GLOBAL/INTERNATIONAL FUND INC
485APOS, 2000-12-26
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        Filed electronically with the Securities and Exchange Commission
                              on December 26, 2000

                                                               File No. 33-5724
                                                               File No. 811-4670

                       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. 47
                                               ---

                                       and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

                  Amendment No. 50
                                --


                         Global/International Fund, Inc.
                         -------------------------------
               (Exact name of Registrant as Specified in Charter)

                       345 Park Avenue, New York, NY 10154
                      ----------------------------- ------
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's Telephone Number, including Area Code: (617) 295-2565
                                 --------------

                                Caroline Pearson
                        Scudder Kemper Investments, Inc.
                    Two International Place, Boston, MA 02110
                   ------------------------------------------
                     (Name and Address of Agent for Service)

It is proposed that this filing will become effective

                    Immediately upon filing pursuant to paragraph (b)
        -------

                    on ___________ pursuant to paragraph (b)
        -------

                    60 days after filing pursuant to paragraph (a)(1)
        -------

          X         on March 1, 2001 pursuant to paragraph (a)(1)
        -------

                    75 days after filing pursuant to paragraph (a)(2)
        -------

                    On ___________ pursuant to paragraph (a)(2) of Rule 485
        -------

If appropriate, check the following:

<PAGE>

                  this post-effective amendment designates a new effective date
         -------  for a previously filed post-effective amendment


                                       2
<PAGE>

                                                             L O N G  -  T E R M
                                                               I N V E S T I N G
                                                                         I N   A
                                                            S H O R T -  T E R M
                                                                  W O R L D (SM)



          March 1, 2001



Prospectus
--------------------------------------------------------------------------------

                 K E M P E R  G L O B A L / I N T E R N A T I O N A L  F U N D S

                                                        Kemper Asian Growth Fund
                                                    Kemper Global Blue Chip Fund
                                                           Global Discovery Fund
                                                       Kemper Global Income Fund
                                                       Kemper International Fund
                                              Kemper International Research Fund
                                                          Kemper New Europe Fund


As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.


                                                             [LOGO] KEMPER FUNDS

<PAGE>


        Contents
--------------------------------------------------------------------------------

   How the Funds Work                        How to Invest in the Funds

     4  Kemper Asian Growth Fund              46  Choosing a Share Class

     8  Kemper Global Blue Chip Fund          51  How to Buy Shares

    12  Kemper Global Discovery Fund          52  How to Exchange or Sell Shares

    16  Kemper Global Income Fund             53  Policies You Should Know
                                                  About
    20  Kemper International Fund
                                              59  Understanding Distributions
    24  Kemper International Research             and Taxes
        Fund

    29  Kemper New Europe Fund

    34  Other Policies and Risks

    35  Who Manages and Oversees
        the Fund

    38  Financial Highlights


<PAGE>

 How The Funds Work

These funds invest mainly in foreign securities. Six of the funds invest mainly
in stocks, the other mainly in bonds. Each fund focuses on a particular region
of the world or a particular investment theme, and follows its own investment
goal.

Remember that mutual funds are investments, not bank deposits. They're not
guaranteed or insured by the FDIC or any other government agency and you could
lose money by investing in them.


<PAGE>



--------------------------------------------------------------------------------
                                             |  Class A     Class B     Class C
                                             |
                              ticker symbol  |  KANAX       KANBX       KANCX
                                fund number  |  072         272         372

 Kemper Asian Growth Fund
--------------------------------------------------------------------------------

The Fund's Investment Strategy

The fund seeks long-term capital growth. The fund invests at least 85% of total
assets in common stocks and other Asian equities (equities that are issued by
companies organized under the laws of an Asian country or traded mainly on Asian
markets and do more than half of their business in Asia). The fund generally
focuses on emerging Asian markets, such as China, Indonesia, Korea and Thailand.

In choosing stocks, the portfolio manager[s] use[s] a combination of three
analytical disciplines:

Bottom-up research. The managers look for individual companies with identifiable
market niches and sound balance sheets, among other factors.

Growth orientation. The managers generally look for companies that seem to offer
the potential for sustainable above-average growth of revenue or earnings
relative to each stock's own market.

Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, with an eye toward identifying countries,
industries and companies that may benefit from these changes.

The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.

The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given country or industry.

--------------------------------------------------------------------------------

OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 15% of total assets in debt securities of any issuer or
credit quality, including junk bonds (i.e., grade BB and below) or in non-Asian
equities.



                          4 | Kemper Asian Growth Fund
<PAGE>

The Main Risks of Investing in the Fund

There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.

The most important factor with this fund is how Asian stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When Asian stock prices fall, you should
expect the value of your investment to fall as well. The fact that the fund
concentrates on a single geographical region could affect fund performance. For
example, Asian companies could be hurt by such factors as regional economic
downturns (some Asian economies are currently in recession), currency
devaluations, the inability of governments or banking systems to bring about
reforms or trade barriers on exports.

Emerging markets, a category that includes most Asian countries, tend to be more
volatile than developed markets, for reasons ranging from political and economic
uncertainties to poor regulation and liquidity to a higher risk that essential
information may be incomplete or wrong.

Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. In addition, changing
currency rates could add to the fund's investment losses or reduce its
investment gains.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         countries, industries, companies or other matters

o        growth stocks may be out of favor for certain periods

o        at times, market conditions might make it hard to value some
         investments or to get an attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------
This fund is designed for investors interested in diversifying a growth
portfolio with exposure to emerging countries in Asia.


                          5 | Kemper Asian Growth Fund
<PAGE>


The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows how the performance figures for the fund's Class A shares
have varied from year to year, which may give some idea of risk.

The table shows how these performance figures for the fund's Class A, B and C
shares compare with a broad-based market index (which, unlike the fund, has no
fees or expenses). The performance of both the fund and the index varies over
time. All figures on this page assume reinvestment of dividends and
distributions.

Kemper Asian Growth Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                Class A Shares
--------------------------------------------------------------------------------


THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

1997           -34.60
1998           -19.02
1999            71.97
2000

Best Quarter: 0.00%, Q0 0000               Worst Quarter: -0.00%, Q0 0000


--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------

                            Since 12/31/99             Since 10/21/96
                            1 Year                     Life of Fund
--------------------------------------------------------------------------------
Class A                     %                            %
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
Index
--------------------------------------------------------------------------------

Index: The Morgan Stanley Capital International All Country Asia Free Ex-Japan
Index is a capitalized weighted index that is representative of the equity
securities for the following countries: Hong Kong, Indonesia, Korea (at 20%),
Malaysia, Philippines free, Singapore free and Thailand.

* Index comparison begins 10/31/96.

In the chart, total returns from 1997 through 2000 would have been lower if
operating expenses hadn't been reduced.

The table includes the effects of maximum sales loads. In the table, total
returns from inception through 2000 would have been lower if operating expenses
hadn't been reduced.


                          6 | Kemper Asian Growth Fund
<PAGE>

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed        5.75%           None          None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds)              None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                               %              %             %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                    None          0.75%         0.75%
--------------------------------------------------------------------------------
Other Expenses**                             %              %             %
--------------------------------------------------------------------------------
Total Annual Operating Expenses              %              %             %
--------------------------------------------------------------------------------
Expense Reimbursement                        %              %             %
--------------------------------------------------------------------------------
Net Annual Operating Expenses***             %              %             %
--------------------------------------------------------------------------------


*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes costs of shareholder servicing, custody and similar expenses,
         which may vary with fund size and other factors.

***      By contract, total annual operating expenses are capped at ___ through
         ___.

Based on the costs above (including one year of capped expenses in each period),
this example helps you compare the expenses of each share class to those of
other mutual funds. This example assumes the expenses above remain the same. It
also assumes that you invested $10,000, earned 5% annual returns, and reinvested
all dividends and distributions. This is only an example; actual expenses will
be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------




                          7 | Kemper Asian Growth Fund
<PAGE>



--------------------------------------------------------------------------------
                                            |   Class A    Class B     Class C
                                            |
                             ticker symbol  |   KGLAX      KGLBX       KGLCX
                               fund number  |   092        292         392

 Kemper Global Blue Chip Fund
--------------------------------------------------------------------------------


The Fund's Investment Strategy

The fund seeks long-term capital growth. The fund invests at least 65% of total
assets in common stocks and other equities of "blue chip" companies throughout
the world. These are large, well known companies that typically have an
established earnings and dividends history, easy access to credit, solid
positions in their industries and strong management. Although the fund may
invest in any country, it primarily focuses on countries with developed
economies (including the U.S.).

In choosing stocks, the portfolio managers look for those blue-chip companies
that appear likely to benefit from global economic trends or have promising new
technologies or products.

The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.

The fund will normally sell a stock when the managers believe it has reached its
fair value, when its fundamental factors have changed or when adjusting its
exposure to a given country or industry.

--------------------------------------------------------------------------------

OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks.
While the fund invests mainly in developed countries, it may invest up to 15% of
total assets in emerging market debt or equity securities of emerging markets
(of which, 5% of net assets may be junk bonds, i.e., grade BB and below).


                        8 | Kemper Global Blue Chip Fund
<PAGE>

The Main Risks of Investing in the Fund

There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.

The most important factor with this fund is how U.S. and foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When U.S. and foreign stock prices
fall, especially prices of large company stocks, you should expect the value of
your investment to fall as well. Foreign stocks tend to be more volatile than
their U.S. counterparts, for reasons ranging from political and economic
uncertainties to a higher risk that essential information may be incomplete or
wrong.

Large company stocks at times may not perform as well as stocks of smaller or
mid-size companies. Because a stock represents ownership in its issuer, stock
prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies. In addition, changing currency rates could add to the fund's
investment losses or reduce its investment gains.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         countries, industries, companies or other matters

o        at times, market conditions might make it hard to value some
         investments or to get an attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This fund is designed for investors interested in large-cap stocks outside the
U.S. markets.

                        9 | Kemper Global Blue Chip Fund
<PAGE>

The Fund's Performance History


While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows how the performance figures for the fund's Class A shares
have varied from year to year, which may give some idea of risk.

The table shows how these performance figures for the fund's Class A, B and C
shares compare with a broad-based market index (which, unlike the fund, has no
fees or expenses). The performance of both the fund and the index varies over
time. All figures on this page assume reinvestment of dividends and
distributions.

Kemper Global Blue Chip Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

1998       13.79
1999       28.23
2000

Best Quarter: 0.00%, Q0 0000     Worst Quarter: -0.00%, Q0 0000

--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------

                            Since 12/31/99             Since 12/31/97
                            1  Year                    Life of Class
--------------------------------------------------------------------------------
Class A                     0.00                       0.00
--------------------------------------------------------------------------------
Class B                     0.00                       0.00
--------------------------------------------------------------------------------
Class C                     0.00                       0.00
--------------------------------------------------------------------------------
Index                       0.00                       0.00
--------------------------------------------------------------------------------

Index: The MSCI (Morgan Stanley Capital International) World Index measures
performance of a range of developed country general stock markets, including the
United States, Canada, Europe, Australia, New Zealand and the Far East.

In the chart, total returns from 1998 through 2000 would have been lower if
operating expenses hadn't been reduced.

The table includes the effects of maximum sales loads. In the table, total
returns from inception through 2000 would have been lower if operating expenses
hadn't been reduced.



                        10 | Kemper Global Blue Chip Fund
<PAGE>

How Much Investors Pay


This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed        5.75%           None          None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds)              None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                               %              %             %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                    None          0.75%         0.75%
--------------------------------------------------------------------------------
Other Expenses**                             %              %             %
--------------------------------------------------------------------------------
Total Annual Operating Expenses              %              %             %
--------------------------------------------------------------------------------
Expense Reimbursement                        %              %             %
--------------------------------------------------------------------------------
Net Annual Operating Expenses***             %              %             %
--------------------------------------------------------------------------------


*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes costs of shareholder servicing, custody and similar expenses,
         which may vary with fund size and other factors.

***      By contract, total annual operating expenses are capped at ___ through
         ___.

Based on the costs above (including one year of capped expenses in each period),
this example helps you compare the expenses of each share class to those of
other mutual funds. This example assumes the expenses above remain the same. It
also assumes that you invested $10,000, earned 5% annual returns, and reinvested
all dividends and distributions. This is only an example; actual expenses will
be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------




                        11 | Kemper Global Blue Chip Fund
<PAGE>


--------------------------------------------------------------------------------
                                             |  Class A     Class B     Class C
                                             |
                              ticker symbol  |  KGDAX       KGDBX       KGDCX
                                fund number  |  083         283         383

 Kemper Global Discovery Fund*
--------------------------------------------------------------------------------



The Fund's Investment Strategy

The fund seeks above-average long-term capital appreciation. The fund invests at
least 65% of total assets in common stocks and other equities of small companies
throughout the world (companies with market values similar to the smallest 20%
of the Salomon Brothers Broad Market Index). The fund generally focuses on
countries with developed economies (including the U.S.). As of December 31,
2000, companies in which the fund invests typically have a market capitalization
of between $__ million and $__ billion.

In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:

Bottom-up research. The managers look for companies that appear to have
effective management, strong competitive positioning, vigorous research and
development efforts and sound balance sheets.

Growth orientation. The managers generally look for companies that have
above-average potential for sustainable growth of revenue or earnings compared
to large companies, and whose market value appears reasonable in light of their
business prospects.

Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, seeking to identify stocks that may benefit
from them.

The managers may favor different securities at different times, while still
maintaining variety in terms of the countries and industries represented.

*        Kemper Global Discovery Fund is properly known as Global Discovery
         Fund.

--------------------------------------------------------------------------------

OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 35% of total assets in common stocks and other equities of
large companies or in debt securities (of which, 5% of net assets may be junk
bonds, i.e. grade BB and below).



                       12 | Kemper Global Discovery Fund*
<PAGE>

The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.

The Main Risks of Investing in the Fund

There are several factors that could hurt the fund's performance, cause you to
lose money or make the fund perform less well than other investments.

The most important factor with this fund is how U.S. and foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When U.S. and foreign stock prices
fall, you should expect the value of your investment to fall as well. Foreign
stocks tend to be more volatile than their U.S. counterparts, for reasons
ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. These risks tend to be greater
in emerging markets.

Compared to large company stocks, small and mid-size stocks tend to be more
volatile, in part because these companies tend to be less established and the
valuation of their stocks often depends on future expectations. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies. In addition, changing currency rates
could add to the fund's investment losses or reduce its investment gains.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         countries, industries, companies or other matters

o        growth stocks may be out of favor for certain periods

o        at times, it could be hard to value some investments or to get an
         attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This fund is designed for long-term investors interested in diversifying a
large-cap or domestic portfolio of investments.

                       13 | Kemper Global Discovery Fund*
<PAGE>

The Fund's Performance History


While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows the performance figures for the fund's first complete
calendar year, which may give some idea of risk.

The table shows how these performance figures for the fund's Class A, B and C
shares compare with a broad-based market index (which, unlike the fund, has no
fees or expenses). The performance of both the fund and the index varies over
time. All figures on this page assume reinvestment of dividends and
distributions.

The inception date for Class A, B and C is April 16, 1998. Performance figures
before that date are based on the historical performance of the fund's original
share class (Class S), adjusted to reflect the higher gross annual operating
expenses of the applicable class and the applicable sales charges of that class.

Kemper Global Discovery Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                Class A Shares
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

1999       64.15
2000


Best Quarter: 0.00%, Q0 0000               Worst Quarter: -0.00%, Q0 0000


--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------

                            Since 12/31/99             Since 4/16/98
                            1 Year                     Life of Fund
--------------------------------------------------------------------------------
Class A                       %                          %
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
Index
--------------------------------------------------------------------------------

Index: Salomon Brothers World Equity Extended Market Index, an unmanaged small
capitalization stock universe of 22 countries.

* Index comparison begins 4/30/98.

In the chart, total returns for 1999 and 2000 would have been lower if operating
expenses hadn't been reduced.

The table includes the effects of maximum sales loads. In the table, total
returns from inception through 2000 would have been lower if operating expenses
hadn't been reduced.




                       14 | Kemper Global Discovery Fund*
<PAGE>


How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed        5.75%           None          None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds)              None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                               %              %             %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                    None          0.75%         0.75%
--------------------------------------------------------------------------------
Other Expenses**                             %              %             %
--------------------------------------------------------------------------------
Total Annual Operating Expenses              %              %             %
--------------------------------------------------------------------------------
Expense Reimbursement                        %              %             %
--------------------------------------------------------------------------------
Net Annual Operating Expenses***             %              %             %
--------------------------------------------------------------------------------


*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes costs of shareholder servicing, custody and similar expenses,
         which may vary with fund size and other factors.

***      By contract, total annual operating expenses are capped at ___ through
         ___.

Based on the costs above (including one year of capped expenses in each period),
this example helps you compare the expenses of each share class to those of
other mutual funds. This example assumes the expenses above remain the same. It
also assumes that you invested $10,000, earned 5% annual returns, and reinvested
all dividends and distributions. This is only an example; actual expenses will
be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------



                       15 | Kemper Global Discovery Fund*
<PAGE>



--------------------------------------------------------------------------------
                                             |   Class A     Class B     Class C
                                             |
                              ticker symbol  |   KGIAX       KGIBX       KGICX
                                fund number  |   033         233         333

  Kemper Global Income Fund
--------------------------------------------------------------------------------


The Fund's Investment Strategy

The fund seeks to provide high current income consistent with prudent total
return asset management. The fund invests at least 65% of total assets in
foreign and U.S. investment-grade bonds and other income-producing securities.
While the fund may invest in securities issued by any issuer and in any
currency, it generally focuses on issuers in developed markets, such as
Australia, Canada, Japan, New Zealand, the U.S. and Western Europe, and on
securities of other countries that are denominated in the currencies of these
countries or the euro.

In making their buy and sell decisions, the portfolio managers typically
consider a number of factors, including economic outlooks, interest rate
movements, inflation trends, security characteristics and changes in supply and
demand within global bond markets. In choosing individual bonds, the managers
use independent analysis to look for bonds that have attractive yields and good
credit. The managers may favor securities from different countries and issuers
at different times, while still maintaining variety in terms of countries and
issuers represented.

Although the managers may adjust the fund's duration (a measure of sensitivity
to interest rate movements), they generally intend to keep it between 4.0 and
6.0 years.

--------------------------------------------------------------------------------

OTHER INVESTMENTS This fund normally invests at least 65% of total assets in
investment-grade bonds, which are those in the top four credit grades (i.e., as
low as BBB/Baa). The fund may invest up to 35% of net assets in foreign or
domestic debt securities of any credit quality, including junk bonds (i.e.,
grade BB and below). Compared to investment-grade bonds, junk bonds may pay
higher yields and have higher volatility and risk of default.



                         16 | Kemper Global Income Fund
<PAGE>

The Main Risks of Investing in the Fund

There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.

For this fund, the main factor is global interest rates. A rise in interest
rates generally means a fall in bond prices -- and, in turn, a fall in the value
of your investment. (As a general rule, a 1% rise in interest rates means a 1%
fall in value for every year of duration.)

Foreign markets tend to be more volatile than U.S. markets, for reasons ranging
from political and economic uncertainties to poor regulation to a higher risk
that essential information may be incomplete or wrong.

Another major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.

The fact that the fund is not diversified and may invest in securities of
relatively few issuers increases its risk, because any factors affecting a given
company could affect performance. Similarly, if the fund emphasizes a given
market, such as Canada, or a given industry, factors affecting that market or
industry will affect performance.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         countries, issuers, industries or other matters

o        a bond could fall in credit quality or go into default; this risk is
         greater for junk bonds

o        some types of bonds could be paid off earlier than expected, which
         would hurt the fund's performance

o        at times, market conditions might make it hard to value some
         investments or to get an attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This fund is designed for investors interested in a less aggressive approach to
international income investing.



                         17 | Kemper Global Income Fund
<PAGE>

The Fund's Performance History


While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows how the performance figures for the fund's Class A shares
have varied from year to year, which may give some idea of risk.

The table shows how these performance figures for the fund's Class A, B and C
shares compare with a broad-based market index (which, unlike the fund, has no
fees or expenses). The performance of both the fund and the index varies over
time. All figures on this page assume reinvestment of dividends and
distributions.

The inception date for Class B and C is May 31, 1994. Performance figures before
that date are based on the historical performance of the fund's original share
class (Class A), adjusted to reflect the higher gross annual operating expenses
of the applicable class and the applicable sales charges of that class. Kemper
Global Income Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                Class A Shares
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

1991           11.13
1992           -1.90
1993           10.23
1994           -1.47
1995           19.89
1996            5.87
1997            1.80
1998           10.48
1999           -6.38
2000



Best Quarter: 0.00%, Q0 0000               Worst Quarter: -0.00%, Q0 0000


--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------

                                                  Since 5/31/94
                  Since 12/31/99  Since 12/31/95  Life of Class   Since 12/31/90
                  1 Year          5 Years         B/C             10 Years
--------------------------------------------------------------------------------
Class A             %             %              --               %
--------------------------------------------------------------------------------
Class B                                           %              --
--------------------------------------------------------------------------------
Class C                                                          --
--------------------------------------------------------------------------------
Index
--------------------------------------------------------------------------------

Index: Salomon Brothers World Government Bond Index, an unmanaged index on a
U.S. dollar total return basis, with all dividends reinvested, and includes
government bonds from 14 countries. The minimum maturity is one year.

