employees.

Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by the
Adviser. The investment management agreement provides that Scudder Kemper
Investments, Inc. shall act as the Fund's investment adviser, manage its
investments and provide it with various services and facilities.

On September [xx], 1998, the businesses of Zurich Insurance Company ("Zurich")
(including Zurich's 70% interest in Scudder Kemper) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") were combined to form a new
global insurance and financial services company known as Zurich Financial
Services Group. By way of a dual holding company structure, former Zurich
shareholders initially owned approximately 57% of Zurich Financial Services
Group, with the balance initially owned by former B.A.T shareholders.

Michael A. McNamara (since 1990) and Harry E. Resis, Jr. (since 1992) are the
portfolio co-managers of the Fund. Mr. McNamara joined the Adviser in February
1972 and is a Senior Vice President of the Adviser and a Vice President of the
Fund. He received a B.S. in Business Administration from the University of
Missouri, St. Louis, Missouri, and an M.B.A. in Finance from Loyola University,
Chicago, Illinois. Mr. Resis joined the Adviser in June, 1988 and is currently a
Senior Vice President of the Adviser and a Vice President of the Fund. He
received a B.A. in Finance from Michigan State University, East Lansing,
Michigan.

The Fund pays the Adviser investment management fees, payable monthly, at the
annual rates shown below.

Average Daily Net Assets High Yield II
------------------------ -------------
$0 - $250 million 0.65%
$250 million - $1 billion 0.62
$1 billion - $2.5 billion 0.60
$2.5 billion - $5 billion 0.58
$5 billion - $7.5 billion 0.55
$7.5 billion - $10 billion 0.54
$10 billion - $12.5 billion 0.53
Over $12.5 billion 0.51

Principal Underwriter. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, a wholly owned
subsidiary of Scudder Kemper, is the principal underwriter and distributor of
the Fund's shares and acts as agent of the Fund in the sale of its shares. KDI
bears all its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. KDI provides for the
preparation of advertising or sales literature and bears the cost of printing
and mailing prospectuses to persons other than shareholders. KDI bears the cost
of qualifying and maintaining the qualification of Fund shares for sale under
the securities laws of the various states and the Fund bears the expense of
registering its shares with the Securities and Exchange Commission. KDI may
enter into related selling group agreements with various broker-dealers,

19
<PAGE>

including affiliates of KDI, that provide distribution services to investors.
KDI also may provide some of the distribution services.

Class A Shares. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of the Fund's shares.

Class B Shares. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the annual rate of 0.75% of average
daily net assets of the Fund attributable to Class B shares. This fee is accrued
daily as an expense of Class B shares. KDI also receives any contingent deferred
sales charges. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares." KDI currently compensates firms for sales of
Class B shares at a commission rate of 3.75%.

Class C Shares. For its services under the distribution agreement, KDI receives
a fee from the Fund, payable monthly, at the annual rate of 0.75% of average
daily net assets of the Fund attributable to Class C shares. This fee is accrued
daily as an expense of Class C shares. KDI currently advances to firms the first
year distribution fee at a rate of 0.75% of the purchase price of Class C
shares. For periods after the first year, KDI currently pays firms for sales of
Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75%
of net assets attributable to Class C shares maintained and serviced by the firm
and the fee continues until terminated by KDI or the Fund. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of Shares --
Contingent Deferred Sales Charge -- Class C Shares."

Rule 12b-1 Plan. The Fund has adopted a Rule 12b-1 Plan that provides for fees
payable as an expense of the Class B shares and the Class C shares that are used
by KDI to pay for distribution services for those classes. The Plan is approved
and reviewed separately for the Class B shares and the Class C shares in
accordance with Rule 12b-1 under the 1940 Act, which regulates the manner in
which an investment company may, directly or indirectly, bear the expenses of
distributing its shares. The Fund's Rule 12b-1 Plan is separate from its
distribution agreement.

If the Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of the Fund to make payments to KDI pursuant to the Plan will
cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under the Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.

Administrative Services. KDI also provides information and administrative
services for shareholders of the Fund pursuant to administrative services
agreements ("administrative agreements"). KDI may enter into related
arrangements with various broker-dealer firms and other service or
administrative firms ("firms"), that provide services and facilities for their
customers or clients who are investors of the Fund. Such administrative services
and assistance may include, but are not limited to, establishing and maintaining
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund and its special features and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. KDI bears all its expenses of providing
services pursuant to the administrative agreement, including the payment of any
service fees. For services under the administrative agreements, the Fund pays
KDI a fee, payable monthly, at an annual rate of up to 0.25% of average daily
net assets of Class A, B and C shares of the Fund. With respect to Class A
shares, KDI then pays each firm a service fee at an annual rate of (a) up to
0.15% of net assets of those accounts that it maintains and services for the
Fund

20
<PAGE>

attributable to shares acquired prior to October 1, 1993, and (b) up to 0.25% of
net assets of those accounts that it maintains and services for the Fund
attributable to Class A shares acquired on or after October 1, 1993. With
respect to Class B shares and Class C shares, KDI pays each firm a service fee,
normally payable quarterly, at an annual rate of up to 0.25% of net assets of
those accounts in the Fund that it maintains and services attributable to Class
B shares and Class C shares, respectively. Firms to which service fees may be
paid include affiliates of KDI.

Class A Shares. For Class A shares, a firm becomes eligible for the service fee
based on assets in the accounts in the month following the month of purchase and
the fee continues until terminated by KDI or the Fund. The fees are calculated
monthly and normally paid quarterly.

Class B and Class C Shares. KDI currently advances to firms the first year
service fee at a rate of up to .25% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms a service fee
at a rate of up to 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 and the fee continues until terminated by KDI or the Fund.

KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from the
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of the Fund while this procedure is in
effect will depend upon the proportion of Fund assets that is in accounts for
which a firm provides administrative services as well as, with respect to Class
A shares (except for the Mortgage and Short-Intermediate Government Funds), the
date when shares representing such assets were purchased. In addition, KDI may,
from time to time, from its own resources, pay certain firms additional amounts
for ongoing administrative services and assistance provided to their customers
and clients who are shareholders of the Funds.

Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as
sub-custodian, has custody of all securities and cash of the Fund maintained in
the United States. The Chase Manhattan Bank, Chase MetroTech Center, Brooklyn,
New York 11245, as custodian, has custody of all securities and cash of the Fund
held outside the United States. Kemper Service Company ("KSvC"), an affiliate of
the Adviser, serves as "Shareholder Service Agent" of the Fund and as such,
performs duties as transfer agent and dividend-paying agent. For a description
of shareholder service agent fees payable to the Shareholder Service Agent, see
"Investment Manager and Underwriter" in the Statement of Additional Information.

Portfolio Transactions. The Adviser place all orders for purchases and sales of
the Fund's securities. Subject to seeking best execution of orders, the Adviser
may consider sales of shares of the Fund and other funds managed by the Adviser
or its affiliates as a factor in selecting broker-dealers. See "Portfolio
Transactions" in the Statement of Additional Information.

DIVIDENDS AND TAXES

Dividends. The Fund normally declares and distributes monthly dividends of net
investment income and distributes any net realized capital gains at least
annually.

Dividends paid by the Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.

21
<PAGE>

Income dividends and capital gain dividends, if any, of the Fund will be
credited to shareholder accounts in full and fractional shares of the same class
of the Fund at net asset value, except that, upon written request to the
Shareholder Service Agent, a shareholder may select one of the following
options:

22
<PAGE>

(1) To receive income and short-term capital gain dividends in cash
and long-term capital gain dividends in shares of the same class
at net asset value; or

(2) To receive income and capital gain dividends in cash.

Any dividends of the Fund that are reinvested normally will be reinvested in
shares of the same class of the Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of the Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features -- Class A Shares
- -- Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of the Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Fund reinvests dividend checks (and future
dividends) in shares of the same Fund and class if checks are returned as
undeliverable. Dividends and other distributions in the aggregate amount of $10
or less are automatically reinvested in shares of the Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.