The table includes the effects of maximum sales loads.



                         18 | Kemper Global Income Fund
<PAGE>

How Much Investors Pay


This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed        4.50%           None          None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds)              None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                               %              %             %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                    None          0.75%         0.75%
--------------------------------------------------------------------------------
Other Expenses**                             %              %             %
--------------------------------------------------------------------------------
Total Annual Operating Expenses              %              %             %
--------------------------------------------------------------------------------


*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes costs of shareholder servicing, custody and similar expenses,
         which may vary with fund size and other factors.

Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------



                         19 | Kemper Global Income Fund
<PAGE>


--------------------------------------------------------------------------------
                                            |   Class A     Class B     Class C
                                            |
                             ticker symbol  |   KITAX       KINBX       KITCX
                               fund number  |   019         219         319

  Kemper International Fund
--------------------------------------------------------------------------------


The Fund's Investment Strategy

The fund seeks total return through a combination of capital growth and income.
The fund invests at least 80% of total assets in foreign securities (securities
issued by foreign-based issuers). The fund invests at least 65% of total assets
in common stocks of established foreign companies with the potential for capital
growth, income or both. The fund may invest more than 25% of total assets in any
given developed country that the manager believes poses no unique investment
risk.

In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:

Bottom-up research. The managers look for individual companies that have sound
financial strength, good business prospects and strong competitive positioning
and above-average earnings growth, among other factors.

Top-down analysis. The managers consider the economic outlooks for various
countries and geographical areas, favoring those they believe have sound
economic conditions and open markets.

Analysis of global themes. The managers look for significant changes in the
business environment, with an eye toward identifying industries that may benefit
from these changes.

The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.

--------------------------------------------------------------------------------

OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 35% of net assets in foreign or domestic debt securities
of any credit quality, including junk bonds (i.e., grade BB and below). Compared
to investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and risk of default.

                         20 | Kemper International Fund
<PAGE>

The fund will normally sell a stock when the managers believe it has reached its
fair value, its underlying investment theme has matured or the reasons for
originally investing no longer apply.

The Main Risks of Investing in the Fund

There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.

The most important factor with this fund is how foreign stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When foreign stock prices fall, you should
expect the value of your investment to fall as well.

Foreign stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong.

Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. In addition, changing
currency rates could add to the fund's investment losses or reduce its
investment gains.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         countries, industries, companies or other matters

o        bond investments could be hurt by rising interest rates or declines in
         credit quality

o        at times, market conditions might make it hard to value some
         investments or to get an attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This fund is designed for investors interested in a broadly diversified
international fund.



                         21 | Kemper International Fund
<PAGE>

The Fund's Performance History


While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows how the performance figures for the fund's Class A shares
have varied from year to year, which may give some idea of risk.

The table shows how these performance figures for the fund's Class A, B and C
shares compare with a broad-based market index (which, unlike the fund, has no
fees or expenses). The performance of both the fund and the index varies over
time. All figures on this page assume reinvestment of dividends and
distributions.

The inception date for Class B and C is May 31, 1994. Performance figures before
that date are based on the historical performance of the fund's original share
class (Class A), adjusted to reflect the higher gross annual operating expenses
of the applicable class and the applicable sales charges of that class.

Kemper International Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                Class A Shares
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

1991        9.13
1992       -4.79
1993       35.65
1994       -4.00
1995       12.96
1996       17.05
1997        9.00
1998        7.88
1999       41.30
2000

Best Quarter: 0.00%, Q0 0000               Worst Quarter: -0.00%, Q0 0000


--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------

                                                  Since 5/31/94
                  Since 12/31/99  Since 12/31/95  Life of         Since 12/31/90
                  1 Year          5 Years         Class B/C       10 Years
--------------------------------------------------------------------------------
Class A           %               %              --               %
--------------------------------------------------------------------------------
Class B                                           %              --
--------------------------------------------------------------------------------
Class C                                                          --
--------------------------------------------------------------------------------
Index
--------------------------------------------------------------------------------

Index: MSCI EAFE Index (Morgan Stanley Capital International Europe,
Austral-Asia, Far East Index), a generally accepted benchmark for performance of
major overseas markets.

The table includes the effects of maximum sales loads. In the table, total
returns for 1990 would have been lower if operating expenses hadn't been
reduced.




                         22 | Kemper International Fund
<PAGE>


How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed        5.75%           None          None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds)              None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                               %              %             %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                    None          0.75%         0.75%
--------------------------------------------------------------------------------
Other Expenses**                             %              %             %
--------------------------------------------------------------------------------
Total Annual Operating Expenses              %              %             %
--------------------------------------------------------------------------------


*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes costs of shareholder servicing, custody and similar expenses,
         which may vary with fund size and other factors.

Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------




                         23 | Kemper International Fund
<PAGE>


--------------------------------------------------------------------------------
                                            |   Class A     Class B     Class C
                                            |
                             ticker symbol  |   KIRAX       KIRBX       KIRCX
                               fund number  |   117         217         317

  Kemper International Research Fund
--------------------------------------------------------------------------------


The Fund's Investment Strategy

The fund seeks long-term capital appreciation. The fund normally invests at
least 65% of total assets in common stocks of large foreign companies (stocks
that are listed on foreign exchanges and are issued by foreign-based companies
that have a market capitalization of $1 billion or more). The fund expects that
its regional investment allocations will remain roughly similar to that of the
Morgan Stanley Capital International Europe, Austral-Asia, Far East plus
Emerging Markets Free Index (MSCI EAFE + EMF Index). As of the date of this
prospectus, most of the issuers included in this index are located in developed
markets.

The fund invests in securities based on the top research recommendations of the
investment advisor's industry research analysts and other investment
specialists. The portfolio managers use bottom-up research to identify stocks,
looking for individual companies that have strong balance sheets and effective
management, among other factors. These may be companies that appear to offer the
potential for sustainable above-average growth of earnings or revenues as well
as companies whose stock prices appear low in light of other measures of worth,
such as price-to-earnings ratios.

The managers also look for significant changes in the business environment, with
an eye toward identifying industries that may benefit from these changes.

The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries,
industries and companies represented.

--------------------------------------------------------------------------------

OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may also invest up to 35% of total assets in investment-grade debt
securities.



                     24 | Kemper International Research Fund
<PAGE>

The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given industry or country.

The Main Risks of Investing in the Fund

There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.

The most important factor with this fund is how foreign stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When foreign stock prices fall, especially
prices of large company stocks, you should expect the value of your investment
to fall as well. To the extent that the fund emphasizes a given area, such as
Europe, or a given industry, factors affecting that market or industry will
affect performance.

Foreign stocks tend to be more volatile than their U.S. counterparts, for
reasons that include political and economic uncertainties, less liquid
securities markets and a higher risk that essential information may be
incomplete or wrong. In addition, changing currency rates could add to the
fund's investment losses or reduce its investment gains. Large company stocks at
times may not perform as well as stocks of smaller or mid-size companies.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         countries, industries, companies or other matters

o        a bond could fall in credit quality, go into default or be paid off
         earlier than expected, which could hurt the fund's performance

o        at times, it could be hard to value some investments or to get an
         attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This fund is designed for investors interested in a diversified international
fund whose strategy focuses on the advisor's top research recommendations.

                     25 | Kemper International Research Fund
<PAGE>

The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know. The bar chart shows how
the performance figures for the fund's Class A shares have varied from year to
year, which may give some idea of risk.

The table shows how these performance figures for the fund's Class A, B and C
shares compare with a broad-based market index (which, unlike the fund, has no
fees or expenses). The performance of both the fund and the index varies over
time. All figures on this page assume reinvestment of dividends and
distributions.

The inception date for Class B and C is May 31, 1994. Performance figures before
that date are based on the historical performance of the fund's original share
class (Class A), adjusted to reflect the higher gross annual operating expenses
of the applicable class and the applicable sales charges of that class.

On 4/6/2000, the fund changed from Growth Fund Of Spain, an open-end equity fund
that sought long-term capital appreciation by investing primarily in the equity
securities of Spanish companies, to its current strategy. The fund's performance
prior to that date would have been different had the current strategy been in
effect.

The performance of Class A shares in the bar chart and performance table
reflects performance from when the fund was a closed-end fund known as The
Growth Fund Of Spain, Inc. (through 12/11/98). Because the fund had no daily
sales or redemptions when it was a closed-end fund, its performance then may
have been different than if it had operated as an open-end fund.


Kemper International Research Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

1991       15.82
1992      -23.48
1993       28.79
1994        2.26
1995       22.11
1996       31.12
1997       19.47
1998       49.85
1999       -5.24
2000

Best Quarter: 0.00%, Q0 0000     Worst Quarter: -0.00%, Q0 0000





                     26 | Kemper International Research Fund
<PAGE>

--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------


                   Since           Since          Since 2/14/90   Since 12/14/98
                   12/31/99        12/31/95       Life of         Life of
                   1 Year          5 Years        Class A*        Class B/C*
--------------------------------------------------------------------------------
Class A            0.00            0.00           0.00            0.00
--------------------------------------------------------------------------------
Class B            0.00            0.00           0.00            0.00
--------------------------------------------------------------------------------
Class C            0.00            0.00           0.00            0.00
--------------------------------------------------------------------------------
Index 1            0.00            0.00           0.00            0.00
--------------------------------------------------------------------------------
Index 2            0.00            0.00           0.00            0.00
--------------------------------------------------------------------------------


Index 1: IBEX 35 Index, a capitalization-weighted index of the 35 most liquid
Spanish stocks traded on the continuous markets.

Index 2: MSCI EAFE + EMF Index, a generally accepted benchmark for performance
of major overseas markets, plus emerging markets.***

The table includes the effects of maximum sales loads.

*        Inception date for Class A shares is 2/14/90. Inception date for Class
         B and C shares is 12/14/98. Index comparisons begin on 2/28/90 for
         Class A shares and 12/31/98 for Class B and C shares.

**       The information provided is for The Growth Fund of Spain, Inc. through
         12/11/98 and for the fund's Class A shares thereafter, and assumes
         deduction of the Class A sales charge.

***      On 4/6/2000, the fund changed from a strategy of investing primarily in
         the equity securities of Spanish companies to its current strategy. In
         light of this change, the fund's investment advisor believes that it is
         more appropriate to measure the fund's performance against the MSCI
         EAFE + EMF Index than against the IBEX 35 Index.




                     27 | Kemper International Research Fund
<PAGE>

How Much Investors Pay


This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed        5.75%           None          None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds)              None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                               %              %             %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                    None          0.75%         0.75%
--------------------------------------------------------------------------------
Other Expenses**                             %              %             %
--------------------------------------------------------------------------------
Total Annual Operating Expenses              %              %             %
--------------------------------------------------------------------------------
Expense Reimbursement                        %              %             %
--------------------------------------------------------------------------------
Net Annual Operating Expenses***             %              %             %
--------------------------------------------------------------------------------


*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes costs of shareholder servicing, custody and similar expenses,
         which may vary with fund size and other factors.

***      By contract, total annual operating expenses are capped at ___ through
         ___.

Based on the costs above (including one year of capped expenses in each period),
this example helps you compare the expenses of each share class to those of
other mutual funds. This example assumes the expenses above remain the same. It
also assumes that you invested $10,000, earned 5% annual returns, and reinvested
all dividends and distributions. This is only an example; actual expenses will
be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------



                     28 | Kemper International Research Fund
<PAGE>


--------------------------------------------------------------------------------
                                             |   Class A     Class B     Class C
                                             |
                              ticker symbol  |   KNEAX       KNEBX       KNECX
                                fund number  |   022         222         322

  Kemper New Europe Fund
--------------------------------------------------------------------------------


The Fund's Investment Strategy

The fund seeks long-term capital appreciation. The fund invests at least 65% of
total assets in European common stocks and other equities (equities that are
traded mainly on European markets or are issued by companies that are based in
Europe or do more than half of their business there). The fund generally focuses
on common stocks of companies in the more established markets of Western and
Southern Europe such as Finland, Germany, France, Italy, Spain and Portugal.

In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:

Bottom-up research. The managers look for individual companies with new or
dominant products or technologies, among other factors.

Growth orientation. The managers look for stocks that seem to offer the
potential for sustainable above-average growth of revenues or earnings relative
to each stock's own market and whose market prices are reasonable in light of
their potential growth.

Top-down analysis. The managers consider the outlook for economic, political,
industrial and demographic trends and how they may affect various countries,
sectors and industries.

The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.

The fund will normally sell a stock when it has reached a target price, the
managers believe other investments offer better opportunities or when adjusting
its exposure to a given country or industry.

--------------------------------------------------------------------------------

OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 20% of total assets in European debt securities of any
credit quality, including junk bonds (i.e., grade BB and below). Compared to
investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and risk of default.



                           29 | Kemper New Europe Fund
<PAGE>

The Main Risks of Investing in the Fund

There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.

The most important factor with this fund is how European stock markets perform
-- something that depends on a large number of factors, including economic,
political and demographic trends. When European stock prices fall, you should
expect the value of your investment to fall as well.

The fact that the fund focuses on a single geographical region could affect fund
performance. For example, European companies could be hurt by such factors as
regional economic downturns or difficulties with the European Economic and
Monetary Union (EMU). Eastern European companies can be very sensitive to
political and economic developments. The fact that the fund is not diversified
and may invest in relatively few companies increases its risk, because any
factors affecting a given company could affect performance.

European stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the fund's investment losses or reduce its investment gains.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         countries, industries, companies or other matters

o        growth stocks may be out of favor for certain periods

o        bond investments could be hurt by rising interest rates or declines in
         credit quality

o        at times, market conditions might make it hard to value some
         investments or to get an attractive price for them

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This fund is designed for investors interested in long-term growth through
exposure to Europe's established markets.


                           30 | Kemper New Europe Fund
<PAGE>

The Fund's Performance History


The bar chart shows how the total returns for the fund's Class M shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.

The performance of Class M shares shown in the bar chart and performance table
reflects performance from when the fund was a closed-end fund (through
09/03/99). Because the fund had no daily sales and redemptions, its performance
as a closed-end fund may have been higher than if it had operated as an open-end
fund.

For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.

Kemper New Europe Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                 Class M shares
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

1991       3.06
1992      -9.59
1993      25.62
1994      -0.27
1995      18.97
1996      34.38
1997      20.03
1998      34.39
1999      51.83
2000

Best Quarter: 0.00%, Q0 0000     Worst Quarter -0.00%, Q0 0000

--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------

                      Since 12/31/99      Since 12/31/95      Since 2/16/90
                      1 Year              5 Years             Life of Class M
--------------------------------------------------------------------------------
Class M               0.00                0.00                0.00
--------------------------------------------------------------------------------
Index                 0.00                0.00                0.00
--------------------------------------------------------------------------------

Index: The Morgan Stanley Capital International Europe Equity Index, an
unmanaged index that is generally representative of the equity securities of the
European markets.

* Index comparison begins 02/28/90.

Class A, B and C shares do not have a full calendar year of operations and their
performance is not shown above. The performance of Class M shares does not
reflect any sales charges. The performance of the other classes is subject to
sales charges and would be lower.




                           31 | Kemper New Europe Fund
<PAGE>

How Much Investors Pay


This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                           Class A     Class B    Class C      Class M
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)          5.75%       None        None        None
Imposed on Purchases
(as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption
proceeds)                            None*       4.00%       1.00%       None
--------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable)             None        None        None       2.00%**
--------------------------------------------------------------------------------
Exchange Fee                         None        None        None       2.00%**
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                         %           %           %           %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee             None        0.75%       0.75%       None
--------------------------------------------------------------------------------
Other Expenses***                      %           %           %           %
--------------------------------------------------------------------------------
Total Annual Operating Expenses[       %           %           %           %
--------------------------------------------------------------------------------


*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       A 2% redemption fee, which is retained by the fund, is imposed upon
         redemptions or exchanges of shares held less than one year, with
         limited exceptions (see "Policies You Should Know About -- Redemption
         Fee).

***      Includes costs of shareholder servicing, custody, accounting services
         and similar expenses, which may vary with fund size and other factors.

+        The fund was reorganized from a closed-end fund to an open-end fund on
         September 3, 1999. The fees and expenses of open-end funds are, in many
         cases, different than those of closed-end funds. Accordingly, the
         expense ratios shown above are estimated for the fund's current fiscal
         year ending October 31, 2001, based on the fund's current fee schedule
         and expenses incurred by the fund during its most recent fiscal year
         adjusted for any open-end related expenses. By contract, total
         operating expenses are capped at 1.80%, 2.70% and 2.70% for Class A,
         Class B and Class C shares, respectively, through 2/28/2001.




                           32 | Kemper New Europe Fund
<PAGE>


Based on the figures on the previous page (including one year of capped expenses
in each period except for Class M shares), this example is designed to help you
compare the expenses of each share class to those of other funds. The example
assumes operating expenses remain the same and that you invested $10,000, earned
5% annual returns and reinvested all dividends and distributions. This is only
an example; actual expenses will be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------

Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Class M shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Class M shares
--------------------------------------------------------------------------------



                           33 | Kemper New Europe Fund
<PAGE>

Other Policies and Risks

While the previous pages describe the main points of each fund's strategy and
risks, there are a few other issues to know about:

o Although major changes tend to be infrequent, each fund's Board could change
that fund's investment goal without seeking shareholder approval.

o As a temporary defensive measure, any of these funds could shift up to 100% of
assets into investments such as money market securities. This could prevent
losses, but would mean that the fund would not be pursuing its goal.

o The advisor establishes a security's credit quality when it buys the security,
using independent ratings or, for unrated securities, its own credit
determination. When ratings don't agree, a fund may use the higher rating. If a
security's credit quality falls, the advisor will determine whether selling it
would be in the shareholders' best interests.

o The funds may trade securities more actively than many funds, which could mean
higher expenses (thus lowering return) and higher taxable distributions.

o Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal investments, and
might not use them at all. With derivatives there is a risk that they could
produce disproportionate losses.

Keep in mind that there is no assurance that any mutual fund will achieve its
goal.



Euro conversion

Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is already underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This prospectus doesn't tell you about every policy or risk of investing in a
fund. For more information, request a copy of the Statement of Additional
Information (see back cover).

                                       34
<PAGE>

Who Manages and Oversees the Funds


The funds' investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, NY. The advisor has more than 80 years of experience managing
mutual funds, and currently has more than $290 billion in assets under
management.

The investment advisor receives a management fee from each fund. Below are the
actual rates paid by each fund for the 12 months through the most recent fiscal
year end, as a percentage of each fund's average daily net assets.

Each fund has entered into a new investment management agreement with the
investment advisor. This table describes the new fee rates for each fund and the
effective date of these agreements.

[THE FOLLOWING TABLE IS A SAMPLE ONLY]

-------------------------------------------------------------------
Investment Management Fee
-------------------------------------------------------------------

Average Daily Net Assets                                 Fee Rate
-------------------------------------------------------------------
[Fund Name]
-------------------------------------------------------------------
first $500 million                                          %
-------------------------------------------------------------------
next $500 million                                           %
-------------------------------------------------------------------
more than $1 billion                                        %
-------------------------------------------------------------------




                                       35
<PAGE>

The portfolio managers


Kemper Asian Growth Fund
  Tien Yu Sieh                                 Nicholas Bratt
  Lead Portfolio Manager                         o  Began investment career in
    o  Began investment career in 1990              1974
    o  Joined the advisor in 1996                o  Joined the advisor in 1976
    o  Joined the fund team in 1999              o  Joined the fund team in 2000

  Elizabeth J. Allan                           Jennifer E. Bloomfield
    o  Began investment career in 1982           o  Began investment career in
    o  Joined the advisor in 1987                   1992
    o  Joined the fund team in 1998              o  Joined the advisor in 1995
                                                 o  Joined the fund team in 2000

                                               Theresa Gusman
                                                 o  Began investment career in
                                                    1983
                                                 o  Joined the advisor in 1992
                                                 o  Joined the fund team in 1998
Kemper Global Blue Chip Fund
  William E. Holzer
  Lead Portfolio Manager
    o  Began investment career in 1970
    o  Joined the advisor in 1980
    o  Joined the fund team in 1998

Kemper Global Discovery Fund
  Gerald J. Moran                              Steven T. Stokes
  Lead Portfolio Manager                         o  Began investment career in
    o  Began investment career in 1968              1986
    o  Joined the advisor in 1968                o  Joined the advisor in 1996
    o  Joined the fund team in 1991              o  Joined the fund team in 1999

Kemper Global Income Fund
  Jan C. Faller                                Jeremy L. Ragus
  Co-Lead Portfolio Manager                      o  Began investment career in
    o  Began investment career in 1988              1977
    o  Joined the advisor in 1999                o  Joined the advisor
    o  Joined the fund team in 1999                 in 1990
                                                 o  Joined the fund team in 1999
  Robert Stirling
  Co-Lead Portfolio Manager
    o  Began investment career in 1984
    o  Joined the sub-advisor in 1995
    o  Joined the fund team in 1999



                                       36
<PAGE>

Kemper International Fund

  Irene Cheng                                  Marc Slendebroek
  Lead Portfolio Manager                         o  Began investment career in
    o  Began investment career in 1985              1990
    o  Joined the advisor in 1993                o  Joined the sub-advisor
    o  Joined the fund team in 1999                 in 1994
                                                 o  Joined the fund team in 1998
  Nicholas Bratt
    o  Began investment career in 1974         Carol L. Franklin
    o  Joined the advisor in 1976                o  Began investment career in
    o  Joined the fund team in 2000                 1975
                                                 o  Joined the advisor in 1981
                                                 o  Joined the fund team in 2000

Kemper International Research Fund

  Jennifer E. Bloomfield
  Lead Portfolio Manager
    o  Began investment career in 1992
    o  Joined the advisor in 1995
    o  Joined the fund team in 2000

Kemper New Europe Fund

  Carol L. Franklin                            Marc Slendebroek
  Lead Portfolio Manager                         o  Began investment career in
    o  Began investment career in 1975              1990
    o  Joined the advisor in 1981                o  Joined the advisor in 1994
    o  Joined the fund team in 1990              o  Joined the fund team in 1998

  Nicholas Bratt
    o  Began investment career in 1974
    o  Joined the advisor in 1976
    o  Joined the fund team in 1999




                                       37
<PAGE>

Financial Highlights


These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned (or lost), assuming all
dividends and distributions were reinvested. This information has been audited
by Ernst & Young LLP (except Kemper Global Discovery Fund, which has been
audited by Pricewaterhouse-Coopers LLP), whose reports, along with each fund's
financial statements, are included in that fund's annual report (see
"Shareholder reports" on the back cover).



Kemper Asian Growth Fund




                                       38
<PAGE>

Kemper Global Blue Chip Fund






                                       39
<PAGE>



Kemper Global Discovery Fund






                                       40
<PAGE>


Kemper Global Income Fund






                                       41
<PAGE>

Kemper International Fund







                                       42
<PAGE>

Kemper International Research Fund






                                       43
<PAGE>

Kemper New Europe Fund





                                       44
<PAGE>




How to Invest in the Funds

The following pages tell you about many of the services, choices and benefits of
being a shareholder. You'll also find information on how to check the status of
your account using the method that's most convenient for you.

You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.



<PAGE>

Choosing A Share Class

In this prospectus, there are three share classes for each fund. Each class has
its own fees and expenses, offering you a choice of cost structures.

For Kemper New Europe Fund, Class M shares represent the initial shares of the
fund and are no longer offered. Class M shares are not subject to a contingent
deferred sales charge or a Rule 12b-1 distribution fee. Class M shares are
subject to a 2% fee on all redemptions (including redemptions in kind) and
exchanges. Class M shares will automatically convert to Class A shares on
September 3, 2000.

Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.

We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Classes and features                                Points to help you compare
------------------------------------------------------------------------------------------------------

<S>                                                 <C>
Class A

o  Sales charges of up to 5.75%, charged when       o  Some investors may be able to reduce or
   you buy shares                                      eliminate their sales charges; see page
                                                       48
o  In most cases, no charges when you sell
   shares                                           o  Total annual expenses are lower than
                                                       those for Class B or Class C
o  No distribution fee
------------------------------------------------------------------------------------------------------

Class B

o  No charges when you buy shares                   o  The deferred sales charge rate falls to
                                                       zero after six years
o  Deferred sales charge of up to 4.00%,
   charged when you sell shares you bought          o  Shares automatically convert to Class A
   within the last six years                           six years after purchase, which means
                                                       lower annual expenses going forward
o  0.75% distribution fee
------------------------------------------------------------------------------------------------------

Class C

o  No charges when you buy shares                   o  The deferred sales charge rate is lower,
                                                       but your shares never convert to Class A,
o  Deferred sales charge of 1.00%, charged             so annual expenses remain higher
   when you sell shares you bought within the
   last year

o  0.75% distribution fee
------------------------------------------------------------------------------------------------------
</TABLE>


                                       46
<PAGE>

Class A shares

Class A shares have a sales charge that varies with the amount you invest:

All funds except Kemper Global Income Fund

                   Sales charge as a %   Sales charge as a %
Your investment    of offering price     of your net investment
---------------------------------------------------------------------
Up to $50,000           5.75%                 6.10%
---------------------------------------------------------------------
$50,000-$99,999         4.50                  4.71
---------------------------------------------------------------------
$100,000-$249,999       3.50                  3.63
---------------------------------------------------------------------
$250,000-$499,999       2.60                  2.67
---------------------------------------------------------------------
$500,000-$999,999       2.00                  2.04
---------------------------------------------------------------------
$1 million or more      See page 48
----------------------------------------------------------------------

Kemper Global Income Fund


                   Sales charge as a %   Sales charge as a %
Your investment    of offering price     of your net investment
---------------------------------------------------------------------
Up to $100,000          4.50%                 4.71%
---------------------------------------------------------------------
$100,000-$249,999       3.50                  3.63
---------------------------------------------------------------------
$250,000-$499,999       2.60                  2.67
---------------------------------------------------------------------
$500,000-$999,999       2.00                  2.04
---------------------------------------------------------------------
$1 million or more      See page 48
----------------------------------------------------------------------


The offering price includes the sales charge.

You may be able to lower your Class A sales charges if:

o        you plan to invest at least $50,000 ($100,000 for Kemper Global Income
         Fund) over the next 24 months ("letter of intent")

o        the amount of Kemper shares you already own (including shares in
         certain other Kemper funds) plus the amount you're investing now is at
         least $50,000 ($100,000 for Kemper Global Income Fund) ("cumulative
         discount")

o        you are investing a total of $50,000 ($100,000 for Kemper Global Income
         Fund) or more in several Kemper funds at once ("combined purchases")



                                       47
<PAGE>

The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.

You may be able to buy Class A shares without sales charges when you are:

o        reinvesting dividends or distributions

o        investing through certain workplace retirement plans

o        participating in an investment advisory program under which you pay a
         fee to an investment advisor or other firm for portfolio management
         services

There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper can answer
your questions and help you determine if you are eligible.

If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper can answer your questions and help you determine if
you're eligible.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.



                                       48
<PAGE>

Class B shares

With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% is deducted
from fund assets each year. This means the annual expenses for Class B shares
are somewhat higher (and their performance correspondingly lower) compared to
Class A shares, which don't have a 12b-1 fee. After six years, Class B shares
automatically convert to Class A, which has the net effect of lowering the
annual expenses from the seventh year on.

Class B shares have a contingent deferred sales charge (CDSC). This charge
declines over the years you own shares, and disappears completely after six
years of ownership. But for any shares you sell within those six years, you may
be charged as follows:

Year after you bought shares       CDSC on shares you sell
---------------------------------------------------------------------
First year                         4.00%
---------------------------------------------------------------------
Second or third year               3.00
---------------------------------------------------------------------
Fourth or fifth year               2.00
---------------------------------------------------------------------
Sixth year                         1.00
---------------------------------------------------------------------
Seventh year and later             None (automatic conversion
                                   to Class A)
---------------------------------------------------------------------


This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.

While Class B shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Class B shares are designed for long-term investors who prefer to see all of
their investment go to work right away, and can accept somewhat higher annual
expenses.

                                       49
<PAGE>

Class C shares

Like Class B shares, Class C shares have no up-front sales charges and have a
12b-1 plan under which a distribution fee of 0.75% is deducted from fund assets
each year. Because of this fee, the annual expenses for Class C shares are
similar to those of Class B shares, but higher than those for Class A shares
(and the performance of Class C shares is correspondingly lower than that of
Class A).

Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.

Class C shares have a contingent deferred sales charge (CDSC), but only on
shares you sell within one year of buying them:

Year after you bought shares       CDSC on shares you sell
---------------------------------------------------------------------
First year                         1.00%
---------------------------------------------------------------------
Second year and later              None
---------------------------------------------------------------------

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.

While Class C shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Class C shares may appeal to investors who plan to sell shares within six years
of buying them, or who aren't certain of their investment time horizon.

                                       50
<PAGE>


How To Buy Shares

Once you've chosen a share class, use these instructions to make investments.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
First investment                                   Additional investments
----------------------------------------------------------------------------------------------------------

<S>                                                <C>
$1,000 or more for regular accounts                $100 or more for regular accounts

$250 or more for IRAs                              $50 or more for IRAs

                                                   $50 or more with an Automatic Investment Plan
----------------------------------------------------------------------------------------------------------

Through a financial representative

o  Contact your representative using the           o  Contact your representative using the method
   method that's most convenient for you              that's most convenient for you
----------------------------------------------------------------------------------------------------------

By mail or express mail (see below)

o  Fill out and sign an application                o  Send a check made out to "Kemper Funds" and a
                                                      Kemper investment slip to us at the appropriate
o  Send it to us at the appropriate address,          address below
   along with an investment check
                                                   o  If you don't have an investment slip, simply
                                                      include a letter with your name, account
                                                      number, the full name of the fund and the share
                                                      class and your investment instructions
----------------------------------------------------------------------------------------------------------

By wire                                            o  Call (800) 621-1048 for instructions

o  Call (800) 621-1048 for instructions
----------------------------------------------------------------------------------------------------------

By phone

--                                                 o  Call (800) 621-1048 for instructions
----------------------------------------------------------------------------------------------------------

With an automatic investment plan

--                                                 o  To set up regular investments from a bank
                                                      checking account, call (800) 621-1048 (minimum
                                                      $50)
----------------------------------------------------------------------------------------------------------

On the Internet

--                                                 o  Go to www.kemper.com and register

                                                   o  Follow the instructions for buying shares with
                                                      money from your bank account
----------------------------------------------------------------------------------------------------------
</TABLE>



--------------------------------------------------------------------------------
Regular mail:

Kemper Funds, PO Box 219153, Kansas City, MO 64121-9153

Express, registered or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005

Fax number: (800) 818-7526 (for exchanging and selling only)


                                       51
<PAGE>

How to Exchange Or Sell Shares

Use these instructions to exchange or sell shares in your account.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Exchanging into another fund                      Selling shares
--------------------------------------------------------------------------------------------------

<S>                                               <C>
$1,000 or more to open a new account              Some transactions, including most for
                                                  over $50,000, can only be ordered in
$100 or more for exchanges between existing       writing with a signature guarantee; if
accounts                                          you're in doubt, see page 61
--------------------------------------------------------------------------------------------------

Through a financial representative

o  Contact your representative by the             o  Contact your representative by the
   method that's most convenient for you             method that's most convenient for you
--------------------------------------------------------------------------------------------------

By phone or wire

o  Call (800) 621-1048 for instructions           o  Call (800) 621-1048 for instructions
--------------------------------------------------------------------------------------------------

By mail, express mail or fax
(see previous page)

Write a letter that includes:
                                                  Write a letter that includes:
o  the fund, class and account number
   you're exchanging out of                       o  the fund, class and account number
                                                     from which you want to sell shares
o  the dollar amount or number of shares
   you want to exchange                           o  the dollar amount or number of shares
                                                     you want to sell
o  the name and class of the fund you want
   to exchange into                               o  your name(s), signature(s) and
                                                     address, as they appear on your account
o  your name(s), signature(s) and address,
   as they appear on your account                 o  a daytime telephone number

o  a daytime telephone number
--------------------------------------------------------------------------------------------------

With a systematic exchange plan                   With a systematic withdrawal plan

o  To set up regular exchanges from a fund        o  To set up regular cash payments from a
   account, call (800) 621-1048                      fund account, call (800) 621-1048
--------------------------------------------------------------------------------------------------

On the internet

o  Go to www.kemper.com and register

o  Follow the instructions for making
   on-line exchanges
--------------------------------------------------------------------------------------------------
</TABLE>


                                       52
<PAGE>

Policies You Should Know About

Along with the instructions on the previous pages, the policies below may affect
you as a shareholder.

If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.


In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call (800)
621-1048.


Policies about transactions

The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).

You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.

Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.

KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper funds generally and on accounts held directly at Kemper. You can also use
it to make exchanges and sell shares.

                                       53
<PAGE>

EXPRESS-Transfer lets you set up a link between a Kemper or Scudder account and
a bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. Transactions take two to three days to be completed, and
there is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the
account application; to add it to an existing account, call (800) 621-1048.

Share certificates are available on written request. However, we don't recommend
them unless you want them for a specific purpose, because they can only be sold
by mailing them in, and if they're ever lost they're difficult and expensive to
replace.


When you sell shares by phone or over the internet we may record the call, ask
you for certain information or take other steps designed to prevent fraudulent
orders. It's important to understand that, with respect to certain
pre-authorized transactions, as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.


When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are completed within 24 hours. The funds can only send or
accept wires of $1,000 or more.

Exchanges are a shareholder privilege, not a right: we may reject any exchange
order, particularly when there appears to be a pattern of "market timing" or
other frequent purchases and sales. We may also reject or limit purchase orders,
for these or other reasons.

When you want to sell more than $50,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.



                                       54
<PAGE>

A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.

When you sell shares that have a CDSC, we calculate the CDSC as a percentage of
what you paid for the shares or what you are selling them for -- whichever
results in the lowest charge to you. In processing orders to sell shares, we
turn to the shares with the lowest CDSC first. Exchanges from one Kemper fund
into another don't affect CDSCs: for each investment you make, the date you
first bought Kemper shares is the date we use to calculate a CDSC on that
particular investment.

There are certain cases in which you may be exempt from a CDSC. These include:

o        the death or disability of an account owner (including a joint owner)

o        withdrawals made through a systematic withdrawal plan. [CONFIRM: Such
         withdrawals may be made at a maximum of 10% per year of the net asset
         value of the account.]

o        withdrawals related to certain retirement or benefit plans

o        redemptions for certain loan advances, hardship provisions or returns
         of excess contributions from retirement plans

o        for Class A shares purchased through the Large Order NAV Purchase
         Privilege, redemption of shares whose dealer of record at the time of
         the investment notifies Kemper Distributors that the dealer waives the
         applicable commission

o        For Class C shares, redemption of shares purchased through a
         dealer-sponsored asset allocation program maintained on an omnibus
         record-keeping system, provided the dealer of record has waived the
         advance of the first year administrative services and distribution fees
         applicable to such shares and has agreed to receive such fees
         quarterly.

In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper can answer your questions and help you determine if you are eligible.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.



                                       55
<PAGE>

If you sell shares in a Kemper fund and then decide to invest with Kemper again
within six months, you can take advantage of the "reinstatement feature." With
this feature, you can put your money back into the same class of a Scudder or
Kemper fund at its current NAV and for purposes of sales charges it will be
treated as if it had never left Scudder or Kemper. You'll be reimbursed (in the
form of fund shares) for any CDSC you paid when you sold. Future CDSC
calculations will be based on your original investment date, rather than your
reinstatement date. There is also an option that lets investors who sold Class B
shares buy Class A shares with no sales charge, although they won't be
reimbursed for any CDSC they paid. You can only use the reinstatement feature
once for any given group of shares. To take advantage of this feature, contact
Kemper or your financial representative.

Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.



                                       56
<PAGE>

How the funds calculate share price

For each fund in this prospectus, the price at which you buy shares is as
follows:

Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing A Share Class")

Class B, Class C and Class M shares -- net asset value per share, or NAV

To calculate NAV, each share class of each fund uses the following equation:

             TOTAL ASSETS - TOTAL LIABILITIES
           -------------------------------------  = NAV
             TOTAL NUMBER OF SHARES OUTSTANDING

For each fund and share class in this prospectus, the price at which you sell
shares is also the NAV, although for Class B and Class C investors a contingent
deferred sales charge may be taken out of the proceeds (see "Choosing A Share
Class").

We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.

Because each fund invests in securities that are traded primarily in foreign
markets, the value of its holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the fund doesn't price its shares.


                                       57
<PAGE>

Other rights we reserve

For each fund in this prospectus, you should be aware that we may do any of the
following:

o withhold 31% of your distributions as federal income tax if you have been
notified by the IRS that you are subject to backup withholding, or if you fail
to provide us with a correct taxpayer ID number or certification that you are
exempt from backup withholding

o charge you $9 each calendar quarter if your account balance is below $1,000
for the entire quarter; this policy doesn't apply to most retirement accounts or
if you have an automatic investment plan

o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we may
give you 30 days' notice to provide the correct number

o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you to
liquidate) rather than cash

o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)


                                       58
<PAGE>

Understanding Distributions and Taxes

By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.

The funds intend to pay dividends and distributions to their shareholders in
November or December, and if necessary may do so at other times as well.

You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you by check or have them
invested in a different fund. Tell us your preference on your application. If
you don't indicate a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans, reinvestment is the only
option.

Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Because each shareholder's tax situation is unique, ask your tax professional
about the tax consequences of your investments, including any state and local
tax consequences.


                                       59
<PAGE>

The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:

Generally taxed at ordinary income rates
---------------------------------------------------------------------
o  short-term capital gains from selling fund shares
---------------------------------------------------------------------
o  income dividends you receive from a fund
---------------------------------------------------------------------
o  short-term capital gains distributions received from a fund

Generally taxed at capital gains rates
---------------------------------------------------------------------
o  long-term capital gains from selling fund shares
---------------------------------------------------------------------
o  long-term capital gains distributions received from a fund
---------------------------------------------------------------------

You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.

Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.

Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.



                                       60
<PAGE>

To Get More Information

Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. For more copies, call (800) 621-1048.

Statements of Additional Information (SAIs) -- These tell you more about each
fund's features and policies, including additional risk information. The SAIs
are incorporated by reference into this document (meaning that they are legally
part of this prospectus).

If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Kemper or the SEC (see below). Materials you
get from Kemper are free; those from the SEC involve a copying fee. If you like,
you can look over these materials in person at the SEC's Public Reference Room
in Washington, DC or request them electronically at [email protected].

SEC
450 Fifth Street, N.W.
Washington, DC 20549-0102
www.sec.gov
Tel (202) 942-8090

Kemper Funds
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
Tel (800) 621-1048

--------------------------------------------------------------------------------

SEC File Numbers

Kemper Asian Growth Fund               811-7731
Kemper Emerging Markets Growth Fund    811-08395
Kemper Global Blue Chip Fund           811-08395
Global Discovery Fund                  811-4670
Kemper Global Income Fund              811-5829
Kemper International Fund              811-3136
Kemper Latin America Fund              811-08395
Kemper New Europe Fund                 811-5969
Kemper International Research          811-08395



Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048

[LOGO] KEMPER FUNDS
Long-term investing in a short-term world(SM)


<PAGE>

                                                                 SCUDDER
                                                                 INVESTMENTS(SM)
                                                                 [LOGO]

--------------------------------------------------------------------------------
Equity/Global
--------------------------------------------------------------------------------

Class AARP and Class S Shares

Scudder
Global Discovery
Fund*

Prospectus
March 1, 2001


*  This fund is properly known as
   Global Discovery Fund

As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.

<PAGE>


Contents
--------------------------------------------------------------------------------

   How the Fund Works                        How to Invest in the Fund

     4  The Fund's Investment Strategy        14  How to Buy, Sell and
                                                  Exchange Class AARP Shares
     5  The Main Risks of Investing
        in the Fund                           16  How to Buy, Sell and
                                                  Exchange Class S Shares
     7  The Fund's Performance History
                                              18  Policies You Should Know
     8  How Much Investors Pay                    About

     9  Other Policies and Risks              23  Understanding Distributions
                                                  and Taxes
    11  Who Manages and Oversees
        the Fund

    12  Financial Highlights

<PAGE>


How The Fund Works

On the next few pages,  you'll find  information  about this  fund's  investment
goal,  the main  strategies it uses to pursue that goal, and the main risks that
could affect its performance.

Whether you are considering  investing in the fund or are already a shareholder,
you'll probably want to look this  information  over carefully.  You may want to
keep it on hand for reference as well.

Remember  that mutual  funds are  investments,  not bank  deposits.  They're not
insured or guaranteed by the FDIC or any other government  agency, and you could
lose money by investing in them.

This prospectus  offers two classes for each of the funds described.  Class AARP
shares have been created  especially for AARP members.  Unless  otherwise noted,
all information in this prospectus applies to both classes.

You can find  Scudder  prospectuses  on the  Internet  for Class AARP  shares at
aarp.scudder.com and for Class S shares at www.scudder.com.



<PAGE>

--------------------------------------------------------------------------------
                                                        |   Class S
                                         ticker symbol  |   SGSCX
                                           fund number  |   010

  Scudder Global Discovery Fund
--------------------------------------------------------------------------------

         The Fund's Investment Strategy

         The fund seeks above-average capital appreciation over the long term.
         The fund invests at least 65% of total assets in common stocks and
         other equities of small companies throughout the world (companies with
         market values similar to the smallest 20% of the Salomon Brothers Broad
         Market Index). The fund generally focuses on countries with developed
         economies (including the U.S.). As of December 31, 2000, companies in
         which the fund invests typically have a market capitalization of
         between $-- million and $-- billion.