Taxes. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code") and, if so
qualified, will not be liable for federal income taxes to the extent its
earnings are distributed. Dividends derived from net investment income and net
short-term capital gains are taxable to shareholders as ordinary income and
long-term capital gain dividends are taxable to shareholders as long-term
capital gain regardless of how long the shares have been held and whether
received in cash or shares. Long-term capital gain dividends received by
individual shareholders are taxed at a maximum rate of 20% on gains realized by
the Fund from securities held more than 18 months and at a maximum rate of 28%
on gains realized by the Fund from securities held more than 12 months but not
more than 18 months. Dividends declared in October, November or December to
shareholders of record as of a date in one of those months and paid during the
following January are treated as paid on December 31 of the calendar year
declared. A portion of the dividends paid by the Fund may qualify for the
dividends received deduction available to corporate shareholders. However, it is
anticipated that only a small portion, if any, of the dividends paid by the Fund
will so qualify.

A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.

Fund dividends that are derived from interest on direct (but not guaranteed)
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states. In
other states, arguments can be made that such distributions should be exempt
from state and local taxes based on federal law, 31 U.S.C. Section 3124, and the
U.S. Supreme Court's interpretation of that provision in American Bank and Trust
Co. v. Dallas County, 463 U.S. 855 (1983). Shareholders should consult their tax
advisers regarding the possible exclusion of such portion of their dividends for
state and local income tax purposes.

The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
("IRAs") or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.

23
<PAGE>

After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving dividend reinvestment and periodic
investment and redemption programs. Information for income tax purposes,
including information regarding any foreign taxes and credits, will be provided
after the end of the calendar year. Shareholders are encouraged to retain copies
of their account confirmation statements or year-end statements for tax
reporting purposes, including information regarding any foreign taxes and
credits. However, those who have incomplete records may obtain historical
account transaction information at a reasonable fee.

When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.

NET ASSET VALUE

For the Fund, the net asset value per share is determined separately for each
class by dividing the value of the Fund's net assets attributable to that class
by the number of shares of that class outstanding. The per share net asset value
of the Class B and Class C shares of the Fund will generally be lower than that
of the Class A shares of the Fund because of the higher expenses borne by the
Class B and Class C shares. Fixed income securities are valued by using market
quotations, or independent pricing services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Portfolio securities
that are primarily traded on a domestic securities exchange or securities listed
on the NASDAQ System are valued at the last sale price on the exchange or market
where primarily traded or listed or, if there is no recent sale price available,
at the last current bid quotation. Portfolio securities that are primarily
traded on foreign securities exchanges are generally valued at the preceding
closing values of such securities on their respective exchanges where primarily
traded. A security that is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for such
security by the Board of Trustees or its delegates. Securities not so traded or
listed are valued at the last current bid quotation if market quotations are
available. Equity options are valued at the last sale price unless the bid price
is higher or the ask price is lower, in which event such bid or asked price is
used. Exchange traded fixed income options, financial futures and options
thereon are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. Over-the-counter traded options,
swap agreements and swap-related products are valued based upon current prices
provided by market makers. Financial futures and options thereon are valued at
the settlement price established each day by the board of trade or exchange on
which they are traded. Other securities and assets are valued at fair value as
determined in good faith by the Board of Trustees. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world, the
calculation of net asset value of the Fund investing in foreign securities does
not necessarily take place contemporaneously with the determination of the
prices of the Fund's foreign securities, which may be made prior to the
determination of net asset value. For purposes of determining the net asset
value of the Fund investing in foreign securities, all assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
Dollar values at the mean between the bid and offered quotations of such
currencies against U.S. Dollars as last quoted by a recognized dealer. If an
event were to occur, after the value of a security was so established but before
the net asset value per share was determined, which was likely to materially
change the net asset value, then that security would be valued using fair value
determinations by the Board of Trustees or its delegates. On each day the New
York Stock Exchange (the "Exchange") is open for trading, the net asset value is
determined as of the earlier of 3:00 p.m. Chicago time or the close of the
Exchange.

24
<PAGE>

PURCHASE OF SHARES

Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.

The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Annual 12b-1 Fees (as
a % of average daily
Sales Charge net assets) Other Information
------------------------------------------- ------------------------ --------------------------
Class A Maximum initial sales charge of 4.5% of None Initial sales charge
the public offering price waived or reduced for
certain purchases (1)
Class B Maximum contingent deferred sales charge 0.75% Shares convert to Class
of 4% of redemption proceeds; declines to A shares six years after
zero after six years issuance

Class C Contingent deferred sales charge of 1% of 0.75% No conversion feature
redemption proceeds for redemptions made
during first year after purchase
</TABLE>

(1) Class A shares purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a 0.50% contingent deferred sales
charge if redeemed within the second year of purchase.

The minimum initial investment for the Fund is $1,000 and the minimum subsequent
investment is $100. The minimum initial investment for an Individual Retirement
Account is $250 and the minimum subsequent investment is $50. Under an automatic
investment plan, such as Bank Direct Deposit, Payroll Direct Deposit or
Government Direct Deposit, the minimum initial and subsequent investment is $50.
These minimum amounts may be changed at any time in management's discretion. In
order to begin accruing income dividends as soon as possible, purchasers may
wire payment to United Missouri Bank of Kansas City, N.A., 10th and Grand
Avenue, Kansas City, Missouri 64106.

Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).

Initial Sales Charge Alternative -- Class A Shares. The public offering price of
Class A shares for purchasers of the Fund choosing the initial sales charge
alternative is the net asset value plus a sales charge, as set forth below.

25
<PAGE>

Sales Charge
Allowed to Dealers
As a Percentage As a Percentage of as a Percentage of
Amount of Purchase of Offering Price Net Asset Value* Offering Price
------------------ ---------------- --------------
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over .00** .00** ***
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as discussed below.
*** Commission is payable by KDI as discussed below.
</TABLE>

The Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Fund's principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow up to the full applicable sales charge, as
shown in the above table, during periods and for transactions specified in such
notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.

Class A shares of the Fund may be purchased at net asset value to the extent
that the amount invested represents the net proceeds from a redemption of shares
of a mutual fund for which the Adviser or an affiliate does not serve as
investment manager ("non-Kemper Fund") provided that: (a) the investor has
previously paid either an initial sales charge in connection with the purchase
of the non-Kemper Fund shares redeemed or a contingent deferred sales charge in
connection with the redemption of the non-Kemper Fund shares, and (b) the
purchase of Fund shares is made within 90 days after the date of such
redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. KDI may in
its discretion compensate firms for sales of Class A shares under this privilege
at a commission rate of 0.50% of the amount of Class A shares purchased. The
redemption of the shares of the non-Kemper fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized.

Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in the Fund or other Kemper Mutual
Funds listed under "Special Features -- Class A Shares -- Combined Purchases"
totals at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features;" or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Large Order NAV Purchase Privilege."

KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored

26
<PAGE>

employee benefit plans using the subaccount record keeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale, KDI will consider the cumulative amount
invested by the purchaser in the Fund and other Kemper Mutual Funds listed under
"Special Features -- Class A Shares -- Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of the Fund at net asset value under the Large Order NAV Purchase Privilege is
not available if another net asset value purchase privilege also applies.

Effective on February 1, 1996, Class A shares of the Fund or any other Kemper
Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be purchased at net asset value in any amount by members of the
plaintiff class in the proceeding known as Howard and Audrey Tabankin, et al. v.
Kemper Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This
privilege is generally non-transferrable and continues for the lifetime of
individual class members and for a tenyear period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement,
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, KDI may at its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to 0.25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by KDI. The
privilege of purchasing Class A shares of the Fund at net asset value under this
privilege is not available if another net asset value purchase privilege also
applies.

Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
the Fund, its investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their families; (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees of service agents of
the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Fund, Inc. ("KVF") on September 8,
1995, and have continuously owned shares of KVF (or a Kemper Fund acquired by
exchange of KVF shares) since that date, for themselves or members of their
families, and (d) any trust or pension, profit-sharing or other benefit plan for
only such persons. Class A shares may be sold at net asset value in any amount
to selected employees (including their spouses and dependent children) of banks
and other financial services firms that provide administrative services related
to order placement and payment to facilitate transactions in shares of the Fund
for their clients pursuant to an agreement with KDI or one of its affiliates.
Only those employees of such banks and other firms who as part of their usual
duties provide services related to transactions in Fund Class A shares may
purchase Fund shares at net asset value hereunder. Class A shares may be sold at
net asset value in any amount to unit investment trusts sponsored by Ranson &
Associates, Inc. In addition, unitholders of unit investment trusts sponsored by
Ranson & Associates, Inc. or its predecessors may purchase the Fund's Class A
shares at net asset value through reinvestment programs described in the
prospectuses of such trusts that have such programs. Class A shares of the Fund
may be sold at net asset value through certain investment advisers registered
under the Investment Advisers Act of 1940 and other financial services firms
that adhere to certain standards established by KDI, including a requirement
that such shares be sold for the benefit of their clients participating in an
investment advisory program under which such clients pay a fee to the investment
adviser or other firm for portfolio management and other services. Such shares
are sold for investment purposes and on the condition that they will not be
resold except through redemption or repurchase by the Funds. The Fund may also
issue Class A shares at net asset value in connection with the acquisition of

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<PAGE>

the assets of or merger or consolidation with another investment company, or to
shareholders in connection with the investment or reinvestment of income and
capital gain dividends.

Class A shares of the Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.

Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.

Class A shares of the Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.

The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.

Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares."

KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."

Class B shares of the Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share. The purpose of the conversion feature is to relieve holders of Class
B shares from the distribution services fee when they have been outstanding long
enough for KDI to have been compensated for distribution related expenses. For
purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and other distributions paid with respect to Class B
shares in a shareholder's Fund account will be converted to Class A shares on a
pro rata basis.

Purchase of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase price of such shares. For periods after the

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<PAGE>

first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."

Which Arrangement is Better for You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the three sales arrangements, consult your
financial representative or the Shareholder Service Agent. Financial services
firms may receive different compensation depending upon which class of shares
they sell.

General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.

KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold by the firm under the following conditions: (I) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
KSvC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by KSvC in acknowledgment of their
dedication to the employee benefit plan area and (iv) the purchase is not
otherwise subject to a commission.

In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Fund. Non-cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the Fund
or other funds underwritten by KDI.

Order for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). The Fund reserves the right to determine the net asset value more
frequently than once a day if deemed desirable. Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take

29
<PAGE>

significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information.

Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Fund's shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.

The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, the Fund
may temporarily suspend the offering of any class of its shares to new
investors. During the period of such suspension, persons who are already
shareholders of such class of the Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.

Shareholders should direct their inquiries to KSvC, 811 Main Street, Kansas
City, Missouri 64105-2005 or to the firm from which they received this
prospectus.

REDEMPTION OR REPURCHASE OF SHARES

General. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.

The redemption price for shares of the Fund will be the net asset value per
share of the Fund next determined following receipt by the Shareholder Service
Agent of a properly executed request with any required documents as described
above. Payment for shares redeemed will be made in cash as promptly as
practicable but in no event later than seven days after receipt of a properly
executed request accompanied by any outstanding share certificates in proper
form for transfer. When the Fund is asked to redeem shares for which it may not

30
<PAGE>

have yet received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), it may delay transmittal of redemption proceeds until it
has determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by the Fund of the purchase
amount. The redemption within two years of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge (see "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares"), the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge -- Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge -- Class C Shares"
below).

Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.

Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.

Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.

Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms

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<PAGE>

may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.

Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if the Adviser deems it appropriate under then current market
conditions. Once authorization is on file, the Shareholder Service Agent will
honor requests by telephone at 1-800-621-1048 or in writing, subject to the
limitations on liability described under "General" above. The Fund ia not
responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. The Fund currently does not charge the
account holder for wire transfers. The account holder is responsible for any
charges imposed by the account holder's firm or bank. There is a $1,000 wire
redemption minimum (including any contingent deferred sales charge). To change
the designated account to receive wire redemption proceeds, send a written
request to the Shareholder Service Agent with signatures guaranteed as described
above or contact the firm through which shares of the Fund were purchased.
Shares purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may
not be redeemed by wire transfer until such shares have been owned for at least
10 days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
redemption privilege. The Fund reserves the right to terminate or modify this
privilege at any time.

Contingent Deferred Sales Charge -- Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.

Contingent Deferred Sales Charge -- Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.

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<PAGE>

Contingent Deferred
Year of Redemption After Purchase Sales Charge
- --------------------------------- ------------
First.................................................... 4%
Second................................................... 3%
Third.................................................... 3%
Fourth................................................... 2%
Fifth.................................................... 2%
Sixth.................................................... 1%

The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
- -- Systematic Withdrawal Plan" below) and (d) for redemptions made pursuant to
any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2; and (e)
for redemptions to satisfy required minimum distributions after age 70 1/2 from
an IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in the Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.

Contingent Deferred Sales Charge -- Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special Features --
Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any IRA
systematic withdrawal based on the shareholder's life expectancy including, but
not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service Agent
and (g) redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has waived
the advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.

Contingent Deferred Sales Charge -- General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 in appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to

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<PAGE>

$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.

The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1998 will be eligible for the second year's charge if redeemed on or
after December 1, 1999. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. KDI receives any contingent deferred
sales charge directly.

Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Mutual Fund listed under "Special Features -- Class A
Shares -- Combined Purchases" (other than shares of the Kemper Cash Reserves
Fund purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Mutual Funds. A shareholder of the Fund
or other Kemper Mutual Fund who redeems Class A shares purchased under the Large
Order NAV Purchase Privilege (see "Purchase of Shares -- Initial Sales Charge
Alternative -- Class A Shares") or Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment in Class A shares, Class B
shares or Class C shares, as the case may be, of the Fund or of other Kemper
Mutual Funds. The amount of any contingent deferred sales charge also will be
reinvested. These reinvested shares will retain their original cost and purchase
date for purposes of the contingent deferred sales charge. Also, a holder of
Class B shares who has redeemed shares may reinvest up to the full amount
redeemed, less any applicable contingent deferred sales charge that may have
been imposed upon the redemption of such shares, at net asset value in Class A
shares of the Fund or of the other Kemper Mutual Funds listed under "Special
Features -- Class A Shares -- Combined Purchases." Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Mutual
Funds available for sale in the shareholder's state of residence as listed under
"Special Features -- Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of the Fund's
shares, the reinvestment in the Fund may be subject to the "wash sale" rules if
made within 30 days of the redemption, resulting in a postponement of the
recognition of such loss for federal income tax purposes.
The reinvestment privilege may be terminated or modified at any time.

SPECIAL FEATURES

Class A Shares -- Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Income Trust Kemper Technology Fund, Kemper Total Return
Fund, Kemper Growth Fund, Kemper Small Capitalization Equity Fund, Kemper Income
and Capital Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified
Income Fund, Kemper High Yield Series, Kemper U.S. Government Securities Fund,
Kemper International Fund, Kemper State Tax-Free Income Series, Kemper
Adjustable Rate U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global
Income Fund, Kemper Target Equity Fund (series are subject to a limited offering
period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund,
Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper
Value Series, Inc., Kemper Value+Growth Fund, Kemper Quantitative Equity Fund,
Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper U.S.
Growth and Income Fund, Kemper-Dreman Financial Services Fund, Kemper Value
Fund, Kemper Classic Growth Fund and Kemper Global Discovery Fund ("Kemper
Mutual Funds"). Except as noted below, there is no combined purchase credit for
direct purchases of shares of Zurich Money Funds, Cash Equivalent Fund,

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<PAGE>

Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund or Investors Cash Trust ("Money Market Funds"), which are not
considered "Kemper Mutual Funds" for purposes hereof. For purposes of the
Combined Purchases feature described above as well as for the Letter of Intent
and Cumulative Discount features described below, employer sponsored employee
benefit plans using the subaccount record keeping system made available through
the Shareholder Service Agent may include: (a) Money Market Funds as "Kemper
Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund, and (c) the
value of any other plan investments, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.

Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares of the Fund are included for this privilege.

Class A Shares -- Cumulative Discount. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Kemper Mutual Funds (computed at the maximum offering
price at the time of the purchase for which the discount is applicable) already
owned by the investor.

Class A Shares -- Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.

Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.

Class A Shares. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features -- Class A Shares -- Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.

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<PAGE>

Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Mutual Fund or a
Money Market Fund under the exchange privilege described above without paying
any contingent deferred sales charge at the time of exchange. If the Class A
shares received on exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed in accordance with the foregoing requirements provided
that the shares redeemed will retain their original cost and purchase date for
purposes of the contingent deferred sales charge.