         In choosing stocks, the portfolio managers use a combination of three
         analytical disciplines:

         Bottom-up research. The managers look for companies that appear to have
         effective management, strong competitive positioning, vigorous research
         and development efforts and sound balance sheets.

         Growth orientation. The managers generally look for companies that have
         above-average potential for sustainable growth of revenue or earnings
         compared to large companies, and whose market value appears reasonable
         in light of their business prospects.

         Analysis of regional themes. The managers look for significant social,
         economic, industrial and demographic changes, seeking to identify
         stocks that may benefit from them.

--------------------------------------------------------------------------------

OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 35% of total assets in common stocks and other equities of
large companies or in debt securities (of which, 5% of net assets may be junk
bonds, i.e., grade BB and below). Although the fund is permitted to use various
types of derivatives (contracts whose value is based on, for example, indices,
currencies or securities), they don't intend to use them as principal
investments, and might not use them at all.



                                       4
<PAGE>

         The managers may favor different securities at different times, while
         still maintaining variety in terms of the countries and industries
         represented.

         The fund will normally sell a stock when the managers believe its price
         is unlikely to go much higher, its fundamentals have deteriorated,
         other investments offer better opportunities or in the course of
         adjusting its emphasis on a given country.

         Depending on their outlook, the managers may increase or reduce the
         fund's exposure to a given industry or company. The fund will normally
         sell a stock when the managers believe it is too highly valued, its
         fundamental qualities have deteriorated or its potential risks have
         increased.

         The Main Risks of Investing in the Fund

         There are several risk factors that could hurt the fund's performance,
         cause you to lose money or make the fund perform less well than other
         investments.

         As with most stock funds, the most important factor with this fund is
         how stock markets perform -- in this case, foreign markets. When
         foreign stock prices fall, you should expect the value of your
         investment to fall as well. Foreign stocks also tend to be more
         volatile than their U.S. counterparts, for reasons ranging from
         political and economic uncertainties to a higher risk that essential
         information may be incomplete or wrong.

         These risks tend to be greater in emerging markets (such as Latin
         America and most Pacific Basin countries). it takes on greater risks.
         Because a stock represents ownership in its issuer, stock prices can be
         hurt by poor management, shrinking product demand, and other business
         risks. These may affect single companies as well as groups of
         companies.

         Stock prices can be hurt by poor management, shrinking product demand
         and other business risks. These may affect single companies as well as
         groups of companies.

         A second major factor is the fluctuation of currency exchange rates.
         When the dollar value of a foreign currency falls, so does the value of
         any investments the fund owns that are denominated in that currency.
         This is separate from market risk, and may add to market losses or
         reduce market gains.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------

         This fund is designed for long-term investors interested in
         diversifying a large-cap or domestic portfolio of investments.



                                       5
<PAGE>

         Compared to large company stocks, small and mid-size stocks tend to be
         more volatile, in part because these companies tend to be less
         established and the valuation of their stocks often depends on future
         expectations. Because a stock represents ownership in its issuer, stock
         prices can be hurt by poor management, shrinking product demand and
         other business risks. These may affect single companies as well as
         groups of companies. In addition, changing currency rates could add to
         the fund's investment losses or reduce its investment gains.

         Other factors that could affect performance include:

         o        derivatives could produce disproportionate losses

         o        growth stocks may be out of favor for certain periods

         o        at times, market conditions might make it hard to value some
                  investments or to get an attractive price for them

         o        the managers could be wrong in their analysis of economic
                  trends, countries, industries, companies or other matters

                                       6
<PAGE>


The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know. The bar chart shows how
the returns for the fund's Class S shares have varied from year to year, which
may give some idea of risk. The table shows average annual total returns of the
fund's Class S shares and a broad-based market index (which, unlike the fund,
does not have any fees or expenses).

The performance of both the fund and the index varies over time. All figures on
this page assume reinvestment of dividends and distributions.

Scudder Global Discovery Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                       Class S
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA

     1992
     1993                0.00
     1994                0.00
     1995                0.00
     1996                0.00
     1997                0.00
     1998                0.00
     1999                0.00
     2000                0.00


Total Return as of : ---- 0.00%

Best Quarter: 0.00%, Q0 0000                 Worst Quarter -0.00%, Q0 0000

--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
--------------------------------------------------------------------------------
                           1 Year           5 Years          Since Inception*
--------------------------------------------------------------------------------
Fund -- Class S**
--------------------------------------------------------------------------------
Index
--------------------------------------------------------------------------------

**       Class AARP shares are invested in the same portfolio and annual returns
         would differ only to the extent that the classes have different fees
         and expenses.

Index: The Salomon Brothers World Equity Extended Market Index, an unmanaged
index of small capitalization stocks from 22 countries.

*        Since 9/10/1991. Index comparison begins 9/30/1991.

In the chart, total returns from 1992 through 1994 and for 1996 would have been
lower if operating expenses hadn't been reduced.

In the table, total returns from inception through 1994 and for 1996 would have
been lower if operating expenses hadn't been reduced.


                                       7
<PAGE>


How Much Investors Pay

This fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.


--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)                 None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                                                        --%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                                              None
--------------------------------------------------------------------------------
Other Expenses*                                                       __%
--------------------------------------------------------------------------------
Total Annual Operating Expenses                                       __%
--------------------------------------------------------------------------------

*        Includes a fixed rate administrative fee of 0.25%.

Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement which became
effective on ----.


Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. This example assumes the expenses above remain the
same. It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; actual expenses will be different.


--------------------------------------------------------------------------------
Example                    1 Year        3 Years       5 Years        10 Years
--------------------------------------------------------------------------------
                             $              $             $              $
--------------------------------------------------------------------------------


                                       8
<PAGE>


Other Policies and Risks

         While the sections on the previous pages describe the main points of
         the fund's strategy and risks, there are a few other issues to know
         about:

         o        Although major changes tend to be infrequent, the fund's Board
                  could change the fund's goal without seeking shareholder
                  approval.

         o        As a temporary defensive measure, the fund could shift up to
                  100% of assets into investments such as money market
                  securities. This could prevent losses, but would mean that the
                  fund was not pursuing its goal.

         o        This fund may trade securities more actively than many funds,
                  which could mean higher expenses (thus lowering return) and
                  higher taxable distributions.

         Euro conversion

         Funds that invest in foreign securities could be affected by accounting
         differences, changes in tax treatment or other issues related to the
         conversion of certain European currencies into the euro, which is
         already underway. The investment adviser is working to address
         euro-related issues as they occur and has been notified that other key
         service providers are taking similar steps. Still, there's some risk
         that this problem could materially affect a fund's operation (including
         its ability to calculate net asset value and to handle purchases and
         redemptions), its investments or securities markets in general.

         For more information

         This prospectus doesn't tell you about every policy or risk of
         investing in the funds.

         If you want more information on the funds' allowable securities and
         investment practices and the characteristics and risks of each one, you
         may want to request a copy of the Statement of Additional Information
         (the back cover tells you how to do this).

         Keep in mind that there is no assurance that any mutual fund will
         achieve its goal.


                                       9
<PAGE>


Who Manages and Oversees the Fund

         The investment adviser

         The fund's investment adviser is Scudder Kemper Investments, Inc., 345
         Park Avenue, New York, NY. Scudder Kemper has more than 80 years of
         experience managing mutual funds, and currently has more than $290
         billion in assets under management.

         The fund is managed by a team of investment professionals, who
         individually represent different areas of expertise and who together
         develop investment strategies and make buy and sell decisions.
         Supporting the fund managers are Scudder Kemper's many economists,
         research analysts, traders, and other investment specialists, located
         in offices across the United States and around the world.

         As payment for serving as investment adviser, Scudder Kemper receives a
         management fee from the fund. For the most recent fiscal year, the
         actual amount the fund paid in management fees was --% of average daily
         net assets.

         The fund has entered into a new investment management agreement with
         the adviser. This table describes the new fee rates for each fund and
         the effective date of these agreements.

         Investment Management Fee
         -------------------------------------------------------------------
         Average Daily Net Assets                                 Fee Rate
         -------------------------------------------------------------------
         first $500 million                                          %
         -------------------------------------------------------------------
         next $500 million                                           %
         -------------------------------------------------------------------
         more than $1 billion                                        %
         -------------------------------------------------------------------

         Scudder Kemper has agreed to pay a fee to AARP and/or its affiliates in
         return for services relating to investments by AARP members in AARP
         Class shares of each fund. This fee is calculated on a daily basis as a
         percentage of the combined net assets of the AARP Classes of all funds
         managed by Scudder Kemper. The fee rates, which decrease as the
         aggregate net assets of the AARP Classes become larger, are as follows:
         0.07% for the first $6 billion in net assets, 0.06% for the next $10
         billion and 0.05% thereafter.



                                       10
<PAGE>

         The portfolio managers

         The following people handle the day-to-day management of the fund.

         MANAGER NAME                        MANAGER NAME
         Lead Portfolio Manager                o  Began investment career in
          o  Began investment career in           XXXX
             XXXX                              o  Joined the adviser in XXXX
          o  Joined the adviser in XXXX        o  Joined the fund team in XXXX
          o  Joined the fund team in XXXX

                                       11
<PAGE>


Financial Highlights

This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of each table are for a single
share. The total return figures represent the percentage that an investor in the
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
annual report (see "Shareholder reports" on the back cover).

Because Class AARP shares were not available until March 1, 2001, there is no
financial data for these shares as of the date of the prospectus.

Scudder Global Discovery Fund


                                       12
<PAGE>

How to Invest in the Fund

The following pages tell you how to invest in the fund and what to expect as a
shareholder. If you're investing directly with Scudder, all of this information
applies to you.

If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.

As noted earlier, there are two classes of shares of the fund available through
this prospectus. The instructions for buying and selling each class are slightly
different.

Instructions for buying and selling Class AARP shares, which have been created
especially for AARP members, are found on the next two pages. These are followed
by instructions for buying and selling Class S shares. Be sure to use the
appropriate table when placing any orders to buy, exchange or sell shares in
your account.


<PAGE>


How to Buy, Sell and Exchange Class AARP Shares

Buying Shares Use these instructions to invest directly. Make out your check to
"The AARP Investment Program."

--------------------------------------------------------------------------------
First investment                          Additional investments
--------------------------------------------------------------------------------
$1,000 or more for regular accounts       $50 or more with an Automatic
                                          Investment Plan, Payroll Deduction or
$500 or more for IRAs                     Direct Deposit
--------------------------------------------------------------------------------
By mail

o For enrollment forms, call              Send a personalized investment slip or
  1-800-253-2277                          short note that includes:

o Fill out and sign an enrollment form    o fund and class name

o Send it to us at the appropriate        o account number
  address, along with an investment check
                                          o check payable to "The AARP
                                            Investment Program"
--------------------------------------------------------------------------------
By wire

o Call 1-800-253-2277 for instructions    o Call 1-800-253-2277 for instructions
--------------------------------------------------------------------------------
By phone

--                                        o Call 1-800-253-2277 for instructions
--------------------------------------------------------------------------------
With an automatic investment plan

o Fill in the information required on     o To set up regular investments from a
  your enrollment form and include a        bank checking account, call
  voided check                              1-800-253-2277
--------------------------------------------------------------------------------
Payroll Deduction or Direct Deposit

o Select either of these options on your  o Once you specify a dollar amount
  enrollment form and submit it. You        (minimum $50), investments are
  will receive further instructions by      automatic.
  mail.
--------------------------------------------------------------------------------
Using QuickBuy

--                                        o  Call 1-800-253-2277
--------------------------------------------------------------------------------
On the Internet

o Go to "services and forms - How to      o Call 1-800-253-2277 to ensure you
  Open an  Account" at aarp.scudder.com     have electronic services

o Print out a prospectus and an           o Register at aarp.scudder.com
  enrollment form
                                          o Follow the instructions for buying
o Complete and return the enrollment        shares with money from your bank
  form with your check                      account
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Regular mail: The AARP Investment Program,

First investment: PO Box 219735, Kansas City, MO 64121-9735

Additional investments: PO Box 219743, Kansas City, MO 64121-9743

Express, registered or certified mail:
The AARP Investment Program, 811 Main Street, Kansas City, MO 64105-2005

Fax number: 1-800-821-6234 (for exchanging and selling only)



                                       14
<PAGE>

Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.

--------------------------------------------------------------------------------
Exchanging into another fund              Selling shares
--------------------------------------------------------------------------------
$1,000 or more to open a new account      Some transactions, including most for
($500 or more for IRAs)                   over $100,000, can only be ordered in
                                          writing; if you're in doubt, see page
                                          20
--------------------------------------------------------------------------------
By phone

o Call 1-800-253-2277 for instructions    o Call 1-800-253-2277 for instructions
--------------------------------------------------------------------------------
Using Easy-Access Line

o Call 1-800- 631-4636 and follow the     o Call 1-800-631-4636 and follow the
  instructions                              instructions
--------------------------------------------------------------------------------
By mail or fax (see previous page)

Your instructions should include:         Your instructions should include:

o your account number                     o your account number

o names of the funds, class and number    o names of the funds, class and number
  of shares or dollar amount you want to    of shares or dollar amount you want
  exchange                                  to redeem
--------------------------------------------------------------------------------
With an automatic withdrawal plan

--                                        o To set up regular cash payments from
                                            an account, call 1-800-253-2277
--------------------------------------------------------------------------------
Using QuickSell

--                                        o Call 1-800-253-2277
--------------------------------------------------------------------------------
On the Internet

o Register at aarp.scudder.com            --

o Go to "services and forms"

o Follow the instructions for making
  on-line exchanges
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
 To reach us:      o Web site aarp.scudder.com

                   o Program representatives 1-800-253-2277, M-F, 8 a.m. - 8 p.m
                     EST

                   o Confidential fax line 1-800-821-6234, always open

                   o TDD line 1-800-634-9454, M-F, 9 a.m. - 5 p.m. EST


 Class AARP        o AARP Lump Sum Service For planning and setting up a lump
 Services            sum distribution.

                   o AARP Legacy Service For organizing financial documents and
                     planning the orderly transfer of assets to heirs

                   o AARP Goal Setting and Asset Allocation Service For
                     allocating assets and measuring investment progress

                   o For more information, please call 1-800-253-2277.

                                       15
<PAGE>

How to Buy, Sell or Exchange Class S Shares

Buying Shares Use these instructions to invest directly. Make out your check to
"The Scudder Funds."


--------------------------------------------------------------------------------
First investment                          Additional investments
--------------------------------------------------------------------------------
$2,500 or more for regular accounts       $100 or more for regular accounts

$1,000 or more for IRAs                   $50 or more for IRAs

                                          $50 or more with an Automatic
                                          Investment Plan
--------------------------------------------------------------------------------
By mail or express (see below)

o Fill out and sign an application        o Send a Scudder investment slip or
                                            short note that includes:
o Send it to us at the appropriate
  address, along with an investment check o fund and class name

                                          o  account number

                                          o check payable to "The Scudder Funds"
--------------------------------------------------------------------------------
By wire

o Call 1-800-SCUDDER for instructions     o Call 1-800-SCUDDER for instructions
--------------------------------------------------------------------------------
By phone

--                                        o Call 1-800-SCUDDER for instructions
--------------------------------------------------------------------------------
With an automatic investment plan

o Fill in the information on your         o To set up regular investments from a
  application and include a voided check    bank checking account, call
                                            1-800-SCUDDER
--------------------------------------------------------------------------------
Using QuickBuy

--                                        o Call 1-800-SCUDDER
--------------------------------------------------------------------------------
On the Internet

o Go to "funds and prices" at             o Call 1-800-SCUDDER to ensure you
  www.scudder.com                           have electronic services

o Print out a prospectus and a new        o Register at  www.scudder.com
  account application
                                          o Follow the instructions for buying
o Complete and return the application       shares with money from your bank
  with your check account
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Regular mail:

First investment: The Scudder Funds, PO Box 219669, Kansas City, MO 64121-9669

Additional investments: The Scudder Funds, PO Box 219664, Kansas City, MO
64121-9664

Express, registered or certified mail:
The Scudder Funds, 811 Main Street, Kansas City, MO 64105-2005

Fax number: 1-800-821-6234 (for exchanging and selling only)

                                       16
<PAGE>

Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.

--------------------------------------------------------------------------------
Exchanging into another fund              Selling shares
--------------------------------------------------------------------------------
$2,500 or more to open a new account      Some transactions, including most for
($1,000 or more for IRAs)                 over $100,000, can only be ordered in
                                          writing; if you're in doubt, see page
$100 or more for exchanges between        20
existing accounts
--------------------------------------------------------------------------------
By phone or wire

o Call 1-800-SCUDDER for instructions     o Call 1-800-SCUDDER for instructions
--------------------------------------------------------------------------------
Using SAIL(TM)

o Call 1-800-343-2890 and follow the      o Call 1-800-343-2890 and follow the
  instructions                              instructions
--------------------------------------------------------------------------------
By mail, express or fax (see
previous page)

Your instructions should include:         Your instructions should include:

o the fund, class, and account number     o the fund, class and account number
  you're exchanging out of                  from which you want to sell shares

o the dollar amount or number of shares   o the dollar amount or number of
  you want to exchange                      shares you want to sell

o the name and class of the fund you      o your name(s), signature(s) and
  want to exchange into                     address, as they appear on your
                                            account
o your name(s), signature(s), and
  address, as they appear on your account o a daytime telephone number

o a  daytime telephone number
--------------------------------------------------------------------------------
With an automatic withdrawal plan

--                                        o To set up regular cash payments from
                                            a Scudder account, call
                                            1-800-SCUDDER
--------------------------------------------------------------------------------
Using QuickSell                           o Call 1-800-SCUDDER

--
--------------------------------------------------------------------------------
On the Internet

o Register at www.scudder.com             --

o Follow the instructions for making
  on-line exchanges
--------------------------------------------------------------------------------

                                       17
<PAGE>

Policies You Should Know About

             Along with the instructions on the previous pages, the policies
             below may affect you as a shareholder. Some of this information,
             such as the section on dividends and taxes, applies to all
             investors, including those investing through investment providers.

             If you are investing through an investment provider, check the
             materials you got from them. As a general rule, you should follow
             the information in those materials wherever it contradicts the
             information given here. Please note that an investment provider may
             charge its own fees.

             In either case, keep in mind that the information in this
             prospectus applies only to the fund's Class AARP and Class S
             shares. The fund does have other share classes, which are described
             in separate prospectuses and which have different fees,
             requirements, and services.

             In order to reduce the amount of mail you receive and to help
             reduce fund expenses, we generally send a single copy of any
             shareholder report and prospectus to each household. If you do not
             want the mailing of these documents to be combined with those for
             other members of your household, please call 1-800-621-1048.

             Policies about transactions

             The fund is open for business each day the New York Stock Exchange
             is open. The fund calculates its share price every business day, as
             of the close of regular trading on the Exchange (typically 4 p.m.
             eastern time, but sometimes earlier, as in the case of scheduled
             half-day trading or unscheduled suspensions of trading).

             You can place an order to buy or sell shares at any time. Once your
             order is received by Scudder Service Corporation, and they have
             determined that it is a "good order," it will be processed at the
             next share price calculated.

             Because orders placed through investment providers must be
             forwarded to Scudder Service Corporation before they can be
             processed, you'll need to allow extra time. A representative of
             your investment provider should be able to tell you when your order
             will be processed.

                                       18
<PAGE>

             Automated phone information is available 24 hours a day. You can
             use your automated phone services to get information on Scudder
             funds generally and on accounts held directly at Scudder. If you
             signed up for telephone services, you can also use this service to
             make exchanges and sell shares.

             For Class AARP shares
             -------------------------------------------------------------------
             Call Easy-Access Line, the AARP Program Automated Information Line,
             at 1-800-631-4636
             -------------------------------------------------------------------
             For Class S shares
             -------------------------------------------------------------------
             Call SAILTM, the Scudder Automated Information Line, at
             1-800-343-2890
             -------------------------------------------------------------------

             QuickBuy and QuickSell let you set up a link between a Scudder
             account and a bank account. Once this link is in place, you can
             move money between the two with a phone call. You'll need to make
             sure your bank has Automated Clearing House (ACH) services. To set
             up QuickBuy or QuickSell on a new account, see the account
             application; to add it to an existing account, call 1-800-253-2277
             (Class AARP) or 1-800-SCUDDER (Class S).

             When you call us to sell shares, we may record the call, ask
             you for certain information, or take other steps designed to
             prevent fraudulent orders. It's important to understand that
             as long as we take reasonable steps to ensure that an order
             appears genuine, we are not responsible for any losses that
             may occur.

             When you ask us to send or receive a wire, please note that
             while we don't charge a fee to receive wires, we will deduct a
             $5 fee from all wires sent from us to your bank. Your bank may
             charge its own fees for handling wires. The fund[s] can only
             accept wires of $100 or more.

             Exchanges are a shareholder privilege, not a right: we may
             reject any exchange order, particularly when there appears to
             be a pattern of "market timing" or other frequent purchases
             and sales. We may also reject purchase orders, for these or
             other reasons.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------

Questions? You can speak to a Scudder representative between 8 a.m. and 8 p.m.
Eastern time on any fund business day by calling 1-800-253-2277 (Class AARP) or
1-800-SCUDDER (Class S).


                                       19
<PAGE>

                  When you want to sell more than $100,000 worth of shares,
                  you'll usually need to place your order in writing and include
                  a signature guarantee. The only exception is if you want money
                  wired to a bank account that is already on filewith us; in
                  that case, you don't need a signature guarantee. Also, you
                  don't need a signature guarantee for an exchange, although we
                  may require one in certain other circumstances.

                  A signature guarantee is simply a certification of your
                  signature -- a valuable safeguard against fraud. You can get a
                  signature guarantee from most brokers, banks, savings
                  institutions and credit unions. Note that you can't get a
                  signature guarantee from a notary public.

                  Money from shares you sell is normally sent out within one
                  business day of when your order is processed (not when it is
                  received), although it could be delayed for up to seven days.
                  There are also two circumstances when it could be longer: when
                  you are selling shares you bought recently by check and that
                  check hasn't cleared yet (maximum delay: 15 days) or when
                  unusual circumstances prompt the SEC to allow further delays.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------

The Scudder Web site can be a valuable resource for shareholders with Internet
access. To get up-to-date information, review balances or even place orders for
exchanges, go to aarp.scudder.com (Class AARP) or www.scudder.com (Class S).


                                       20
<PAGE>

                  How the fund calculates share price

                  For each share class, the price at which you buy shares is the
                  net asset value per share, or NAV. To calculate NAV, each
                  class of the fund uses the following equation:

                   TOTAL ASSETS - TOTAL LIABILITIES
                  ----------------------------------   = NAV
                  TOTAL NUMBER OF SHARES OUTSTANDING

                  We typically use market prices to value securities. However,
                  when a market price isn't available, or when we have reason to
                  believe it doesn't represent market realities, we may use fair
                  value methods approved by [the/a] fund's Board. In such a
                  case, the fund's value for a security is likely to be
                  different from quoted market prices.

                  To the extent that the fund invests in securities that are
                  traded primarily in foreign markets, the value of its holdings
                  could change at a time when you aren't able to buy or sell
                  fund shares. This is because some foreign markets are open on
                  days when the fund doesn't price its shares.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------

If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.

                                       21
<PAGE>

         Other rights we reserve

         o        withhold 31% of your distributions as federal income tax if
                  you have been notified by the IRS that you are subject to
                  backup withholding, or if you fail to provide us with a
                  correct taxpayer ID number or certification that you are
                  exempt from backup withholding

         o        for Class AARP and Class S shareholders, close your account
                  and send you the proceeds if your balance falls below $1,000;
                  for Class S shareholders, charge you $10 a year if your
                  account balance falls below $2,500; in either case, we will
                  give you 60 days notice so you can either increase your
                  balance or close your account (these policies don't apply to
                  retirement accounts, to investors with $100,000 or more in
                  Scudder fund shares or in any case where a fall in share price
                  created the low balance)

         o        reject a new account application if you don't provide a
                  correct Social Security or other tax ID number; if the account
                  has already been opened, we may give you 30 days' notice to
                  provide the correct number

         o        change, add or withdraw various services, fees and account
                  policies (for example, we may change or terminate the exchange
                  privilege at any time)

         o        pay you for shares you sell by "redeeming in kind," that is,
                  by giving you marketable securities (which typically will
                  involve brokerage costs for you to liquidate) rather than
                  cash; in most cases, the fund generally won't make a
                  redemption in kind unless your requests over a 90-day period
                  total more than $250,000 or 1% of the value of the fund's net
                  assets, whichever is less

                                       22
<PAGE>


Understanding Distributions and Taxes

         By law, a mutual fund is required to pass through to its shareholders
         virtually all of its net earnings. A fund can earn money in two ways:
         by receiving interest, dividends or other income from securities it
         holds, and by selling securities for more than it paid for them. (A
         fund's earnings are separate from any gains or losses stemming from
         your own purchase of shares.) A fund may not always pay a distribution
         for a given period.

         The fund intends to pay dividends and distributions to its shareholders
         in December, and if necessary may do so at other times as well.

         You can choose how to receive your dividends and distributions. You can
         have them all automatically reinvested in fund shares (at NAV), all
         sent to you by check, have one type reinvested and the other sent to
         you by check or have them invested in a different fund. Tell us your
         preference on your application. If you don't indicate a preference,
         your dividends and distributions will all be reinvested without sales
         charges. For retirement plans, reinvestment is the only option.

         Buying and selling fund shares will usually have tax consequences for
         you (except in an IRA or other tax-advantaged account). Your sales of
         shares may result in a capital gain or loss for you; whether long-term
         or short-term depends on how long you owned the shares. For tax
         purposes, an exchange is the same as a sale.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------

Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.


                                       23
<PAGE>

             The tax status of the fund earnings you receive, and your own fund
             transactions, generally depends on their type:

             Generally taxed at ordinary income rates
             -------------------------------------------------------------------
               short-term capital gains from selling fund shares
             -------------------------------------------------------------------
               taxable income dividends you receive from the fund
             -------------------------------------------------------------------
               short-term capital gains distributions you receive from the fund
             -------------------------------------------------------------------

             Generally taxed at capital gains rates
             -------------------------------------------------------------------
               long-term capital gains from selling fund shares
             -------------------------------------------------------------------
               long-term capital gains distributions you receive from the fund
             -------------------------------------------------------------------

             Your fund will send you detailed tax information every January.
             These statements tell you the amount and the tax category of any
             dividends or distributions you received. They also have certain
             details on your purchases and sales of shares. The tax status of
             dividends and distributions is the same whether you reinvest them
             or not. Dividends or distributions declared in the last quarter of
             a given year are taxed in that year, even though you may not
             receive the money until the following January.

             If you invest right before the fund pays a dividend, you'll be
             getting some of your investment back as a taxable dividend. You can
             avoid this, if you want, by investing after the fund declares a
             dividend. In tax-advantaged retirement accounts you don't need to
             worry about this.

             Corporations may be able to take a dividends-received deduction for
             a portion of income dividends they receive.


                                       24
<PAGE>

To Get More Information

             Shareholder reports -- These include commentary from each fund's
             management team about recent market conditions and the effects of a
             fund's strategies on its performance. For each fund, they also have
             detailed performance figures, a list of everything the fund owns,
             and the fund's financial statements. Shareholders get these reports
             automatically. To reduce costs, we mail one copy per household. For
             more copies, call 1-800-253-2277 (Class AARP) or 1-800-SCUDDER
             (Class S).

             Statement of Additional Information (SAI) -- This tells you more
             about each fund's features and policies, including additional risk
             information. The SAI is incorporated by reference into this
             document (meaning that it's legally part of this prospectus).

             If you'd like to ask for copies of these documents, or if you're a
             shareholder and have questions, please contact Scudder or the SEC
             (see below). Materials you get from Scudder are free; those from
             the SEC involve a copying fee. If you like, you can look over these
             materials at the SEC's Public Reference Room in Washington, DC or
             request them electronically at [email protected].


             AARP Investment Program
             from Scudder               Scudder Funds        SEC
             -------------------------------------------------------------------
             PO Box 2540                PO Box 2291          450 Fifth Street,
             Boston, MA                 Boston, MA           N.W.
             02208-2540                 02107-2291           Washington, D.C.
                                                             20549-6009
             -------------------------------------------------------------------
             1-800-253-2277             1-800-SCUDDER        1-202-942-8090
             -------------------------------------------------------------------
             aarp.scudder.com           www.scudder.com      www.sec.gov
             -------------------------------------------------------------------


             SEC File Number        811-4670


<PAGE>

                                                                SCUDDER
                                                                INVESTMENTS (SM)
                                                                [LOGO]





     March 1, 2001

Prospectus

                                                        Scudder Global Bond Fund

                                                      Advisor Classes A, B and C

As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.

<PAGE>

Contents

How the Fund Works                          How to Invest in the Fund

     4  The Fund's Investment Strategy      11  Choosing a Share Class

     5  The Main Risks of Investing         16  How to Buy Shares
        in the Fund
                                            17  How to Exchange  or Sell Shares
     6  The Fund's Performance History
                                            18  Policies You Should Know
     7  How Much Investors Pay                  About

     8  Other Policies and Risks            23  Understanding Distributions
                                                and Taxes
     9  Who Manages and Oversees
        the Fund

<PAGE>

How The Fund Works

On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.

Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.

Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.


<PAGE>

--------------------------------------------------------------------------------
                                             |  Class A     Class B     Class C
                              ticker symbol  |  XXXXX       XXXXX       XXXXX
                                fund number  |  000         000         000

Scudder Global Bond Fund
--------------------------------------------------------------------------------

The Fund's Investment Strategy

The fund seeks total return, with an emphasis on current income; capital
appreciation is a secondary goal. It does this by investing at least 65% of
total assets in high quality bonds of issuers from around the world, including
the United States. The fund can buy many types of income-producing securities,
among them U.S. and foreign government bonds, corporate bonds and mortgage- and
asset-backed securities.

In making their buy and sell decisions, the managers typically consider a number
of factors, such as currency and economic outlooks, credit quality, possible
interest rate movements, security characteristics and changes in supply and
demand within the global bond markets.

In choosing individual bonds, the managers use independent analysis to look for
bonds that have attractive yields and show improving credit. The managers
prefer, but may not exclusively invest in, bonds that are denominated in stable
or strengthening currencies.

The managers may favor different types of securities at different times, while
still maintaining variety in terms of the countries, issuers and types of
securities represented.

Although the managers may adjust the fund's duration (a measure of sensitivity
to interest rate movements), they generally intend to keep it between 4 and 6
years. Also while they're permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities) the managers don't intend to use them as principal investments, and
may not use them at all.

--------------------------------------------------------------------------------

CREDIT QUALITY POLICIES This fund normally invests at least 65% of total assets
in intermediate- and long-term bonds of the top two grades of credit quality,
and at least 15% of total assets in dollar-denominated securities. The fund
could put up to 15% of net assets in junk bonds as low as the fourth credit
grade (i.e., grade BB/Ba). Compared to investment-grade bonds, junk bonds may
pay higher yields and have higher volatility and risk of default.

                                       4
<PAGE>

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.

As with most bond funds, the most important factor is market interest rates --
in this case, global interest rates. A rise in interest rates generally means a
fall in bond prices and, in turn, a fall in the value of your investment. (As a
rule, a 1% rise in interest rates means a 1% fall in value for every year of
duration.) An increase in its duration would make the fund more sensitive to
this risk. Foreign bonds tend to be more volatile than their U.S. counterparts,
for reasons ranging from political and economic uncertainties to a higher risk
that essential information may be incomplete or wrong. Because the fund isn't
diversified and can invest a larger percentage of assets in a given issuer than
a diversified fund, factors affecting that issuer could affect fund performance.

When the dollar value of a foreign currency falls, so does the value of any
investments the fund owns that are denominated in that currency. This is
separate from market risk, and may add to market losses or reduce market gains.

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         geographical areas, industries, issuers or other matters

o        a bond could fall in credit quality or go into default; this risk is
         greater with junk and foreign bonds

o        some types of bonds could be paid off substantially earlier than
         expected, which would hurt fund performance; with mortgage- or
         asset-backed securities, any unexpected behavior in interest rates
         could hurt performance and increase the volatility

o        derivatives could produce disproportionate losses

o        at times, market conditions might make it hard to value some
         investments or to get an attractive price for them

--------------------------------------------------------------------------------

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

This fund is designed for investors interested in exposure to global bond
markets with a portfolio of high quality securities

--------------------------------------------------------------------------------

                                       5
<PAGE>

The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The share classes offered in this prospectus - Classes A, B and C - were created
after the fund began. Because of this, the performance figures shown in the bar
chart and table for the period before a class existed are based on the
historical performance of the fund's original share class (Class S), adjusted to
reflect the higher operating expenses of the new class. All classes of the fund
are shares of the same investment portfolio, but each has its own expenses and
sales charges. Class S shares are offered in a different prospectus.

Scudder Global Bond Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

 00.00   00.00  00.00  00.00  00.00   00.00  00.00  00.00  00.00  00.00
--------------------------------------------------------------------------------





--------------------------------------------------------------------------------
  1991   1992   1993   1994    1995    1996  1997    1998   1999   2000
--------------------------------------------------------------------------------


2000 Total Return as of _______: 0.00%
Best Quarter: 0.00%, Q0 0000               Worst Quarter -0.00%, Q0 0000

--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/2000
--------------------------------------------------------------------------------
                      1 Year              5 Years              Since Inception*
--------------------------------------------------------------------------------
Class A               0.00                0.00                 0.00
--------------------------------------------------------------------------------
Class B               0.00                0.00                 0.00
--------------------------------------------------------------------------------
Class C               0.00                0.00                 0.00
--------------------------------------------------------------------------------
Index                 0.00                0.00                 0.00
--------------------------------------------------------------------------------

Index: Salomon Brothers World Government Bond Index, an unmanaged index of
worldwide fixed-rate government bonds with remaining maturities greater than one
year. Prior to 12/27/1995, the Salomon Brothers Currency-Hedged World Government
Bond Index (1-3 years) was used as a comparative index.

*  Since 3/1/1991. Index comparison begins 3/1/1991.

On 12/27/1995, the fund changed from a short term global income fund to its
current goal and strategy. Performance before that date would have been
different had the current goal and strategy been in effect.

In the chart, total returns from 1992 through 1999 would have been lower if
operating expenses hadn't been reduced.

In the table, total returns from inception through 1999 would have been lower if
operating expenses hadn't been reduced.

The table includes the effects of maximum sales loads.

                                       6
<PAGE>

How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold
fund shares.

--------------------------------------------------------------------------------
Fee Table                                 Class A        Class B       Class C
--------------------------------------------------------------------------------

Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as % of offering price)      4.50%          None          None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a % of redemption proceeds)            None*          4.00%         1.00%
--------------------------------------------------------------------------------

Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee                               %              %             %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee                     %              %             %
--------------------------------------------------------------------------------
Other Expenses**                             %              %             %
--------------------------------------------------------------------------------
Total Annual Operating Expenses              %              %             %
--------------------------------------------------------------------------------

*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes a fixed rate administrative fee of --%, --% and --% for Class
         A, Class B and Class C shares, respectively.

Information in the table has been restated to reflect a new fixed rate
administrative fee which became effective on ----.

Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.

--------------------------------------------------------------------------------
Example                    1 Year        3 Years        5 Years       10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares           $              $              $             $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------

                                       7
<PAGE>


Other Policies and Risks

While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:

o        Although major changes tend to be infrequent, the fund's Board could
         change the fund's investment goal without seeking shareholder approval.

o        As a temporary defensive measure, the fund could shift up to 100% of
         its assets into investments such as money market securities. This could
         prevent losses, but would mean that the fund was not pursuing its goal.

o        The fund may trade securities more actively than some other bond funds.
         This could raise transaction costs (and lower performance) and could
         mean higher taxable distributions.

o        The investment advisor measures credit quality at the time it buys
         securities, using independent ratings or, for unrated securities, its
         own credit analysis. If a security's credit quality declines, the
         portfolio managers will decide what to do with the security, based on
         their assessment of what would benefit shareholders most.

Euro conversion

Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is well underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.

For more information

This prospectus doesn't tell you about every policy or risk of investing in the
funds.

If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (see back cover).

Keep in mind that there is no assurance that any mutual fund will achieve its
goal.

                                       8
<PAGE>

Who Manages and Oversees the Fund

The investment advisor

The fund's investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, NY. The advisor has more than 80 years of experience managing
mutual funds, and currently has more than $290 billion in assets under
management.

The advisor's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.

The advisor receives a management fee from the fund. For the 12 months through
the most recent fiscal year end, the actual amount the fund paid in management
fees was X.XX% of its average daily net assets.

The fund has entered into a new investment management agreement with the
advisor. The table below describes the new fee rates for the fund.

--------------------------------------------------------------------------------
Investment Management Fee as of----
--------------------------------------------------------------------------------
Average Daily Net Assets                                 Fee Rate
--------------------------------------------------------------------------------
first $500 million                                          %
--------------------------------------------------------------------------------
next $500 million                                           %
--------------------------------------------------------------------------------
more than $1 billion                                        %
--------------------------------------------------------------------------------

The portfolio managers

The following people handle the day-to-day management of the fund.

Jan C. Faller                               Jeremy L. Ragus
Lead Portfolio Manager
                                            o Began investment
 o Began investment career in 1988            career in 1981

 o Joined the advisor in 1999               o Joined the advisor
                                              in 1990
 o Joined the fund team in 1999
                                            o Joined the fund team
                                              in 1999


                                       9
<PAGE>

How to Invest in the Fund

The following pages tell you about many of the services, choices and benefits of
being a shareholder. You'll also find information on how to check the status of
your account using the method that's most convenient for you.

You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.

 <PAGE>

Choosing a Share Class

Offered in this prospectus are three share classes for the fund. The fund offers
other classes of shares separately. Each class has its own fees and expenses,
offering you a choice of cost structures. Class A, Class B and Class C shares
are intended for investors seeking the advice and assistance of a financial
representative, who may receive compensation for those services through sales
commissions, service fees and/or distribution fees.

Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.

We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.


--------------------------------------------------------------------------------
Classes and features                      Points to help you compare
--------------------------------------------------------------------------------
Class A

o Sales charges of up to 4.50%, charged   o Some investors may be able to reduce
  when you buy shares                       or eliminate their sales charges;
                                            see next page
o In most cases, no charges when you
  sell shares                             o Total annual expenses are lower than
                                            those for Class B or Class C
o 0.25% service fee
--------------------------------------------------------------------------------
Class B

o No charges when you buy shares          o The deferred sales charge rate falls
                                            to zero after six years
o Deferred sales charge declining from
  4.00%, charged when you sell shares you o Shares automatically convert to
  bought within the last six years          Class A after six years, which means
                                            lower annual expenses going forward
o 1.00% distribution/service fee
--------------------------------------------------------------------------------
Class C

o No charges when you buy shares          o The deferred sales charge rate is
                                            lower, but your shares never convert
o Deferred sales charge of 1.00%,           to Class A, so annual expenses
  charged when you sell shares you bought   remain  higher
  within the last year

o 1.00% distribution/service fee
--------------------------------------------------------------------------------


                                       11
<PAGE>

Class A shares

Class A shares do have a 12b-1 plan, under which a service fee of 0.25% is
deducted from fund assets each year.

Class A shares have a sales charge that varies with the
amount you invest:

                                                 Sales charge as a
                       Sales charge as a percent percent of your
Your investment        of offering price net     investment
---------------------------------------------------------------------
Up to $100,000         0.00%                     0.00%
---------------------------------------------------------------------
$100,000-$249,999      0.00                      0.00
---------------------------------------------------------------------
$250,000-$499,999      0.00                      0.00
---------------------------------------------------------------------
$500,000-$999,999      0.00                      0.00
---------------------------------------------------------------------
$1 million or more     0.00**                    0.00**
---------------------------------------------------------------------

The offering price includes the sales charge.

You may be able to lower your Class A sales charges if:

o        you plan to invest at least $100,000 over the next 24 months ("letter
         of intent")

o        the amount of shares you already own (including shares in certain other
         funds) plus the amount you're investing now is at least $100,000
         ("cumulative discount")

o        you are investing a total of $100,000 or more in several funds at once
         ("combined purchases")

The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.

--------------------------------------------------------------------------------

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.

--------------------------------------------------------------------------------


                                       12
<PAGE>

You may be able to buy Class A shares without sales charges when you are:

o        reinvesting dividends or distributions

o        investing through certain workplace retirement plans

o        participating in an investment advisory program under which you pay a
         fee to an investment advisor or other firm for portfolio management
         services

There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Shareholder Services
can answer your questions and help you determine if you are eligible.

If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. ("Large Order NAV
Purchase Privilege"). This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial representative or Shareholder
Services can answer your questions and help you determine if you're eligible.

                                       13
<PAGE>

Class B shares

With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% and a
service fee of 0.25% are deducted from fund assets each year. This means the
annual expenses for Class B shares are somewhat higher (and their performance
correspondingly lower) compared to Class A shares, which don't have a 12b-1 fee.
After six years, Class B shares automatically convert to Class A, which has the
net effect of lowering the annual expenses from the seventh year on. However,
unlike Class A shares, your entire investment goes to work immediately.

Class B shares have a CDSC. This charge declines over the years you own shares,
and disappears completely after six years of ownership. But for any shares you
sell within those six years, you may be charged as follows:

Year after you bought shares   CDSC on shares you sell
---------------------------------------------------------------------
First year                     4.00%
---------------------------------------------------------------------
Second or third year           3.00
---------------------------------------------------------------------
Fourth or fifth year           2.00
---------------------------------------------------------------------
Sixth year                     1.00
---------------------------------------------------------------------
Seventh year and later         None (automatic conversion to Class A)
---------------------------------------------------------------------

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Shareholder Services can answer your
questions and help you determine if you're eligible.