Class B Shares. Class B shares of the Fund and Class B shares of any other
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class B shares may be exchanged without any contingent deferred sales charge
being imposed at the time of exchange. For purposes of the contingent deferred
sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.

Class C Shares. Class C shares of the Fund and Class C shares of any other
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class C shares may be exchanged without a contingent deferred sales charge being
imposed at the time of exchange. For determining whether there is a contingent
deferred sales charge that may be imposed upon the redemption of the Class C
shares received by exchange, they retain the cost and purchase date of the
shares that were originally purchased and exchanged.

General. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15 Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, direction, or
advice, including without limitation, accounts administered by a financial
services firm offering market timing, asset allocation or similar services. The
total value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis of such shares. Shareholders interested in exercising the exchange
privilege may obtain prospectuses of the other funds from dealers, other firms
or KDI. Exchanges may be accomplished by a written request to KSvC, Attention:
Exchange Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
Repurchase of Shares -- General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Except as otherwise permitted by
applicable regulations, 60 days' prior written notice of any termination or
material change will be provided. Exchanges may only be made for funds that are
available for sale in the shareholder's state of residence. Currently,
Tax-Exempt California Money Market Fund is available for sale only in California
and the portfolios of Investors Municipal Cash Fund are available for sale only
in certain states.

Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the other

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<PAGE>

Kemper Fund. Exchanges are subject to the terms and conditions described above
under "Exchange Privilege" except that the $1,000 minimum investment requirement
for the Kemper Fund acquired on exchange is not applicable. This privilege may
not be used for the exchange of shares held in certificated form.

EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer, a shareholder can initiate a transaction by calling
Shareholder Services toll free at 1-800-621-1048 Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as
Individual Retirement Accounts ("IRAs").

Bank Direct Deposit. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (minimum $50 maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination by a shareholder will become effective within thirty
days after the Shareholder Service Agent has received the request. The Fund may
immediately terminate a shareholder's Plan in the event that any item is unpaid
by the shareholder's financial institution. The Funds may terminate or modify
this privilege at any time.

Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.

Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares may be redeemed (and Class A shares purchased under the Large Order NAV
Purchase Privilege and Class C shares in their first year following the
purchase) under a systematic withdrawal plan is 10% of the net asset value of
the account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment. Depending

37
<PAGE>

upon the size of the payments requested and fluctuations in the net asset value
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.

The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Funds.

Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:

* Individual Retirement Accounts ("IRAs") with IFTC as custodian.
This includes Savings Incentive Match Plan for Employees of Small
Employers ("SIMPLE"), IRA accounts and Simplified Employee
Pension Plan ("SEP") IRA accounts and prototype documents.

* 403(b)(7) Custodial Accounts also with IFTC as custodian. This
type of plan is available to employees of most non-profit
organizations.

* Prototype money purchase pension and profit-sharing plans may be
adopted by employers. The maximum annual contribution per
participant is the lesser of 25% of compensation or $30,000.

Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.

PERFORMANCE

The Fund may advertise several types of performance information for a class of
shares, including "yield" and "average annual total return" and "total return."
Performance information will be computed separately for Class A, Class B and
Class C shares of the Fund. Each of these figures is based upon historical
results and is not representative of the future performance of any class of the
Fund. The Fund with fees or expenses being waived or absorbed by the Adviser may
also advertise performance information before and after the effect of the fee
waiver or expense absorption.

The Fund's yield is a measure of the net investment income per share earned over
a specific one month or 30-day period expressed as a percentage of the maximum
offering price of the Fund's shares at the end of the period. Yield is an
annualized figure, which means that it is assumed that the Fund generates the
same level of net investment income over a one year period. Net investment
income is assumed to be compounded semiannually when it is annualized.

Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at

38
<PAGE>

least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.

The Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged bond indexes including, but not limited to, the Salomon
Brothers High Grade Corporate Bond Index, the Lehman Brothers Adjustable Rate
Index, the Lehman Brothers Aggregate Bond Index, the Lehman Brothers
Government/Corporate Bond Index, the Salomon Brothers Long-Term High Yield
Index, the Salomon Brothers 30 Year GNMA Index and the Merrill Lynch Market
Weighted Index and may also be compared to the performance of other mutual funds
or mutual fund indexes with similar objectives and policies as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charge.

Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit and other bank products, money market
funds and U.S. Treasury obligations. Bank product performance may be based upon,
among other things, the BANK RATE MONITOR National IndexTM or various
certificate of deposit indexes. Money market fund performance may be based upon,
among other things, the IBC/Donoghue's Money Fund Report(R) or Money Market
Insight(R), reporting services on money market funds. Performance of U.S.
Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured. Economic indicators
may include, without limitation, indicators of market rate trends and cost of
funds, such as Federal Home Loan Bank Board 11th District Cost of Funds Index
("COFI").

The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.

The yield or price volatility of the Fund (particularly the Adjustable Rate
Fund) may be compared to various securities, such as U.S. Government Securities,
or indexes, such as the COFI referred to above or the Constant Maturity Treasury
Index ("CMT") published by the Federal Reserve Board. The Fund may include in
its sales literature and shareholder reports a quotation of the current
"distribution rate" for the Fund. Distribution rate is simply a measure of the
level of dividends distributed for a specified period. It differs from yield,
which is a measure of the income actually earned by the Fund's investments, and
from total return, which is a measure of the income actually earned by, plus the
effect of any realized and unrealized appreciation or depreciation of, such
investments during the period. Distribution rate is, therefore, not intended to
be a complete measure of performance. Distribution rate may sometimes be greater
than yield since, for instance, it may include gains from the sale of options or
other short-term and possibly long-term gains (which may be non-recurring) and
may not include the effect of amortization of bond premiums. As reflected under
"Investment Objectives, Policies and Risk Factors -- Additional Investment
Information," option writing can limit the potential for capital appreciation.

Class A shares of the Fund are sold at net asset value plus a maximum sales
charge of 4.5% of the offering price (3.5% for the Adjustable Rate and
Short-Intermediate Government Funds). While the maximum sales charge is normally
reflected in the Fund's Class A performance figures, certain total return
calculations may not include such charge and those results would be reduced if
it were included. Class B shares and Class C shares are sold at net asset value.

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<PAGE>

Redemptions of Class B shares within the first six years after purchase may be
subject to a contingent deferred sales charge that ranges from 4% during the
first year to 0% after six years. Redemption of Class C shares within the first
year after purchase may be subject to a 1% contingent deferred sales charge.
Average annual total return figures do, and total return figures may, include
the effect of the contingent deferred sales charge for the Class B shares and
Class C shares that may be imposed at the end of the period in question.
Performance figures for the Class B shares and Class C shares not including the
effect of the applicable contingent deferred sales charge would be reduced if it
were included.

The Fund's returns and net asset value will fluctuate and shares of the Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information concerning the Fund's performance appears in the Statement of
Additional Information. Additional information about the Fund's performance also
appears in its Annual Report to Shareholders, which is available without charge
from the applicable Fund.

CAPITAL STRUCTURE

The Fund is a series of Kemper Income Trust (the "Trust"), a registered
management investment company organized as a business trust under the laws of
Massachusetts on ___________, 1998.