While Class B shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.

--------------------------------------------------------------------------------

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Class B shares can make sense for long-term investors who would prefer to see
all of their investment go to work right away, and can accept somewhat higher
annual expenses in exchange.

--------------------------------------------------------------------------------



                                       14
<PAGE>

Class C shares

Like Class B shares, Class C shares have no up-front sales charges and have a
12b-1 plan under which a distribution fee of 0.75% and a service fee of 0.25%
are deducted from fund assets each year. Because of this fee, the annual
expenses for Class C shares are similar to those of Class B shares, but higher
than those for Class A shares (and the performance of Class C shares is
correspondingly lower than that of Class A). However, unlike Class A shares,
your entire investment goes to work immediately.

Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.

Class C shares have a CDSC, but only on shares you sell within one year of
buying them:

Year after you bought shares   CDSC on shares you sell
---------------------------------------------------------------------
First year                     1.00%
---------------------------------------------------------------------
Second year and later          None
---------------------------------------------------------------------

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Shareholder Services can answer your
questions and help you determine if you're eligible.

While Class C shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.

--------------------------------------------------------------------------------

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.

--------------------------------------------------------------------------------

                                       15
<PAGE>

How to Buy Shares

Once you've chosen a share class, use these instructions to make investments.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
First investment                          Additional investments
------------------------------------------------------------------------------------
<S>                                       <C>
$1,000 or more for regular accounts       $100 or more for regular accounts

$250 or more for IRAs                     $50 or more for IRAs

                                          $50 or more with an Automatic
                                          Investment Plan
------------------------------------------------------------------------------------
Through a financial representative

o Contact your representative using the   o Contact your representative using
  method that's most convenient for you     the method that's most convenient for
                                            you
------------------------------------------------------------------------------------
By mail or express mail (see below)

o Fill out and sign an application        o Send a check made out to "Kemper
                                            Funds" and a Kemper investment slip to
o Send it to us at the appropriate          us at the appropriate address below
  address, along with an investment check
                                          o If you don't have an investment
                                            slip, simply include a letter with
                                            your name, account number, the full
                                            name of the fund and the share class
                                            and your investment instructions
------------------------------------------------------------------------------------
By wire

o Call (800) 621-1048 for instructions   o  Call (800) 621-1048 for instructions
------------------------------------------------------------------------------------
By phone

--                                       o  Call (800) 621-1048 for instructions
------------------------------------------------------------------------------------
With an automatic investment plan

--                                       o  To set up regular investments from a
                                            bank checking account, call (800)
                                            621-1048 (minimum $50)
------------------------------------------------------------------------------------
On the Internet

--                                       o  Go to www.kemper.com and register

                                         o  Follow the instructions for buying
                                            shares with money from your bank
                                            account
------------------------------------------------------------------------------------
</TABLE>



--------------------------------------------------------------------------------
  Regular mail:
  Kemper Funds, PO Box 219153, Kansas City, MO 64121-9153

  Express, registered or certified mail:
  Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005

  Fax number: (800) 818-7526 (for exchanging and selling only)

                                       16
<PAGE>

How to Exchange or Sell Shares

Use these instructions to exchange or sell shares in your account.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Exchanging into another fund              Selling shares
----------------------------------------------------------------------------------

<S>                                       <C>
$1,000 or more to open a new account      Some transactions, including most for
($250 for IRAs)                           over $50,000, can only be ordered in
                                          writing with a signature guarantee; if
$100 or more for exchanges between        you're in doubt, see page 19
existing accounts
----------------------------------------------------------------------------------

Through a financial representative        o  Contact your representative by the
                                             method that's most convenient for you
o Contact your representative by the
  method that's most convenient for you
----------------------------------------------------------------------------------

By phone or wire                          o  Call (800) 621-1048 for instructions

o Call (800) 621-1048 for instructions
----------------------------------------------------------------------------------
By mail, express mail or fax
(see previous page)

Write a letter that includes:
                                          Write a letter that includes:
o the fund, class and account number
  you're exchanging out of                o  the fund, class and account number
                                             from which you want to sell shares
o the dollar amount or number of shares
  you want to exchange                    o  the dollar amount or number of
                                             shares you want to sell
o the name and class of the fund you
  want to exchange into                   o  your name(s), signature(s) and
                                             address, as they appear on your
                                             account
o your name(s), signature(s) and
  address, as they appear on your account o  a daytime telephone number

o a daytime telephone number
----------------------------------------------------------------------------------

With a systematic exchange plan           With a systematic withdrawal plan

o To set up regular exchanges from a      o To set up regular cash payments from
  fund account, call (800) 621-1048         a fund account, call (800) 621-1048
----------------------------------------------------------------------------------

On the internet

o Go to www.kemper.com and register

o Follow the instructions for making
  on-line exchanges
----------------------------------------------------------------------------------
</TABLE>

                                       17
<PAGE>

Policies You Should Know About

Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.

If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.

In either case, keep in mind that the information in this prospectus applies
only to the fund's Class A, Class B and Class C shares. The fund does have other
share classes, which are described in a separate prospectus and which have
different fees, requirements and services.

In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call (800)
621-1048.

Policies about transactions

The fund is open for business each day the New York Stock Exchange is open. The
fund calculates its share price every business day, as of the close of regular
trading on the Exchange (typically 4 p.m. Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading).

You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.

Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.

                                       18
<PAGE>

KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper or Scudder funds generally and on accounts held directly at Kemper. You
can also use it to make exchanges and sell shares.

EXPRESS-Transfer lets you set up a link between a Kemper or Scudder account and
a bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. Transactions take two to three days to be completed, and
there is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the
account application; to add it to an existing account, call (800) 621-1048.

Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personalized security codes or other information, we are not
responsible for any losses that may occur. For transactions conducted over the
Internet, we recommend the use of a secure Internet browser. In addition, you
should verify the accuracy of your confirmation statements immediately after you
receive them.

When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are completed within 24 hours. The funds can only send or
accept wires of $100 or more.

Exchanges are a shareholder privilege, not a right: we may reject any exchange
order, particularly when there appears to be a pattern of "market timing" or
other frequent purchases and sales. We may also reject or limit purchase orders,
for these or other reasons.

When you want to sell more than $50,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.

--------------------------------------------------------------------------------

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.

--------------------------------------------------------------------------------

                                       19
<PAGE>

A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.

When you sell shares that have a CDSC, we calculate the CDSC as a percentage of
what you paid for the shares or what you are selling them for -- whichever
results in the lowest charge to you. In processing orders to sell shares, we
turn to the shares with the lowest CDSC first. Exchanges from one fund into
another don't affect CDSCs: for each investment you make, the date you first
bought shares is the date we use to calculate a CDSC on that particular
investment.

There are certain cases in which you may be exempt from a CDSC. These include:

o        the death or disability of an account owner (including a joint owner)

o        withdrawals made through a systematic withdrawal plan.

o        withdrawals related to certain retirement or benefit plans

o        redemptions for certain loan advances, hardship provisions or returns
         of excess contributions from retirement plans

o        for Class A shares purchased through the Large Order NAV Purchase
         Privilege, redemption of shares whose dealer of record at the time of
         the investment notifies Kemper Distributors that the dealer waives the
         applicable commission

o        For Class C shares, redemption of shares purchased through a
         dealer-sponsored asset allocation program maintained on an omnibus
         record-keeping system, provided the dealer of record has waived the
         advance of the first year administrative services and distribution fees
         applicable to such shares and has agreed to receive such fees
         quarterly.

In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Shareholder Services can answer your questions and help you determine if you are
eligible.

--------------------------------------------------------------------------------

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.

--------------------------------------------------------------------------------

                                       20
<PAGE>

If you sell shares in a Scudder fund and then decide to invest with Scudder or
Kemper again within six months, you can take advantage of the "reinstatement
feature." With this feature, you can put your money back into the same class of
a Scudder or Kemper fund at its current NAV and for purposes of sales charges it
will be treated as if it had never left Scudder or Kemper. You'll be reimbursed
(in the form of fund shares) for any CDSC you paid when you sold. Future CDSC
calculations will be based on your original investment date, rather than your
reinstatement date. There is also an option that lets investors who sold Class B
shares buy Class A shares with no sales charge, although they won't be
reimbursed for any CDSC they paid. You can only use the reinstatement feature
once for any given group of shares. To take advantage of this feature, contact
Shareholder Services or your financial representative.

Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.

How the fund calculates share price

For each share class, the price at which you buy shares is as follows:

Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing A Share Class")

Class B and Class C shares-- net asset value per share, or
NAV

To calculate NAV, each share class of each fund uses the following equation:


                        TOTAL ASSETS - TOTAL LIABILITIES
                       ----------------------------------     = NAV
                       TOTAL NUMBER OF SHARES OUTSTANDING


For the fund and each share class, the price at which you sell shares is also
the NAV, although CDSC may be taken out of the proceeds (see "Choosing A Share
Class").

                                       21
<PAGE>

We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.

Because the fund invests in securities that are traded primarily in foreign
markets, the value of its holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the fund doesn't price its shares.

Other rights we reserve

For this fund, you should be aware that we may do any of the following:

o        withhold 31% of your distributions as federal income tax if you have
         been notified by the IRS that you are subject to backup withholding, or
         if you fail to provide us with a correct taxpayer ID number or
         certification that you are exempt from backup withholding

o        reject a new account application if you don't provide a correct Social
         Security or other tax ID number; if the account has already been
         opened, we may give you 30 days' notice to provide the correct number

o        charge you $9 each calendar quarter if your account balance is below
         $800 for the entire quarter; this policy doesn't apply to most
         retirement accounts or if you have an automatic investment plan

o        pay you for shares you sell by "redeeming in kind," that is, by giving
         you marketable securities (which typically will involve brokerage costs
         for you to liquidate) rather than cash

o        change, add or withdraw various services, fees and account policies
         (for example, we may change or terminate the exchange privilege at any
         time)

                                       22
<PAGE>

Understanding Distributions and Taxes

By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.

The fund has a regular schedules for paying out any earnings to shareholders:

o        Income and short-term capital gains: declared and paid monthly

o        Long-term capital gains: December, or otherwise as needed

You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you by check or have them
invested in a different fund. Tell us your preference on your application. If
you don't indicate a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans, reinvestment is the only
option.

Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.

--------------------------------------------------------------------------------

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.

--------------------------------------------------------------------------------

                                       23
<PAGE>

The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:

Generally taxed at ordinary income rates
----------------------------------------------------------------------
o short-term capital gains from selling fund shares
----------------------------------------------------------------------
o taxable income dividends you receive from the fund
----------------------------------------------------------------------
o short-term capital gains distributions you receive from the fund
----------------------------------------------------------------------

Generally taxed at capital gains rates
----------------------------------------------------------------------
o long-term capital gains from selling fund shares
----------------------------------------------------------------------
o long-term capital gains distributions you receivefrom the fund
----------------------------------------------------------------------

You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.

Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.

If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.

                                       24
<PAGE>

To Get More Information

Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get the reports
automatically. For more copies, call (800) 621-1048.

Statement of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus). If you'd like to ask for copies of these documents, please
contact Scudder or the SEC (see below). If you're a shareholder and have
questions, please contact Scudder. Materials you get from Scudder are free;
those from the SEC involve a copying fee. If you like, you can look over these
materials at the SEC's Public Reference Room in Washington, DC or request them
electronically at [email protected].

SEC
450 Fifth Street, N.W.
Washington, DC 20549-0102
www.sec.gov
Tel (202) 942-8090

Scudder Funds c/o
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
Tel (800) 621-1048


SEC File Numbers
Scudder Global Bond Fund                                 811-4670






Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL
60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048

<PAGE>
                                                                 SCUDDER
                                                                 INVESTMENTS(SM)
                                                                 [LOGO]

March 1, 2001

Prospectus


                                            Scudder Emerging Markets Income Fund

                                                      Advisor Classes A, B and C


As with all mutual funds, the Securities and
Exchange Commission (SEC) does not approve
or disapprove these shares or determine
whether the information in this prospectus
is truthful or complete. It is a criminal
offense for anyone to inform you otherwise.


<PAGE>


Contents

How the Fund Works                       How to Invest in the Fund

      4  The Fund's Investment Strategy       12  Choosing a Share Class

      5  The Main Risks of Investing          17  How to Buy Shares
         in the Fund
                                              18  How to Exchange Sell or Shares
      7  The Fund's Performance History
                                              19  Policies You Should Know
      8  How Much Investors Pay                   About

      9  Other Policies and Risks             25  Understanding Distributions
                                                  and Taxes
     10  Who Manages and Oversees
         the Fund

<PAGE>


How The Fund Works

On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.

Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.

Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.



<PAGE>


--------------------------------------------------------------------------------
                                            Class A       Class B       Class C

                            ticker symbol    XXXXX         XXXXX         XXXXX
                            fund number      000           000           000



Scudder Emerging Markets Income Fund
--------------------------------------------------------------------------------

The Fund's Investment Strategy

The fund seeks to provide high current income and, secondarily, long-term
capital appreciation. It does this by investing at least 65% of total assets in
high yield bonds and other debt securities issued by governments and
corporations in emerging market countries. Historically, the managers have
tended to emphasize Latin America, but may also invest in Asia, Africa, the
Middle East and Eastern Europe. To help manage risk, the fund invests at least
65% of total assets in dollar-denominated securities. The fund also does not
invest more than 40% of total assets in any one country. The fund may invest up
to 35% of total assets in debt securities from developed markets and up to 20%
of total assets in U.S. debt securities including those that are rated below
investment-grade.

In making their buy and sell decisions, the managers typically consider a number
of factors, including economic and currency outlooks, interest rate movements,
capital flows, debt levels, inflation trends, credit quality of issuers,
security characteristics and changes in supply and demand within global bond
markets.

In choosing individual bonds, the managers use independent analysis to look for
bonds that have attractive yields and show improving credit. The managers prefer
bonds that are denominated in stable or strengthening currencies, but may invest
in bonds denominated in other currencies if deemed attractive.

The managers may favor different types of securities at different times, while
still maintaining variety in terms of the countries, issuers and types of
securities represented.

--------------------------------------------------------------------------------

CREDIT QUALITY POLICIES This fund normally invests at least 65% of total assets
in junk bonds, which are those below the fourth credit grade (i.e., grade BB/Ba
and below). Compared to investment-grade bonds, junk bonds may pay higher yields
and have higher volatility and risk of default. The fund may invest up to 5% of
net assets in bonds of grade D/C, which are usually in default. The fund may
invest up to 35% of total assets in investment grade bonds, but normally invests
less in them.



                                       4
<PAGE>

Although the managers may adjust the fund's duration (a measure of sensitivity
to interest rate movements), they generally intend to keep it between 2.5 and
5.5 years. Also, while they're permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal investments, and
may not use them at all.

The Main Risks of Investing in the Fund

There are several risk factors that could hurt the fund's performance, cause you
to lose money or make the fund perform less well than other investments.

For this fund, the main factor is the economies in the emerging markets it
invests in. Because issuers of high yield bonds may be in uncertain financial
health, high yield bond prices can be vulnerable to bad economic news, or even
the expectation of bad news. This may affect a company, industry, country,
region or the high yield market as a whole. In some cases, bonds may decline in
credit quality or go into default. Emerging markets bonds tend to be
significantly more volatile then their U.S. counterparts, for reasons ranging
from political and economic uncertainties to a higher risk that essential
information may be incomplete or wrong.

A second major factor is market interest rates. A rise in interest rates
generally means a fall in bond prices and, in turn, a fall in the value of your
investment. An increase in its duration would make the fund more sensitive to
this risk.

Because the fund isn't diversified and can invest a larger percentage of assets
in a given issuer than a diversified fund, factors affecting that issuer could
affect fund performance. Similarly, if the fund emphasizes a given market, such
as Latin America, factors affecting that market will affect performance.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

This fund is designed for investors who understand the risks of high yield bonds
and are interested in exposure to emerging markets.


                                       5
<PAGE>

Other factors that could affect performance include:

o        the managers could be wrong in their analysis of economic trends,
         geographical areas, industries, issuers or other matters

o        currency fluctuations could cause non-dollar denominated investments to
         lose value

o        some bonds could be paid off earlier than expected, which could hurt
         the fund's performance

o        derivatives could produce disproportionate losses


                                       6
<PAGE>

The Fund's Performance History

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The share classes offered in this prospectus -- Classes A, B and C -- were
created after the fund began. Because of this, the performance figures shown in
the bar chart and table for the period before a class existed are based on the
historical performance of the fund's original share class (Class S), adjusted to
reflect the higher operating expenses of the new class. All classes of the fund
are shares of the same investment portfolio, but each has its own expenses and
sales charges. Class S shares are offered in a different prospectus.

Scudder Emerging Markets Income Fund

--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year                   Class ____
--------------------------------------------------------------------------------

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART DATA:

 00.00  00.00  00.00  00.00  00.00  00.00  00.00  00.00  00.00  00.00

 1991   1992   1993   1994   1995   1996   1997   1998   1999   2000


--------------------------------------------------------------------------------


2000 Total Return as of _______: 0.00%

Best Quarter: 0.00%, Q0 0000                      Worst Quarter: -0.00%, Q0 0000

--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/2000
--------------------------------------------------------------------------------
                   1 Year               5 Years                 Since Inception*
--------------------------------------------------------------------------------
Class A            0.00                 0.00                    0.00
--------------------------------------------------------------------------------
Class B            0.00                 0.00                    0.00
--------------------------------------------------------------------------------
Class C            0.00                 0.00                    0.00
--------------------------------------------------------------------------------
Index              0.00                 0.00                    0.00
--------------------------------------------------------------------------------

Index: J.P. Morgan Emerging Markets Bond Index Plus (EMBI+), an unmanaged index
that tracks total returns for emerging market debt instruments that trade
outside the country of issue.

*        Fund inception: 12/31/1993. Index comparison begins 1/1/1994.

In the chart, total returns from 1994 through 1996 would have been lower if
operating expenses hadn't been reduced.

In the table, total returns from the date of inception through 1996 would have
been lower if operating expenses hadn't been reduced.

The table includes the effects of maximum sales loads.


                                       7
<PAGE>


How Much Investors Pay

This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
Fee Table                                         Class A          Class B          Class C
---------------------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
---------------------------------------------------------------------------------------------
<S>                                                <C>               <C>             <C>
Maximum Sales Charge (Load) Imposed on             4.50%             None            None
Purchases (as % of offering price)
---------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a %       None*            4.00%            1.00%
of redemption proceeds)
---------------------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
---------------------------------------------------------------------------------------------
Management Fee                                       %                %                %
---------------------------------------------------------------------------------------------
Distribution (12b-1) Fee                             %                %                %
---------------------------------------------------------------------------------------------
Other Expenses**                                     %                %                %
---------------------------------------------------------------------------------------------
Total Annual Operating Expenses                      %                %                %
---------------------------------------------------------------------------------------------
</TABLE>

*        The redemption of shares purchased at net asset value under the Large
         Order NAV Purchase Privilege (see "Policies You Should Know About --
         Policies about transactions") may be subject to a contingent deferred
         sales charge of 1.00% if redeemed within one year of purchase and 0.50%
         if redeemed during the second year following purchase.

**       Includes a fixed rate administrative fee of --%, --% and --% for Class
         A, Class B and Class C shares, respectively.

Information in the table has been restated to reflect a new fixed rate
administrative fee which became effective on --.


Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------
Example                         1 Year          3 Years          5 Years          10 Years
--------------------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------------------
<S>                           <C>              <C>              <C>              <C>
Class A shares                $                $                $                $
--------------------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------------------

Expenses, assuming you kept your shares
--------------------------------------------------------------------------------------------
Class A shares                $                $                $                $
--------------------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------------------
</TABLE>

                                       8
<PAGE>

Other Policies and Risks

While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:

o        Although major changes tend to be infrequent, the fund's Board could
         change the fund's investment goal without seeking shareholder approval.

o        As a temporary defensive measure, the fund could shift up to 100% of
         its assets into investments such as money market securities. This could
         prevent losses, but would mean that the fund was not pursuing its goal.

o        The fund may trade securities more actively than some other bond funds.
         This could raise transaction costs (and lower performance) and could
         mean higher taxable distributions.

o        The investment advisor measures credit quality at the time it buys
         securities, using independent ratings or, for unrated securities, its
         own credit analysis. If a security's credit quality declines, the
         portfolio managers will decide what to do with the security, based on
         their assessment of what would benefit shareholders most.

Euro conversion

Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is well underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.

For more information

This prospectus doesn't tell you about every policy or risk of investing in the
fund.

If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the Statement of Additional Information (see back cover).

Keep in mind that there is no assurance that any mutual fund will achieve its
goal.


                                       9
<PAGE>

Who Manages and Oversees the Fund


The investment advisor

The fund's investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, NY. The advisor has more than 80 years of experience managing
mutual funds, and currently has more than 290 billion in assets under
management.

The advisor's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.

The advisor receives a management fee from the fund. For the 12 months through
the most recent fiscal year end the actual amount the fund paid in management
fees was X.XX% of its average daily net assets.

The fund has entered into a new investment management agreement with the
advisor. The table below describes the new fee rates for the fund.

Investment Management Fee as of October 2, 2000
--------------------------------------------------------------------------------
Average Daily Net Assets                                          Fee Rate
--------------------------------------------------------------------------------
first $500 million                                                  1.00%
--------------------------------------------------------------------------------
more than $500 million                                              0.95%
--------------------------------------------------------------------------------

The portfolio managers

The following people handle the day-to-day management of the fund.


Susan E. Dahl                             Jack Janasiewicz
Co-Lead Portfolio Manager                 o     Began investment career in 1994
o     Began investment career in 1987     o     Joined the advisor in 1997
o     Joined the advisor in 1987          o     Joined the fund team in 2000
o     Joined the fund team in 1994

M. Isabel Saltzman
Co-Lead Portfolio Manager
o     Began investment career in 1979
o     Joined the advisor in 1990
o     Joined the fund team in 1993

                                       10
<PAGE>

How to Invest in the Fund

The following pages tell you about many of the services, choices and benefits of
being a shareholder. You'll also find information on how to check the status of
your account using the method that's most convenient for you.

You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.


<PAGE>


Choosing A Share Class

Offered in this prospectus are three share classes for the fund. The fund offers
other classes of shares separately. Each class has its own fees and expenses,
offering you a choice of cost structures. Class A, Class B and Class C shares
are intended for investors seeking the advice and assistance of a financial
representative, who may receive compensation for those services through sales
commissions, service fees and/or distribution fees.

Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.

We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.


--------------------------------------------------------------------------------
Classes and features                      Points to help you compare
--------------------------------------------------------------------------------
Class A

o Sales charges of up to 4.50%, charged   o Some investors may be able to reduce
  when or you buy shares                    or eliminate their sales charges;
                                            see next page
o In most cases, no charges when you sell o Total annual expenses are lower than
  shares                                    those for Class B or Class C

o 0.25% service fee

--------------------------------------------------------------------------------
Class B

o No charges when you buy shares          o The deferred sales charge rate falls
                                            to zero after six years
o Deferred sales charge declining from
  4.00%,  charged when you sell shares    o Shares automatically convert to
  you bought within the last six years      Class A after six years, which
                                            means lower annual expenses going
o 1.00% distribution/service fee            forward
--------------------------------------------------------------------------------
Class C

o No charges when you buy shares          o The deferred sales charge rate is
                                            lower, your shares never convert to
o Deferred sales charge of 1.00%, charged   but Class A, so annual expenses
  when you sell shares you bought within    remain higher
  the last year

 o 1.00% distribution/service fee
--------------------------------------------------------------------------------


                                       12
<PAGE>

Class A shares

Class A shares do have a 12b-1 plan, under which a service fee of 0.25% is
deducted from fund assets each year.

Class A shares have a sales charge that varies with the amount you invest:

--------------------------------------------------------------------------------
Your investment          Sales charge as a percent of   Sales charge as a
                         offering price                 percent of your net
                                                        investment
--------------------------------------------------------------------------------
Up to $100,000           0.00%                          0.00%
--------------------------------------------------------------------------------
$100,000-$249,999        0.00                           0.00
--------------------------------------------------------------------------------
$250,000-$499,999        0.00                           0.00
--------------------------------------------------------------------------------
$500,000-$999,999        0.00                           0.00
--------------------------------------------------------------------------------
$1 million or more       0.00**                         0.00**
--------------------------------------------------------------------------------

The offering price includes the sale charges.

You may be able to lower your Class A sales charges if:

o        you plan to invest at least $100,000 over the next 24 months ("letter
         of intent")

o        the amount of shares you already own (including shares in certain other
         funds) plus the amount you're investing now is at least $100,000
         ("cumulative discount")

o        you are investing a total of $100,000 or more in several funds at once
         ("combined purchases")

The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.


                                       13
<PAGE>

You may be able to buy Class A shares without sales charges when you are:

o        reinvesting dividends or distributions

o        investing through certain workplace retirement plans

o        participating in an investment advisory program under which you pay a
         fee to an investment advisor or other firm for portfolio management
         services

There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Shareholder Services
can answer your questions and help you determine if you are eligible.

If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. ("Large Order NAV
Purchase Privilege"). This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial representative or Shareholder
Services can answer your questions and help you determine if you're eligible.


                                       14
<PAGE>


Class B shares

With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% and a
service fee of 0.25% are deducted from fund assets each year. This means the
annual expenses for Class B shares are somewhat higher (and their performance
correspondingly lower) compared to Class A shares, which don't have a 12b-1 fee.
After six years, Class B shares automatically convert to Class A, which has the
net effect of lowering the annual expenses from the seventh year on. However,
unlike Class A shares, your entire investment goes to work immediately.

Class B shares have a deferred sales charge CDSC. This charge declines over the
years you own shares, and disappears completely after six years of ownership.
But for any shares you sell within those six years, you may be charged as
follows:

Year after you bought shares       CDSC on shares you sell
--------------------------------------------------------------------------------
First year                         4.00%
--------------------------------------------------------------------------------
Second or third year               3.00
--------------------------------------------------------------------------------
Fourth or fifth year               2.00
--------------------------------------------------------------------------------
Sixth year                         1.00
--------------------------------------------------------------------------------
Seventh year and later             None (automatic conversion to Class A)
--------------------------------------------------------------------------------

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Shareholder Services can answer your
questions and help you determine if you're eligible.

While Class B shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Class B shares can make sense for long-term investors who would prefer to see
all of their investment go to work right away, and can accept somewhat higher
annual expenses in exchange.


                                       15
<PAGE>

Class C shares

Like Class B shares, Class C shares have no up-front sales charges and have a
12b-1 plan under which a distribution fee of 0.75% and a service fee of 0.25%
are deducted from fund assets each year. Because of this fee, the annual
expenses for Class C shares are similar to those of Class B shares, but higher
than those for Class A shares (and the performance of Class C shares is
correspondingly lower than that of Class A). However, unlike Class A shares,
your entire investment goes to work immediately.

Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.

Class C shares have a CDSC, but only on shares you sell within one year of
buying them:

Year after you bought shares       CDSC on shares you sell
--------------------------------------------------------------------------------
First year                         1.00%
--------------------------------------------------------------------------------
Second year and later              None
--------------------------------------------------------------------------------

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Shareholder Services can answer your
questions and help you determine if you're eligible.

While Class C shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.

                                       16
<PAGE>

How To Buy Shares

Once you've chosen a share class, use these instructions to make investments.
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------
First investment                          Additional investments
---------------------------------------------------------------------------------
<S>                                       <C>
$1,000 or more for regular accounts       $100 or more for regular accounts

$250 or more for IRAs                     $50 or more for IRAs

                                          $50 or more with an Automatic
                                              Investment Plan
---------------------------------------------------------------------------------
Through a financial representative

o Contact your representative using the   o Contact your representative using
  method that's most convenient for         the method that's most convenient
  you                                       for you
---------------------------------------------------------------------------------
By mail or express mail (see below)

o Fill out and sign an application        o Send a check made out to "Kemper
                                            Funds" and a Kemper investment slip
o Send it to us at the appropriate          to us at the appropriate address
  address, along with an investment check   below

                                          o If you don't have an investment
                                            slip, simply include a letter with
                                            your name, account number, the full
                                            name of the fund and the share
                                            class and your investment
                                            instructions
---------------------------------------------------------------------------------
By wire

o  Call (800) 621-1048 for instructions   o  Call (800) 621-1048 for instructions
---------------------------------------------------------------------------------
By phone

--                                        o  Call (800) 621-1048 for instructions
---------------------------------------------------------------------------------
With an automatic investment plan
--                                        o To set up regular investments from
                                            a bank checking account, call
                                           (800) 621-1048 (minimum $50)
---------------------------------------------------------------------------------
On the Internet

--                                        o Go to www.kemper.com and register

                                          o Follow the instructions for buying
                                            shares with money from your bank
                                            account
---------------------------------------------------------------------------------
</TABLE>


Regular mail:

Kemper Funds, PO Box 219153, Kansas City, MO 64121-9153

Express, registered or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO  64105-2005

Fax number: (800) 818-7526 (for exchanging and selling only)


                                       17
<PAGE>



How to Exchange Or Sell Shares

Use these instructions to exchange or sell shares in your account.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------
Exchanging into another fund                          Selling shares
-----------------------------------------------------------------------------------------------------------

<S>                                                   <C>
$1,000 or more to open a new account                  Some transactions, including most for over $50,000,
($250 for IRAs)                                       can only be ordered in writing with a signature
                                                      guarantee; if you're in doubt, see page 21
$100 or more for exchanges between
existing accounts
-----------------------------------------------------------------------------------------------------------
Through a financial representative

o Contact your representative by the method that's    o Contact your representative by the method that's
  most convenient for you                               most convenient for you
-----------------------------------------------------------------------------------------------------------
By phone or wire

o Call (800) 621-1048 for instructions                o Call (800) 621-1048 for instructions
-----------------------------------------------------------------------------------------------------------
By mail, express mail or fax (see previous page)

Write a letter that includes:                         Write a letter that includes:

o the fund, class and account number you're           o the fund, class and account number from which
  exchanging out of                                     you want to sell shares

o the dollar amount or number of shares you want to   o the dollar amount or number of shares you want
  exchange                                              to sell

o the name and class of the fund you want to          o your name(s), signature(s) and address, as they
  exchange into                                         appear on your account

o your name(s), signature(s) and address, as they     o a daytime telephone number
  appear on your account

o a daytime telephone number
-----------------------------------------------------------------------------------------------------------
With a systematic exchange plan                       With a systematic withdrawal plan

o To set up regular exchanges from a fund account,    o To set up regular cash payments from a fund
  call (800) 621-1048                                  account, call (800) 621-1048
-----------------------------------------------------------------------------------------------------------
On the internet

o Go to www.kemper.com and register

o Follow the instructions for making on-line
  exchanges
-----------------------------------------------------------------------------------------------------------

</TABLE>

                                       18
<PAGE>

Policies You Should Know About

Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.

If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.

In either case, keep in mind that the information in this prospectus applies
only to the fund's Class A, Class B and Class C shares. The fund does have other
share classes, which are described in a separate prospectus and which have
different fees, requirements and services.

In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call (800)
621-1048.

Policies about transactions

The fund is open for business each day the New York Stock Exchange is open. The
fund calculates its share price every business day, as of the close of regular
trading on the Exchange (typically 4 p.m. Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading).

You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.

Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.



                                       19
<PAGE>

KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper or Scudder funds generally and on accounts held directly at Kemper. You
can also use it to make exchanges and sell shares.

EXPRESS-Transfer lets you set up a link between a Kemper or Scudder account and
a bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. Transactions take two to three days to be completed, and
there is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the
account application; to add it to an existing account, call (800) 621-1048.

Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personalized security codes or other information, we are not
responsible for any losses that may occur. For transactions conducted over the
Internet, we recommend the use of a secure Internet browser. In addition, you
should verify the accuracy of your confirmation statements immediately after you
receive them.

When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are completed within 24 hours. The funds can only send or
accept wires of $100 or more.

Exchanges are a shareholder privilege, not a right: we may reject any exchange
order, particularly when there appears to be a pattern of "market timing" or
other frequent purchases and sales. We may also reject or limit purchase orders,
for these or other reasons.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.


                                       20
<PAGE>

When you want to sell more than $50,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.

A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.

When you sell shares that have a CDSC, we calculate the CDSC as a percentage of
what you paid for the shares or what you are selling them for -- whichever
results in the lowest charge to you. In processing orders to sell shares, we
turn to the shares with the lowest CDSC first. Exchanges from one fund into
another don't affect CDSCs: for each investment you make, the date you first
bought shares is the date we use to calculate a CDSC on that particular
investment.

There are certain cases in which you may be exempt from a CDSC. These include:

o        the death or disability of an account owner (including a joint owner)

o        withdrawals made through a systematic withdrawal plan

o        withdrawals related to certain retirement or benefit plans

o        redemptions for certain loan advances, hardship provisions or returns
         of excess contributions from retirement plans

o        for Class A shares purchased through the Large Order NAV Purchase
         Privilege, redemption of shares whose dealer of record at the time of
         the investment notifies Kemper Distributors that the dealer waives the
         applicable commission

o        For Class C shares, redemption of shares purchased through a
         dealer-sponsored asset allocation program maintained on an omnibus
         record-keeping system, provided the dealer of record has waived the
         advance of the first year administrative services and distribution fees
         applicable to such shares and has agreed to receive such fees
         quarterly.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.



                                       21
<PAGE>

In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Shareholder Services can answer your questions and help you determine if you are
eligible.

If you sell shares in a Scudder fund and then decide to invest with Scudder or
Kemper again within six months, you can take advantage of the "reinstatement
feature." With this feature, you can put your money back into the same class of
a Scudder or Kemper fund at its current NAV and for purposes of sales charges it
will be treated as if it had never left Scudder or Kemper. You'll be reimbursed
(in the form of fund shares) for any CDSC you paid when you sold. Future CDSC
calculations will be based on your original investment date, rather than your
reinstatement date. There is also an option that lets investors who sold Class B
shares buy Class A shares with no sales charge, although they won't be
reimbursed for any CDSC they paid. You can only use the reinstatement feature
once for any given group of shares. To take advantage of this feature, contact
Shareholder Services or your financial representative.

Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.




                                       22
<PAGE>

How the fund calculates share price

For each share class, the price at which you buy shares is as follows:

Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing A Share Class")

Class B and Class C shares-- net asset value per share, or NAV

To calculate NAV, each share class of each fund uses the following equation:


                         TOTAL ASSETS - TOTAL LIABILITIES
                        ----------------------------------    = NAV
                        TOTAL NUMBER OF SHARES OUTSTANDING

For the fund and each share class, the price at which you sell shares is also
the NAV, although CDSC may be taken out of the proceeds (see "Choosing A Share
Class").

We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.

Because the fund invests in securities that are traded primarily in foreign
markets, the value of its holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the fund doesn't price its shares.


                                       23
<PAGE>


Other rights we reserve

For this fund, you should be aware that we may do any of the following:

o        withhold 31% of your distributions as federal income tax if you have
         been notified by the IRS that you are subject to backup withholding, or
         if you fail to provide us with a correct taxpayer ID number or
         certification that you are exempt from backup withholding

o        reject a new account application if you don't provide a correct Social
         Security or other tax ID number; if the account has already been
         opened, we may give you 30 days' notice to provide the correct number

o        charge you $9 each calendar quarter if your account balance is below
         $800 for the entire quarter; this policy doesn't apply to most
         retirement accounts or if you have an automatic investment plan

o        pay you for shares you sell by "redeeming in kind," that is, by giving
         you marketable securities (which typically will involve brokerage costs
         for you to liquidate) rather than cash

o        change, add or withdraw various services, fees and account policies
         (for example, we may change or terminate the exchange privilege at any
         time)


                                       24
<PAGE>

Understanding Distributions and Taxes

By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.

The fund intends to pay dividends and distributions to its shareholders
quarterly in March, June, September and December.

You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you by check or have them
invested in a different fund. Tell us your preference on your application. If
you don't indicate a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans, reinvestment is the only
option.

Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.

THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.

--------------------------------------------------------------------------------

Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.

                                       25
<PAGE>

The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:

Generally taxed at ordinary income rates
--------------------------------------------------------------------------------
o  short-term capital gains from selling fund shares
--------------------------------------------------------------------------------
o  taxable income dividends you receive from the fund
--------------------------------------------------------------------------------
o  short-term capital gains distributions you receive from the fund
--------------------------------------------------------------------------------

Generally taxed at capital gains rates
--------------------------------------------------------------------------------
o  long-term capital gains from selling fund shares
--------------------------------------------------------------------------------
o  long-term capital gains distributions you receive from the fund
--------------------------------------------------------------------------------

You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.

Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.

If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.

                                       26
<PAGE>

To Get More Information

Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get the reports
automatically. For more copies, call (800) 621-1048.

Statement of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus). If you'd like to ask for copies of these documents, please
contact Scudder or the SEC (see below). If you're a shareholder and have
questions, please contact Scudder. Materials you get from Scudder are free;
those from the SEC involve a copying fee. If you like, you can look over these
materials at the SEC's Public Reference Room in Washington, DC or request them
electronically at [email protected].

SEC                                Scudder Funds c/o
450 Fifth Street, N.W.             Kemper Distributors, Inc.
Washington, DC 20549-0102          222 South Riverside Plaza
www.sec.gov                        Chicago, IL 60606-5808
Tel (202) 942-8090                 www.kemper.com
                                   Tel (800) 621-1048


SEC File Number
Scudder Emerging Markets Income Fund                811-4670




Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048


<PAGE>

                    Kemper Asian Growth Fund ( "Asian Fund")
             Kemper Global Blue Chip Fund ("Global Blue Chip Fund")
             Kemper Global Discovery Fund ("Global Discovery Fund")
                Kemper Global Income Fund ("Global Income Fund")
                Kemper International Fund ("International Fund")
       Kemper International Research Fund ("International Research Fund")
                Kemper New Europe Fund, Inc. ("New Europe Fund")

                          Class A, Class B and Class C

                       STATEMENT OF ADDITIONAL INFORMATION

                                  March 1, 2001

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus for the Funds, as amended from time to time,
a copy of which may be obtained without charge by contacting Kemper
Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606,
1-800-621-1048, or from the firm from which this Statement of Additional
Information was obtained.

The Annual Report to Shareholders of each Fund accompanies this Statement of
Additional Information. They are incorporated by reference and are hereby deemed
to be part of this Statement of Additional Information.

This Statement of Additional Information is incorporated by reference into the
combined prospectus.
<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

POLICIES AND TECHNIQUES....................................................... 1
ADDITIONAL INFORMATION ABOUT INVESTMENT TECHNIQUES............................10
INVESTMENT RESTRICTIONS.......................................................39
NET ASSET VALUE...............................................................42
  Redemptions and Exchanges...................................................47
  Special Features............................................................52
  Additional Transaction Information..........................................56
DIVIDENDS.....................................................................57
PERFORMANCE INFORMATION.......................................................58
  Average Annual Total Return.................................................58
  Cumulative Total Return.....................................................59
  Total Return................................................................60
  Yield.......................................................................64
  Comparison of Fund Performance..............................................65
FUND ORGANIZATION.............................................................67
  Master/feeder structure.....................................................68
INVESTMENT MANAGER............................................................68
  Code of Ethics..............................................................71
  [Trustees/Directors] and Officers...........................................73
  Officers And Directors......................................................77
  Compensation of Officers and Directors......................................78
TAXES.........................................................................85
FINANCIAL STATEMENTS..........................................................90
APPENDIX -- RATINGS OF INVESTMENTS


                                        i
<PAGE>

                             POLICIES AND TECHNIQUES

Kemper Asian Growth Fund. The objective of the Asian Fund is long-term capital
growth. The Fund seeks to achieve its objective by investing in a diversified
portfolio consisting primarily of equity securities of Asian companies ("Asian
Equity Securities"). Asian Equity Securities include common stocks, preferred
stocks, securities convertible into or exchangeable for common or preferred
stocks, equity investments in partnerships, joint ventures and other forms of
non-corporate investment and warrants, options and rights exercisable for equity
securities that are issued by Asian companies as defined below.

The Fund considers an issuer of securities to be an Asian company if: (i) it is
organized under the laws of an Asian country and has a principal office in an
Asian country; (ii) it derives 50% or more of its total revenues from business
in Asia; or (iii) its equity securities are traded principally on a stock
exchange in Asia. Under normal circumstances, the Fund will invest at least 85%
of its total assets in Asian Equity Securities and will invest at least 65% of
its total assets in Asian Equity Securities of issuers meeting at least one of
the first two criteria described in the preceding sentence. For purposes of the
foregoing policies, the Fund also considers Asian Equity Securities to include:
(i) shares of closed-end management investment companies, the assets of which
are invested primarily in Asian Equity Securities and (ii) depository receipts
(such as American Depository Receipts) where the underlying or deposited
securities are Asian Equity Securities.

Currently, the Fund invests principally in developing or "emerging" countries
(see "Special Risk Factors -- Emerging Markets" below). Some examples of
emerging countries in which the Fund may invest without limit include China,
Indonesia, Korea, Malaysia, Philippines, Thailand and Taiwan. The Fund may, in
the discretion of the Fund's investment manager, invest without limit in
developed Asian countries such as Hong Kong, Japan and Singapore; however, the
Fund will only invest in Japan when economic conditions warrant and then only in
limited amounts.

In pursuing its objective, the Fund invests primarily in Asian Equity Securities
believed to have potential for capital growth. However, there is no requirement
that the Fund invest exclusively in Asian Equity Securities. Subject to limits
described above, the Fund may invest in any other type of security including,
but not limited to, equity securities of non-Asian companies, bonds, notes and
other debt securities of domestic or foreign companies (including Asian-currency
instruments and securities) and obligations of domestic or foreign governments
and their political subdivisions. Currently, the Fund does not intend to invest
more than 5% of its net assets in debt securities (except for temporary
defensive investments described below).