The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having $.01 par value, which may be divided
by the Board of Trustees into classes of shares. The Board of Trustees of the
Trust may authorize the issuance of additional classes and additional Portfolios
if deemed desirable, each with its own investment objective, policies and
restrictions. Since the Trust may offer multiple Portfolios, it is known as a
"series company." Shares of a fund or "Portfolio" have equal noncumulative
voting rights and equal rights with respect to dividends, assets and liquidation
of such Portfolio and are subject to any preferences, rights or privileges of
any classes of shares of the Portfolio. Currently, the Trust , on behalf of the
Fund, offers three classes of shares. These are Class A, Class B and Class C
shares, which have different expenses, that may affect performance, and are
available for purchase exclusively by the following investors: (a) tax-exempt
retirement plans of the Adviser and its affiliates; and (b) the following
investment advisory clients of the Adviser and its investment advisory
affiliates that invest at least $1 million in a Portfolio: (1) unaffiliated
benefit plans, such as qualified retirement plans (other than individual
retirement accounts and self-directed retirement plans); (2) unaffiliated banks
and insurance companies purchasing for their own accounts; and (3) endowment
funds of unaffiliated non-profit organizations. Shares of the Fund have equal
noncumulative voting rights except that Class B and Class C shares have separate
and exclusive voting rights with respect to the Fund's Rule 12b-1 Plan. Shares
of each class also have equal rights with respect to dividends, assets and
liquidation subject to any preferences (such as resulting from different Rule
12b-1 distribution fees), rights or privileges of any classes of shares of the
Fund. Shares of the Fund are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
The Trust is not required to hold annual shareholder meetings and does not
intend to do so. However, it will hold special meetings as required or deemed
desirable for such purposes as electing trustees, changing fundamental policies
or approving an investment management agreement. Subject to the Agreement and
Declaration of Trust of the Trust, shareholders may remove trustees. If shares
of more than one Portfolio for the Trust are outstanding, shareholders will vote
by Portfolio and not in the aggregate or by class except when voting in the
aggregate is required under the 1940 Act, such as for the election of trustees,
or when voting by class is appropriate.

<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 15, 1998

Kemper High Yield Fund II

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 the fund (the "Fund") listed above. It
should be read in conjunction with the prospectus of the Fund dated November 15,
1998. The prospectus may be obtained without charge from the Fund at the address
or telephone number on this cover or from the firm from which this Statement of
Additional Information was obtained.

TABLE OF CONTENTS
INVESTMENT RESTRICTIONS.......................................................2
INVESTMENT POLICIES AND TECHNIQUES............................................3
PORTFOLIO TRANSACTIONS........................................................8
INVESTMENT MANAGER AND UNDERWRITER............................................9
PURCHASE AND REDEMPTION OF SHARES............................................12
DIVIDENDS AND TAXES..........................................................12
PERFORMANCE..................................................................14
OFFICERS AND TRUSTEES........................................................16

Scudder Kemper Investments, Inc. acts as the Fund's investment manager .

KFIF-13 12/97
printed on recycled paper

<PAGE>

INVESTMENT RESTRICTIONS

The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the shares of the Fund present at a meeting where more than 50% of
the outstanding shares are present in person or by proxy or (b) more than 50% of
the outstanding shares of the Fund.

As a matter of fundamental policy, the Fund has elected to be
classified as a diversified series of a registered open-end management
investment company.

The Fund may not, as a fundamental policy:

(a) 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;

(b) issue senior securities, 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;

(d) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;

(e) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages or
investments secured by real estate or interests therein, except
that the Fund reserves freedom of action to hold and to sell real
estate acquired as a result of the Fund's ownership of
securities;

(f) make loans 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; and

(g) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.

The Fund may not, as a non-fundamental policy which may be changed by the
Trustees without a vote of shareholders:

(1) invest more than 15% of the value of its net assets in illiquid
securities.

If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.

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<PAGE>

INVESTMENT POLICIES AND TECHNIQUES

General. The Fund may engage in options and financial futures and other
derivatives transactions in accordance with its investment objectives and
policies. The Fund intends to engage in such transactions if it appears to the
investment manager to be advantageous to do so in order to pursue its investment
objective and also to hedge against the effects of market risks but not for
speculative purposes. The use of futures and options, and possible benefits and
attendant risks, are discussed below along with information concerning other
investment policies and techniques.

Options on Securities. The Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash or other liquid securities ("eligible securities") to the
extent required by applicable regulation in connection with the optioned
securities. The Fund may write "covered" put options provided that, as long as
the Fund is obligated as a writer of a put option, the Fund will own an option
to sell the underlying securities subject to the option, having an exercise
price equal to or greater than the exercise price of the "covered" option, or it
will deposit and maintain in a segregated account eligible securities having a
value equal to or greater than the exercise price of the option. A call option
gives the purchaser the right to buy, and the writer the obligation to sell, the
underlying security at the exercise price during 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 Fund 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 the Fund to protect capital gains in an appreciated security it
owns, without being required to actually sell that security. At times the Fund
would like to establish a position in a security upon which call options are
available. By purchasing a call option, the Fund is able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because the Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.

During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.

If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium. 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.

Over-the-Counter Options. As indicated in the prospectus (see "Investment
Objectives, Policies and Risk Factors"), the Fund 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 the Fund
may experience material losses. However, in writing options the premium is paid
in advance by the dealer. OTC options are available for a greater variety of
securities, and a wider range of expiration dates and exercise prices, than are

3
<PAGE>

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, the Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when the Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.

The 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 Fund has adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Fund's portfolio. A brief description of
such procedures is set forth below.

The Fund will only engage in OTC options transactions with dealers that have
been specifically approved by the investment manager pursuant to procedures
adopted by the Fund's Board of Trustees. The investment manager believes that
the approved dealers should be able to enter into closing transactions if
necessary and, therefore, present minimal credit risks to the Fund. The
investment manager will monitor the creditworthiness of the approved dealers on
an ongoing basis. The Fund currently will not engage in OTC options transactions
if the amount invested by the Fund in OTC options, plus a "liquidity charge"
related to OTC options written by the Fund, plus the amount invested by the Fund
in illiquid securities, would exceed 15% of the Fund's net assets. The
"liquidity charge" referred to above is computed as described below.

The Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements the Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.

Options on Securities Indices. The Fund also may purchase and write call and put
options on securities indices in an attempt to hedge against market conditions
affecting the value of securities that the Fund owns or intends to purchase, and
not for speculation. Through the writing or purchase of index options, the Fund
can achieve many of the same objectives as through the use of options on
individual securities. Options on securities indices are similar to options on a
security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to such difference between the
closing price of the index and the exercise price of the option. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount. Unlike security options, all settlements are in cash and gain or
loss depends upon price movements in the market generally (or in a particular
industry or segment of the market), rather than upon price movements in
individual securities. Price movements in securities that the Fund owns or
intends to purchase will probably not correlate perfectly with movements in the
level of an index since the prices of such securities may be affected by
somewhat different factors and, therefore, the Fund bears the risk that a loss
on an index option would not be completely offset by movements in the price of
such securities.

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When the Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.

The Fund may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on a securities index
involve risks similar to those risks relating to transactions in financial
futures contracts described below. Also, an option purchased by the Fund may
expire worthless, in which case the Fund would lose the premium paid therefor.

Financial Futures Contracts. The Fund may enter into financial futures contracts
for the future delivery of a financial instrument, such as a security, or an
amount of foreign currency or the cash value of a securities index. This
investment technique is designed primarily to hedge (i.e., protect) against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might affect adversely the value of securities or other assets which
the Fund holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the securities or the cash
value of an index or foreign currency called for by the contract at a specified
price during a specified delivery period. A "purchase" of a futures contract
means the undertaking of a contractual obligation to acquire the securities or
cash value of an index or foreign currency at a specified price during a
specified delivery period. At the time of delivery, in the case of fixed income
securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than that specified in the contract. In some cases, securities
called for by a futures contract may not have been issued at the time the
contract was written.

Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery 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.
The Fund will incur brokerage fees when it purchases or sells contracts, and
will be required to maintain margin deposits. At the time the Fund enters into a
futures contract, it is required to deposit with its custodian, on behalf of the
broker, a specified amount of cash or eligible securities, called "initial
margin." The initial margin required for a futures contract is set by the
exchange on which the contract is traded. Subsequent payments, called "variation
margin," to and from the broker are made on a daily basis as the market price of
the futures contract fluctuates. The costs incurred in connection with futures
transactions could reduce the Fund's return. Futures contracts entail risks. If
the investment manager's judgment about the general direction of markets or
exchange rates is wrong, the overall performance may be poorer than if no such
contracts had been entered into.

There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.

Options on Financial Futures Contracts. The Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. The Fund will

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<PAGE>

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 the Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.

Delayed Delivery Transactions. The Fund may purchase or sell portfolio
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by the Fund 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 Fund at
the time of entering into the transaction. When the Fund enters into a delayed
delivery transaction, it becomes obligated to purchase securities and it has all
of 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 the
Fund 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 the Fund 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. The Fund generally has the ability to close out a purchase obligation on
or before the settlement date, rather than take delivery of the security.

To the extent the Fund engages in when-issued or delayed delivery purchases, it
will do so for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies. The Fund reserves the right to sell
these securities before the settlement date if deemed advisable.

Regulatory Restrictions. To the extent required to comply with applicable
regulation, when purchasing a futures contract, writing a put option or entering
into a delayed delivery purchase or a forward currency exchange purchase, the
Fund will maintain eligible securities in a segregated account. The Fund will
use cover in connection with selling a futures contract.

The Fund will not engage in transactions in financial futures contracts or
options thereon for speculation, but only in an attempt to hedge against changes
in interest rates or market conditions affecting the value of securities which
the Fund holds or intends to purchase.

Foreign Currency Options. The Fund may engage in foreign currency options
transactions. A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.

A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if the Fund
were holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund had
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.

Foreign Currency Futures Transactions. As part of its financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Fund may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, the Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.

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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. The Fund may engage in forward
foreign currency transactions. 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 the Fund. The Fund will not speculate
in foreign currency exchange.

If the Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain that might result should the value of such currency increase. The
Fund may have to convert its holdings of foreign currencies into U.S. Dollars
from time to time in order to meet such needs as Fund expenses and redemption
requests. Although foreign exchange dealers do not charge a fee for conversion,
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies.

The Fund will not enter into forward contracts or maintain a net exposure in
such contracts when the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. See "Foreign Currency Transactions" under
"Investment Objectives, Policies and Risk Factors -- Additional Investment
Information" in the prospectus. The Fund segregates eligible securities to the
extent required by applicable regulation in connection with forward foreign
currency exchange contracts entered into for the purchase of foreign currency.
The Fund does not intend to enter into forward contracts for the purchase of a
foreign currency if they would have more than 15% of the value of its total
assets committed to such contracts. The Fund generally will not enter into a
forward contract with a term longer than one year.

Collateralized Obligations. The Fund will currently invest in only those
collateralized obligations that are fully collateralized and that meet the
quality standards otherwise applicable to the Fund'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. The Fund currently
does not intend to invest more than 5% of its total 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, the Fund
does not intend to invest more than 10% of its total 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

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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 10% of the Fund's total 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 the
Fund's limitation on illiquid securities, however, the Board of Trustees of the
Fund may adopt guidelines under which governmentally-issued IO's and PO's may be
determined to be liquid.

Zero Coupon Government Securities. Subject to its investment objective and
policies, the Fund 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 (see "Investment Objectives, Policies and Risk Factors --
Additional Investment Information -- Collateralized Obligations" in the
prospectus). 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 obligation.
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. The Fund currently does not intend to
invest more than 5% of its net assets in zero coupon U.S. Government Securities
during the current year.

Master/Feeder Structure. The Board of Trustees may determine, without further
shareholder approval, in the future that the objective of the Fund would be
achieved more effectively by investing in a master fund in a master/feeder
structure. A master/feeder structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests 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 in the master fund in an effort to achieve possible economies of
scale and efficiencies in portfolio management, while preserving separate
identities, management or distribution channels at the feeder fund level. 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 the
realization of taxable gain or loss, or by contributing its assets to the master
fund and avoiding transaction costs and the realization of taxable gain or loss.

PORTFOLIO TRANSACTIONS

Scudder Kemper Investments, Inc. (the "Adviser") and its affiliates furnish
investment management services for the Kemper Funds, Zurich Money Market Funds
and other clients including affiliated insurance companies. The Adviser and its
affiliates share some common research and trading facilities. At times
investment decisions may be made to purchase or sell the same investment
securities for the Fund and for one or more of the other clients managed by the
Adviser or its affiliates. When two or more of such clients are simultaneously
engaged in the purchase or sale of the same security through the same trading
facility, the transactions are allocated as to amount and price in a manner
considered equitable to each.

National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options the
Fund will be able to write on a particular security.

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<PAGE>

The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or futures contracts available to the Fund. On the
other hand, the ability of the Fund to participate in volume transactions may
produce better executions for the Fund in some cases.

The Adviser, in effecting purchases and sales of portfolio securities for the
account of the Fund, will implement Fund's policy of seeking best execution of
orders. The Adviser may be permitted to pay higher brokerage commissions for
research services as described below. Consistent with this policy, orders for
portfolio transactions are placed with broker-dealer firms giving consideration
to the quality, quantity and nature of each firm's professional services, which
include execution, financial responsibility, responsiveness, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund and the Adviser and its affiliates. Subject to
seeking best execution of an order, brokerage is allocated on the basis of all
services provided. Any research benefits derived are available for all clients
of the Adviser and its affiliates. In selecting among firms believed to meet the
criteria for handling a particular transaction, the Adviser may give
consideration to those firms that have sold or are selling shares of the Fund
and of other funds managed by the Adviser or its affiliates, as well as to those
firms that provide market, statistical and other research information to the
Fund and the Adviser and its affiliates, although the Adviser is not authorized
to pay higher commissions to firms that provide such services, except as
described below.

The Adviser may in certain instances be permitted to pay higher brokerage
commissions solely for receipt of market, statistical and other research
services as defined in Section 28(e) of the Securities Exchange Act of 1934 and
interpretations thereunder. Such services may include, among other things:
economic, industry or company research reports or investment recommendations;
computerized databases; quotation and execution equipment and software; and
research or analytical computer software and services. Where products or
services have a "mixed use," a good faith effort is made to make a reasonable
allocation of the cost of the products or services in accordance with the
anticipated research and non-research uses and the cost attributable to
non-research use is paid by the Adviser or one of its affiliates in cash.
Subject to Section 28(e) and procedures adopted by the Board of Trustees of
Kemper Income Trust (the "Trust"), the Fund could pay a firm that provides
research services commissions for effecting a securities transaction for the
Fund in excess of the amount other firms would have charged for the transaction
if the Adviser determines in good faith that the greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing firm viewed in terms either of a particular
transaction or the Adviser's overall responsibilities to the Fund and other
clients. Not all of such research services may be useful or of value in advising
the Fund. Research benefits will be available for all clients of the Adviser and
its affiliates. The investment management fee paid by the Fund to the Adviser is
not reduced because these research services are received.

INVESTMENT MANAGER AND UNDERWRITER

Investment Manager. Scudder Kemper Investments, Inc. (the "Adviser"), 345 Park
Avenue, New York, New York, is the Fund's investment manager. The Adviser is
approximately 70% owned by Zurich Insurance Company, a leading internationally
recognized provider of insurance and financial services in property/casualty and
life insurance, reinsurance and structured financial solutions as well as asset
management. The balance of the Adviser is owned by its officers and employees.
Pursuant to an investment management agreement, the Adviser acts as the Fund's
investment adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, and administrative
services, and permits any of its officers or employees to serve without
compensation as trustees or officers of 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 affiliated with the Adviser), 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, while Kemper
Distributors, Inc. ("KDI"), as principal underwriter, pays the cost of
qualifying and maintaining the qualification of the Fund's shares for sale under
the securities laws of the various states.

The investment management agreement provides that the Adviser shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.

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<PAGE>

The Fund's investment management agreement continues in effect from year to year
so long as its continuation is approved at least annually by (a) a majority of
the trustees who are not parties to such agreement or interested persons of any
such party except in their capacity as trustees of the Fund and (b) by the
shareholders or the Board of Trustees of the Fund. The Fund's investment
management agreement may be terminated at any time upon 60 days' notice by
either party, or by a majority vote of the outstanding shares of the Fund, and
will terminate automatically upon assignment. If additional Funds become subject
to the investment management agreement, the provisions concerning continuation,
amendment and termination shall be on a Fund by Fund basis. Additional Funds may
be subject to a different agreement.

The current investment management fee rate paid by the Fund is in the
prospectus, see "Investment Manager and Underwriter."

Principal Underwriter. Pursuant to a separate underwriting and distribution
services agreement ("distribution agreements"), KDI, a wholly owned subsidiary
of the Adviser, 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
agreement, 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 Trust, 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 at any time without penalty by the Fund or by
KDI upon 60 days notice. Termination by the Fund with respect to a class may be
by vote of a majority of the Board of Trustees, or a majority of the Trustees
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the agreement, or a "majority of the outstanding voting
securities" of the class of the Fund, as defined under the Investment Company
Act of 1940. The agreement may not be amended for a class to increase the fee to
be paid by the Fund with respect to such class without approval by a majority of
the outstanding voting securities of such class of the Fund and all material
amendments must in any event be approved by the Board of Trustees in the manner
described above with respect to the continuation of the agreement. The
provisions concerning the continuation, amendment and termination of the
distribution agreement are on a class by class basis. The distribution agreement
was last approved by the Trustees of the Trust, including the non-interested
Trustees, on ___________, 1998.

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. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at the annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of the Fund.

KDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are 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. With respect to Class A shares, KDI pays each firm a service fee,
normally payable quarterly, at an annual rate up to 0.25% of net assets of those
accounts that it maintains and services, commencing with the month after
investment. With respect to Class B shares 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 an annual 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 and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid
include affiliates of KDI.

10
<PAGE>

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 Fund. Currently, however,
the administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services and it is intended
that KDI will pay all the administrative services fee that it receives from the
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of the Fund while this procedure is in
effect will depend upon the proportion of Fund assets that is in accounts for
which a firm of record provides administrative services, as well as, with
respect to Class A shares, the date when shares representing such assets were
purchased. The Board of Trustees of the Fund, in its discretion, may approve
basing the fee to KDI on all Fund assets in the future.

Certain trustees or officers of the Trust are also directors or officers of the
Adviser 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 maintained in the United States. The Chase
Manhattan Bank, Chase MetroTech Center, Brooklyn, New York 11245, as custodian,
has custody of all securities and cash of the Fund held outside of the United
States. They attend to the collection of principal and income, and payment for
and collection of proceeds of securities bought and sold by the Fund. Kemper
Service Company ("KSvC"), an affiliate of the Adviser, serves as "Shareholder
Service Agent" of the Fund, and as such, acts as transfer agent and dividend
paying agent. As Shareholder Service Agent, KSvC receives annual account fees of
$_ 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.

Independent Auditors and Reports to Shareholders. The Fund's independent
auditors, _______________, 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.__________________, serves as legal counsel to the Fund.

11
<PAGE>

PURCHASE AND REDEMPTION OF SHARES

As described in the Fund's prospectus, shares of the Fund are sold at their
public offering price, which is the net asset value per share of the Fund next
determined after an order is received in proper form plus, with respect to Class
A shares of the Fund, 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 the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund 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
redemption of Class B or Class C shares by certain classes of persons or through
certain types of transactions as described in the prospectus are provided
because of anticipated economies in sales and sales related efforts.

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 the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.

DIVIDENDS AND TAXES

Dividends. The Fund normally declares and distributes monthly dividends of net
investment income and distributes any net realized 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 its net investment income and its net short-term and
long-term capital gains as the Board of Trustees of the Fund determines
appropriate under the then current circumstances. In particular, and without
limiting the foregoing, the Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").
Dividends will be reinvested in shares of the Fund paying such dividends unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of other Kemper Funds as described in the prospectus.

The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.

Taxes. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, will not be liable for
federal income taxes to the extent its earnings are distributed. One of the
Subchapter M requirements to be satisfied is that less than 30% of the Fund's
gross income during its fiscal year must be derived from gains (not reduced by
losses) from the sale or other disposition of securities and certain other
investments held for less than three months. This requirement has been
eliminated by the Taxpayer Relief Act of 1997 for fiscal years beginning after
August 5, 1997. As long as the requirement applies, the Fund may be limited in
its options, futures and foreign currency transactions in order to prevent
recognition of such gains.

12
<PAGE>

The Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.

The mark-to-market rules of the Code may require the Fund to recognize
unrealized gains and losses on certain options and futures held by the Fund at
the end of the fiscal year. Under these provisions, 60% of any capital gain or
loss recognized will generally be treated as long-term and 40% as short-term.
However, although certain forward contracts on foreign currency are
marked-to-market, the gain or loss is generally ordinary under Section 988 of
the Code. In addition, the straddle rules of the Code would require deferral of
certain losses realized on positions of a straddle to the extent that the Fund
had unrealized gains in offsetting positions at year end.

A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.

A shareholder who redeems shares of the Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of the Fund (other than shares of the Kemper Cash Reserves
Fund not acquired by exchange from another Kemper Mutual Fund) or other Kemper
Mutual Fund listed in the prospectus under "Special Features -- Class A Shares
- -- Combined Purchases" may reinvest the amount redeemed at net asset value at
the time of the reinvestment in shares of any Fund or in shares of a Kemper
Mutual Fund within six months of the redemption as described in the prospectus
under "Redemption or Repurchase of Shares -- Reinvestment Privilege." If
redeemed shares were purchased after October 3, 1989 and were held less than 91
days, then the lesser of (a) the sales charge waived on the reinvested shares,
or (b) the sales charge incurred on the redeemed shares, is included in the
basis of the reinvested shares and is not included in the basis of the redeemed
shares. If a shareholder realized a loss on the redemption or exchange of the
Fund's shares and reinvests in shares of the same Fund 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 the Fund's shares for shares of
another fund is treated as a redemption and reinvestment for federal income tax
purposes upon which gain or loss may be recognized.

The Fund's investment income derived from foreign securities and certain
American Depositary Receipts may be subject to foreign income taxes withheld at
the source. Because the amount of the Fund's investments in various countries
will change from time to time, it is not possible to determine the effective
rate of such taxes in advance.

Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.

13
<PAGE>

PERFORMANCE

As described in the prospectus, the Fund's historical performance or return for
a class of shares may be shown in the form of "yield" and "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.

The Fund's yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. The Fund's yield is computed
by dividing the net investment income per share earned during the specified one
month or 30-day period by the maximum offering price per share (which is net
asset value for Class B and Class C shares) on the last day of the period,
according to the following formula:

YIELD = 2 [ (a-b +1 )6 - 1]
cd

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.

d = the maximum offering price per share on the
last day of the period (which is net asset value
for Class B and Class C shares).

The Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for the Fund for a specific period
is found by first taking a hypothetical $1,000 investment ("initial investment")
in the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B shares or Class C shares includes the effect of the
applicable contingent deferred sales charge that may be imposed at the end of
the period. The redeemable value is then divided by the initial investment, and
this quotient is taken to the Nth root (N representing the number of years in
the period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return may also be calculated
without deducting the maximum sales charge.

Calculation of the Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the Fund's "Financial Highlights" table
in the Fund's financial statements and prospectus. Total return performance for
a specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B and Class C shares may or may not
include the effect of the applicable contingent deferred sales charge that may
be imposed at the end of the period. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge would be
reduced if such charge were included.

The Fund's performance figures are based upon historical results and are not
representative of future performance. The Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 4.5% of the offering price). Class B
and Class C shares are sold at net asset value. Redemptions of Class B shares
may be subject to a contingent deferred sales charge that is 4% in the first
year following the purchase, declines by a specified percentage each year
thereafter and becomes zero after six years. 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 the
Fund's performance include general market conditions, operating expenses and

14
<PAGE>

investment management. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.
Shares of the Fund 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 the Fund to that of
certificates of deposit issued by banks and other depository institutions.
Certificates of deposit represent an alternative income producing product.
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. The shares of the Fund are not insured and net asset value as well
as yield will fluctuate. Shares of the Fund are redeemable at net asset value
which may be more or less than original cost. The bonds in which the Fund
invests are generally of longer term than most certificates of deposit and may
reflect longer term market interest rate fluctuations.

Investors also may want to compare the performance of the Fund to that of U.S.
Treasury bills, notes or bonds because such instruments represent alternative
income producing products. 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. The net asset value of the Fund will fluctuate. Shares of the Fund are
redeemable at net asset value which may be more or less than original cost. The
Fund's yield will also fluctuate.

15
<PAGE>

OFFICERS AND TRUSTEES

The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with the Adviser , the investment
manager and KDI, the principal underwriter, are as follows (the number following
each person's title is the number of investment companies managed by the Adviser
and its affiliates, for which he or she holds similar positions):

[TO BE COMPLETED]

SHAREHOLDER RIGHTS

The Fund is a series of Kemper Income Trust (the "Trust"), a Massachusetts
business trust established under an Agreement and Declaration of Trust of the
Trust (the "Declaration of Trust") dated ________, 1998.

The Fund generally is not required to hold meetings of its shareholders. Under
the 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 approval by shareholders is required by the 1940 Act; (c) any termination
of the Fund or a class to the extent and as provided in the Declaration of
Trust; (d) any amendment of the Declaration of Trust (other than amendments
changing the name of the Fund, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
thereof); and (e) such additional matters as may be required by law, the
Declaration of Trust, the By-laws of the Trust, or any registration of the Fund
with the SEC or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental policies
or restrictions.

Any matter shall be deemed to have been effectively acted upon with respect to
the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Trust's Declaration of Trust. As used in the
Prospectus and in this Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with general matters affecting the Fund and all additional portfolios (e.g.,
election of trustees), means the vote of the lesser of (i) 67% of the Trust's
shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
only the Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio.

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.

Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than one) with cause, by the action of
two-thirds of the remaining Trustees. Any Trustee may be removed at any meeting
of shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing to do so by the holders of not less than ten percent of the Outstanding
Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act. A
majority of the Trustees shall be present in person at any regular or special

16
<PAGE>

meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Trustees present at any such meetings, at which a quorum is
present, shall be the act of the Trustees.

The Trust's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any 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 the Adviser 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.

The assets of the Trust received for the issue or sale of the shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.

17
<PAGE>

CORPORATE BONDS
Standard & Poor's Corporation Bond Ratings

AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

CI. The rating CI is reserved for income bonds on which no interest is being
paid.

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

Moody's Investors Service, Inc. Bond Ratings

Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B. 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.

18
<PAGE>

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.

19
<PAGE>

KEMPER INCOME TRUST

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<TABLE>
<S> <C> <C> <C>
<CAPTION>

a. Financial Statements

Included in Part A of this Registration Statement:

Included in Part B of this Registration Statement:

Statements of Assets and Liabilities of Kemper High
Yield II Fund and Report of Independent Accountants
to be filed by amendment.

b. Exhibits:

1. (a) Agreement and Declaration of Trust to be filed by amendment.

2. By-Laws to be filed by amendment.

3. Inapplicable.

4. Specimen Share Certificate to be filed by amendment.

5. (a) Investment Management Agreement between the Registrant on behalf of
Kemper High Yield II Fund and Scudder Kemper Investments, Inc. to be
filed by amendment.

6. (a) Underwriting Agreement and Distribution Services Agreement, between
the Registrant and Kemper Distributors, Inc. to be filed by
amendment.

7. Inapplicable.

8. (a) Custodian Agreement to be filed by amendment.

9. (a)(1) Transfer Agency Agreement to be filed by amendment.

10. Opinion of counsel to be filed by amendment.

11. Inapplicable.

12. Inapplicable.

13. Inapplicable.

14. Inapplicable

15. Inapplicable

16. Inapplicable.

17. Inapplicable.

18. Inapplicable

Part C - Page 1
<PAGE>

Powers of Attorney for Trustees to be filed by amendment.

Item 25. Persons Controlled by or under Common Control with Registrant
- -------- -------------------------------------------------------------

None

Item 26. Number of Holders of Securities.
- -------- --------------------------------

(1) (2)

Title of Class Number of Shareholders

Kemper High Yield II Fund NA

Item 27. Indemnification.
- -------- ----------------

Article Tenth of Registrant's Articles of Incorporation state as
follows:

TENTH: Liability and Indemnification
- ------ -----------------------------

To the fullest extent permitted by the Maryland General Corporation Law
and the Investment Company Act of 1940, no director or officer of the
Corporation shall be liable to the Corporation or to its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation, whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted. No amendment to these Articles of Amendment and Restatement or
repeal of any of its provisions shall limit or eliminate the benefits provided
to directors and officers under this provision with respect to any act or
omission which occurred prior to such amendment or repeal.

The Corporation, including its successors and assigns, shall indemnify
its directors and officers and make advance payment of related expenses to the
fullest extent permitted, and in accordance with the procedures required by
Maryland law, including Section 2-418 of the Maryland General Corporation Law,
as may be amended from time to time, and the Investment Company Act of 1940. The
By-laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled.

The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.

The rights provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
such rights in serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Amendment and Restatement shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.

Nothing in these Articles of Amendment and Restatement shall be deemed
to (i) require a waiver of compliance with any provision of the Securities Act
of 1933, as amended, or the Investment Company Act of 1940, as amended, or of
any valid rule, regulation or order of the Securities and Exchange Commission
under those Acts or (ii) protect any director or officer of the Corporation
against any liability to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith or gross

Part C - Page 2
<PAGE>

negligence in the performance of his or her duties or by reason of his or her
reckless disregard of his or her obligations and duties hereunder.

Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------

Scudder Kemper Investments, Inc. has stockholders and employees who are denominated officers
but do not as such have corporation-wide responsibilities. Such persons are not considered
officers for the purpose of this Item 28.

Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------

Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**

Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#

Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx

Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Zurich Holding Company of Americao

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 Americao
Director, ZKI Holding Corporation xx

Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporationoo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**

Part C - Page 3
<PAGE>

Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+

Markus Rohrbasser Director, Scudder Kemper Investments, Inc.**
Member Corporate Executive Board, Zurich Insurance Company of Switzerland##
President, Director, Chairman of the Board, ZKI Holding Corporation xx

Cornelia M. Small 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 Corporationoo
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

Item 29. Principal Underwriters.
- -------- -----------------------

(a)

Scudder Investor Services, 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 29.

(1) (2) (3)

Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------

William S. Baughman Vice President None
Two International Place
Boston, MA 02110

Part C - Page 4
<PAGE>

Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154

Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110

Mark S. Casady Director, President and Assistant Trustee, Vice President
Two International Place Treasurer and Treasurer
Boston, MA 02110

Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110

Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154

Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154

Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111

William F. Glavin Vice President None
Two International Place
Boston, MA 02110

Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110

Thomas W. Joseph Director, Vice President, Treasurer None
Two International Place and Assistant Clerk
Boston, MA 02110

Thomas F. McDonough Clerk Trustee, Vice President
Two International Place and Secretary
Boston, MA 02110

Daniel Pierce Director, Vice President None
Two International Place and Assistant Treasurer
Boston, MA 02110

Kathryn L. Quirk Director, Senior Vice President and None
345 Park Avenue Assistant Clerk
New York, NY 10154

Part C - Page 5
<PAGE>

Robert A. Rudell Vice President None
Two International Place
Boston, MA 02110

William M. Thomas Vice President None
Two International Place
Boston, MA 02110

Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110

Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110

Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110

(c)

(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage
Underwriter Commissions and Repurchases Commissions Other Compensation
----------- ----------- --------------- ----------- ------------------

Scudder Investor None None None None
Services, Inc.

Item 30. Location of Accounts and Records.
- -------- ---------------------------------

Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder will be maintained by Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, NY 10154.
Records relating to the duties of the Registrant's custodian
are maintained by Brown Brothers Harriman & Co.

Item 31. Management Services.
- -------- --------------------

Inapplicable.

Item 32. Undertakings.
- -------- -------------

(a) Not Applicable.

(b) Not Applicable.

(c) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Fund's
latest annual report to shareholders upon request and without
charge.
</TABLE>

Part C - Page 6

<PAGE>
SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on the
31st day of August 1998.

KEMPER INCOME TRUST

By /s/Thomas F. McDonough
---------------------------------
Thomas F. McDonough, Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- --------- ----- ----

/s/Thomas F. McDonough
- -----------------------------------
Thomas F. McDonough Trustee, Vice President and Secretary August 31, 1998

/s/Mark S. Casady Trustee, Vice President and Treasurer August 31, 1998
- ------------------------------------ (Principal Financial and Accounting Officer)
Mark S. Casady

/s/Caroline Pearson Trustee and President August 31, 1998
- ------------------------------------
Caroline Pearson

</TABLE>

<PAGE>
File No. 811-08983
File No.____

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

EXHIBITS

FORM N-1A

POST-EFFECTIVE AMENDMENT No.

UNDER

THE SECURITIES ACT OF 1933

AND

AMENDMENT No.

UNDER

THE INVESTMENT COMPANY ACT OF 1940

KEMPER INCOME TRUST

<PAGE>

KEMPER INCOME TRUST

Exhibit Index