The Fund makes investments in various Asian countries. Under normal
circumstances, business activities in not less than four different Asian
countries will be represented in the Fund's portfolio. The Fund may, from time
to time, have 40% or more of its assets invested in any major Asian industrial
or developed country which, in the view of the Fund's investment manager, poses
no unique investment risk. Investments may include securities issued by
enterprises that have undergone or are currently undergoing privatization.

In determining the appropriate distribution of investments among various Asian
countries and geographic regions, the Fund's investment manager ordinarily
considers such factors as prospects for relative economic growth among Asian
countries; expected levels of inflation; relative price levels of the various
capital markets; government policies influencing business conditions; the
outlook for currency relationships and the range of individual investment
opportunities available to investors in Asian companies.

Because the Asian Fund concentrates its investments in Asian companies, the
performance of the Asian Fund is closely tied to economic and political
conditions within Asia. The current economies and political structures of many
of the countries the Asian Fund may invest in do not compare favorably with the
United States or other mature economies in terms of wealth and stability. As a
result, such investments will be subject to more risk and erratic and abrupt
price movements; particularly in the emerging Asian countries. Concentration of
the Asian
<PAGE>

Fund's investments in Asian companies presents greater risk than investment in a
more diversified portfolio of foreign securities.

When the investment manager deems it appropriate to invest for temporary
defensive purposes, such as during periods of adverse market conditions, up to
100% of the Fund's assets may be invested in cash (including foreign currency)
or cash equivalent short-term obligations, either rated as high quality or
considered to be of comparable quality in the opinion of the investment manager,
including, but not limited to, certificates of deposit, commercial paper,
short-term notes, obligations issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, and repurchase agreements secured thereby.
In particular, for temporary defensive purposes the Fund's assets may be
invested without limitation in U.S. Dollar-denominated obligations to reduce the
risks inherent in non-U.S. Dollar-denominated assets.

Generally, the Fund will not trade in securities for short-term profits but,
when circumstances warrant, securities may be sold without regard to the length
of time held.

The Fund may also engage in strategic transactions and make short sales
against-the-box. 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.

Kemper Global Blue Chip Fund. The Fund seeks long-term growth of capital through
a diversified worldwide portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks. The Fund invests in equity securities of
companies which are incorporated in the U.S. and in foreign countries. The Fund
will invest primarily in developed markets, with a maximum of 15% of the Fund's
total assets invested in emerging markets. It also may invest in the debt
securities of U.S. and foreign issuers. Income is an incidental consideration.

In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known companies. Companies of this general type are often
referred to as "Blue Chip" companies. While specific investment and financial
criteria may vary from market to market, Blue Chip companies around the world
are generally identified by the Investment Manager as having substantial
capitalization, established financial history, ready access to credit, good
industry position and superior management structure. While these companies may
be among the largest in their local markets, they may be small by the standards
of U.S. stock market capitalization. Global Blue Chip companies are believed to
generally exhibit less investment risk and less price volatility, on average,
than companies lacking these characteristics, such as smaller, less-seasoned
companies. In addition, the large market of publicly held shares for such
companies and the generally higher trading volume in those shares generally
result in a relatively high degree of liquidity for such investments.

The Fund invests in companies that the Investment Manager believes will benefit
from global economic trends, promising technologies or products and specific
country opportunities resulting from changing geopolitical, currency or economic
relationships. The Fund's global framework allows it to take advantage of
investment opportunities created by the growing integration of economies around
the world. The Fund offers investors access to opportunities wherever they
arise, without being constrained by location of a company's headquarters or the
trading market for its shares. It is expected that investments will be spread
broadly around the world with an emphasis on developed economies and capital
markets. The Fund will usually be invested in securities of issuers located in
at least three countries, one of which may be the U.S. The Fund may be invested
100% in non-U.S. issues, and for temporary defensive purposes may be invested
100% in U.S. issues, although under normal circumstances it is expected that
both foreign and U.S. investments will be represented in the Fund's portfolio.
It is expected that investments will include securities of companies of varying
sizes, as measured by assets, sales, income or market capitalization.


                                       2
<PAGE>

The Fund generally invests in equity securities of established companies listed
on U.S. or foreign securities exchanges, but also may invest in securities
traded over-the-counter. It also may invest in debt securities convertible into
common stock, and convertible and non-convertible preferred stock, and
fixed-income securities of governments, governmental agencies, supranational
agencies and companies when the Investment Manager believes the potential for
appreciation will equal or exceed that available from investments in equity
securities. These debt and fixed-income securities will be predominantly
investment-grade securities, that is, those rated Aaa, Aa, A or Baa by Moody's
Investor Services, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Corporation ("S&P") or those of equivalent quality as determined by the
Investment Manager. The Fund may not invest more than 5% of its total assets in
debt securities rated Baa or below by Moody's, or BBB or below by S&P or deemed
by the Investment Manager to be of comparable quality (commonly referred to as
"high yield" or "junk" bonds). The Fund may invest in closed-end investment
companies holding foreign securities, as well as shares of closed-end investment
companies that invest primarily in emerging market debt securities. In addition,
the Fund may engage in strategic transactions, which may include derivatives.
The Fund may also invest in zero coupon securities and REITs.

Fixed-income securities may be held without limit for temporary defensive
purposes when the Investment Manager believes market conditions so warrant and
for temporary investment. It is impossible to accurately predict how long such
alternative strategies may be utilized. Similarly, the Fund may invest in cash
equivalents (including domestic and foreign money market instruments, such as
bankers' acceptances, certificates of deposit, commercial paper, short-term
government and corporate obligations and repurchase agreements) for temporary
defensive purposes and for liquidity.

Global Discovery Fund. Global Discovery Fund seeks above-average capital
appreciation over the long term by investing primarily in the equity securities
of small companies located throughout the world. The Fund is designed for
investors looking for above-average appreciation potential (when compared with
the overall domestic stock market as reflected by Standard & Poor's 500
Corporation Composite Price Index) and the benefits of investing globally, but
who are willing to accept above-average stock market risk, the impact of
currency fluctuation and little or no current income.

In pursuit of its objective, the Fund generally invests in small, rapidly
growing companies which offer the potential for above-average returns relative
to larger companies, yet are frequently overlooked and thus undervalued by the
market. The Fund has the flexibility to invest in any region of the world. It
can invest in companies based in emerging markets, typically in the Far East,
Latin America and Eastern Europe, as well as in firms operating in developed
economies, such as those of the United States, Japan and Western Europe.

The Investment Manager invests the Fund's assets in companies it believes offer
above-average earnings, cash flow or asset growth potential. It also invests in
companies which may receive greater market recognition over time. The Investment
Manager believes that these factors offer significant opportunity for long-term
capital appreciation. The Investment Manager evaluates investments for the Fund
from both a macroeconomic and microeconomic perspective, using fundamental
analysis, including field research. The Investment Manager analyzes the growth
potential and relative value of possible investments. When evaluating an
individual company, the Investment Manager takes into consideration numerous
factors, including the depth and quality of management; a company's product
line, business strategy and competitive position; research and development
efforts; financial strength, including degree of leverage; cost structure;
revenue and earnings growth potential; price-earnings ratios and other stock
valuation measures. Secondarily, the Investment Manager weighs the
attractiveness of the country and region in which a company is located.

While the Fund's Investment Manager believes that smaller, lesser-known
companies can offer greater growth potential than larger, more established
firms, the former also involve greater risk and price volatility. To help reduce
risk, the Fund expects, under usual market conditions, to diversify its
portfolio widely by company,


                                       3
<PAGE>

industry and country. Under normal circumstances, the Fund invests at least 65%
of its total assets in the equity securities of small companies. The Fund
intends to allocate investments among at least three countries at all times, one
of which may be the United States.

The Fund invests primarily in companies whose individual equity market
capitalization would place them in the same size range as companies in
approximately the lowest 20% of world market capitalization as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small-, medium- and large-sized companies based in 22 markets
around the globe. As of December 31, 1999, companies in which the Fund typically
invests have a market capitalization of between $75 million and $5.7 billion.

The equity securities in which the Fund may invest consist of common stocks,
preferred stocks (either convertible or nonconvertible), rights and warrants.
These securities may be listed on the U.S. or foreign securities exchanges or
traded over-the-counter.

For capital appreciation purposes, the Fund may purchase notes, bonds,
debentures, government securities and zero coupon bonds (any of which may be
convertible or nonconvertible). The Fund may purchase "investment-grade" bonds,
which are those rated Aaa, Aa, A or Baa by Moody's Investors Service ("Moody's")
or AAA, AA, A or BBB by Standard & Poor's Ratings Services ("S&P"), a division
of The McGraw-Hill Companies, Inc. or, if unrated, judged to be of equivalent
quality as determined by the Investment Manager. The Fund may also invest up to
5% of its net assets in debt securities which are rated below investment-grade,
that is, rated below Baa by Moody's or below BBB by S&P and in unrated
securities of equivalent quality.

The Fund may invest in foreign securities and American Depositary Receipts which
may be sponsored or unsponsored. The Fund may also invest in closed-end
investment companies holding foreign securities, illiquid securities, REITs and
mortgage-backed securities, purchase securities on a "when-issued" or "forward
delivery" basis, enter into repurchase agreements and engage in strategic
transactions. It is the Fund's policy that illiquid securities (including
repurchase agreements of more than seven days duration, certain restricted
securities, and other securities which are not readily marketable) may not
constitute, at the time of purchase, more than 15% of the value of the Funds'
net assets.

For temporary defensive purposes, the Fund may, during periods in which
conditions in securities markets warrant, invest without limit in cash and cash
equivalents. It is impossible to predict how long such alternative strategies
will be utilized.

Kemper Global Income Fund. The objective of the Global Income Fund is to provide
high current income consistent with prudent total return asset management. In
seeking to achieve its objective, the Fund will invest primarily in investment
grade foreign and domestic fixed income securities. In managing the Fund's
portfolio to provide a high level of current income, the investment manager will
also be seeking to protect net asset value and to provide investors with a total
return, which is measured by changes in net asset value as well as income
earned. In so managing the Fund's portfolio in an effort to reduce volatility
and increase returns, the investment manager may, as is discussed more fully
below, adjust the Fund's portfolio across various global markets, maturity
ranges, quality ratings and issuers based upon its view of interest rates and
other market conditions prevailing throughout the world.

As a global fund, the Fund may invest in securities issued by any issuer and in
any currency and may hold foreign currency. Under normal market conditions, as a
non-fundamental policy, at least 65% of the Fund's assets will be invested in
the securities of issuers located in at least three countries, one of which may
be the United States. Securities of issuers within a given country may be
denominated in the currency of another country, or in multinational currency
units such as the European Currency Unit ("ECU"). Since the Fund invests in
foreign securities, the net asset value of the Fund will be affected by
fluctuations in currency exchange rates.


                                       4
<PAGE>

The Fund may seek to capitalize on investment opportunities presented throughout
the world and in international financial markets influenced by the increasing
interdependence of economic cycles and currency exchange rates. Currently, more
than 50% of the value of the world's debt securities is represented by
securities denominated in currencies other than the U.S. Dollar. Over the past
ten years, debt securities offered by certain foreign governments provided
higher investment returns than U.S. Government debt securities. Such returns
reflect interest rates prevailing in those countries and the effect of gains and
losses in the denominated currencies, which have had a substantial impact on
investment in foreign fixed income securities. The relative performance of
various countries' fixed income markets historically has reflected wide
variations relating to the unique characteristics of each country's economy.
Year-to-year fluctuations in certain markets have been significant, and negative
returns have been experienced in various markets from time to time. The
investment manager believes that investment in a global portfolio can provide
investors with more opportunities for attractive returns than investment in a
portfolio comprised exclusively of U.S. debt securities. Also, the flexibility
to invest in fixed income markets around the world can reduce risk since, as
noted above, different world markets have often performed, at a given time, in
radically different ways.

The Fund will allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its objective based upon relative interest rates among currencies, the
outlook for changes in these interest rates, and anticipated changes in
worldwide exchange rates. In considering these factors, a country's economic and
political state, including such factors as inflation rate, growth prospects,
global trade patterns and government policies, will be evaluated.

It is currently anticipated that the Fund's assets will be invested principally
within Australia, Canada, Japan, New Zealand, the United States and Western
Europe, and in securities denominated in the currencies of these countries or
denominated in multinational currency units such as the ECU. The Fund may also
acquire securities and currency in less developed countries and in developing
countries. While no specific limits apply, it is currently anticipated that less
than 25% of the total assets of the Fund will be invested in securities of
issuers located in emerging markets.

The Fund may invest in debt securities of supranational entities denominated in
any currency. A supranational entity is an entity designated or supported by the
national governments of two or more countries to promote economic reconstruction
or development. Examples of supranational entities include, among others, the
World Bank, the European Investment Bank and the Asian Development Bank. The
Fund may, in addition, invest in debt securities denominated in the ECU of an
issuer in any country (including supranational issuers). The Fund is further
authorized to invest in "semi-governmental securities," which are debt
securities issued by entities owned by either a national, state or equivalent
government or are obligations of such a government jurisdiction that are not
backed by its full faith and credit and general taxing powers.

The Fund is authorized to invest in the securities of any foreign or domestic
issuer. Investments by the Fund in fixed income securities may include
obligations issued or guaranteed by United States or foreign governments
(including foreign states, provinces and municipalities) or their agencies and
instrumentalities; obligations issued or guaranteed by supranational entities;
debt obligations of foreign and domestic corporations, banks and other business
organizations; and other foreign and domestic debt securities such as
convertible securities and preferred stocks, cash and cash equivalents and
repurchase agreements. Under normal market conditions, the Fund, as a
non-fundamental policy, will invest at least 65%, and may invest up to 100%, of
its total assets in fixed income securities. Some of the Fund's fixed income
securities may be convertible into common stock or be traded together with
warrants for the purchase of common stock, and the Fund may convert such
securities into equities and hold them as equity upon conversion. Investments
may include securities issued by enterprises that have undergone or are
currently undergoing privatization.

The securities in which the Fund invests are "investment grade" or below
investment grade. The Fund may purchase "investment-grade" bonds, which are
those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Investment
Manager. Bonds


                                       5
<PAGE>

rated Baa or BBB may have speculative elements as well as investment-grade
characteristics. The Fund may also invest up to 35% of its net assets in debt
securities which are rated below investment-grade, that is, rated below Baa by
Moody's or below BBB by S&P (commonly referred to as "junk bonds") and in
unrated securities of equivalent quality.

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 five 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. Since in most foreign
markets debt securities generally are issued with maturities of ten years or
less, it is currently anticipated that the average maturity of the Fund's
portfolio will normally be in the intermediate range (four to six years).

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,
among other things, to the Fund's expenses and the investor's transaction costs.

When the investment manager deems it appropriate to invest for temporary
defensive purposes, such as during periods of adverse market conditions, or when
relative yields in other securities are not deemed attractive, part or all of
the Fund's assets may be invested in cash (including foreign currency) or cash
equivalent short-term obligations, either rated as high quality or considered to
be of comparable quality in the opinion of the investment manager, including,
but not limited to, certificates of deposit, commercial paper, short-term notes,
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities, and repurchase agreements secured thereby. In particular,
for defensive purposes a larger portion of the Fund's assets may be invested in
U.S. Dollar-denominated obligations to reduce the risks inherent in non-U.S.
Dollar-denominated assets.

The Fund will not normally engage in the trading of securities for the purpose
of realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.

The Fund may also engage in strategic transactions and make short sales
against-the-box. 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.

Kemper International Fund. The International Fund seeks a total return through a
combination of capital growth and income, principally through an internationally
diversified portfolio of equity securities. Investments may be made for capital
growth or for income or any combination thereof for the purpose of achieving a
high overall return. There is no limitation on the percentage or amount of the
Fund's assets that may be invested in growth or income, and therefore at any
particular time the investment emphasis may be placed solely or primarily on
growth of capital or on income. While the Fund invests principally in equity
securities of non-U.S. issuers, it may also invest in convertible and debt
securities and foreign currencies. The Fund invests primarily in non-U.S.
issuers, and under normal circumstances at least 80% of the Fund's total assets
will be invested in non-U.S. issuers. In determining whether the Fund will be
invested for capital growth or income, the investment manager analyzes the
international equity and fixed income markets and seeks to assess the degree of
risk and level of return that can be expected from each market. See "Special
Risk Factors."


                                       6
<PAGE>

In pursuing its objective, the Fund invests primarily in common stocks of
established non-U.S. companies believed to have potential for capital growth,
income or both. However, there is no requirement that the Fund invest
exclusively in common stocks or other equity securities. The Fund may invest in
any other type of security including, but not limited to, convertible securities
(including warrants), preferred stocks, bonds, notes and other debt securities
of companies (including Euro-currency instruments and securities) or obligations
of domestic or foreign governments and their political subdivisions. When the
investment manager believes that the total return potential in debt securities
equals or exceeds the potential return on equity securities, the Fund may
substantially increase its holdings in such debt securities. The Fund may
establish and maintain reserves for defensive purposes or to enable it to take
advantage of buying opportunities. The Fund's reserves may be invested in
domestic as well as foreign short-term money market instruments including, but
not limited to, government obligations, certificates of deposit, bankers'
acceptances, time deposits, commercial paper, short-term corporate debt
securities and repurchase agreements.

The Fund makes investments in various countries. Under normal circumstances,
business activities in not less than three different foreign countries will be
represented in the Fund's portfolio. The Fund may, from time to time, have more
than 25% of its assets invested in any major industrial or developed country
which in the view of the investment manager poses no unique investment risk. The
Fund may purchase securities of companies, wherever organized, that have their
principal activities and interests outside the United States. While no specific
limits apply, it is currently anticipated that less than 25% of the total assets
of the Fund will be invested in securities of issuers located in emerging
markets. Investments may include securities issued by enterprises that have
undergone or are currently undergoing privatization. Under exceptional economic
or market conditions abroad, the Fund may, for defensive purposes, invest all or
a major portion of its assets in U.S. Government obligations or securities of
companies incorporated in and having their principal activities in the United
States. The Fund may also invest its reserves in domestic short-term
money-market instruments as described above.

In determining the appropriate distribution of investments among various
countries and geographic regions, the investment manager ordinarily considers
such factors as prospects for relative economic growth among foreign countries;
expected levels of inflation; relative price levels of the various capital
markets; government policies influencing business conditions; the outlook for
currency relationships and the range of individual investment opportunities
available to the international investor.

Generally, the Fund will not trade in securities for short-term profits but,
when circumstances warrant, securities may be sold without regard to the length
of time held.

The Fund may also engage in strategic transactions. 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.

Kemper International Research Fund seeks long-term capital appreciation by
investing primarily in a diversified portfolio of securities issued by large
foreign companies. The Fund will invest in those foreign securities that the
investment manager, Zurich Scudder Investments, Inc. (the "Investment Manager"
or "Scudder") believes are its top research recommendations. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks of large foreign companies (stocks that are listed on foreign exchanges
and are issued by foreign-based companies that have a market capitalization of
$1 billion or more).

The Fund will invest in securities based on the top research recommendations of
Scudder's research analysts and other investment specialists. These
recommendations will represent securities across various sectors and investment
disciplines (such as growth stocks and value stocks). The Fund expects that its
regional investment allocations will remain roughly similar to that of the
Morgan Stanley Capital International Europe, Austral-Asia, Far East plus
Emerging Markets Free Index (MSCI EAFE + EMF Index). As of April 10, 2000, most
of the issuers included in this index are located in developed markets. In
choosing securities to be purchased by


                                       7
<PAGE>

the Fund, Scudder will focus on bottom-up research, looking for individual
companies that have sound financial strength, good business prospects and strong
competitive positioning and above-average earnings growth, among other factors.
Scudder will also look for significant changes in the business environment, with
an eye toward identifying industries that may benefit from these changes. The
Fund would be managed to seek long-term capital appreciation primarily through
appreciation of its common stock holdings and, to a lesser extent, through
dividend and interest income.

The Fund may invest in investment-grade debt securities that can be converted
into common stocks, also known as convertibles, and in debt securities,
preferred stocks, bonds, notes and other debt securities of companies. The Fund
may also use other investments and investment techniques that may impact fund
performance, including, but not limited to, options, futures contracts and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).

In addition, the Fund may enter into repurchase agreements and reverse
repurchase agreements, may purchase securities on a when-issued or forward
delivery basis, may invest in warrants, indexed securities, synthetic
investments and illiquid securities, make short sales and engage in strategic
transactions. The Fund will not make a short sale if, after giving effect to
such sale, the market value of all securities sold short exceeds 25% of the
value of its total assets.

From time to time, the Fund may invest a portion of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments may serve to lessen volatility in an adverse stock market,
although they also generate lower returns than stocks in most markets. Because
this defensive policy differs from the Fund's investment objective, the Fund may
not achieve its goals during a defensive period.

Kemper New Europe Fund, Inc. The investment objective of the New Europe Fund is
long-term capital appreciation, which it seeks to achieve by investing primarily
in equity securities of European companies.

The Fund will invest in both the industrialized nations of Western Europe and
the less wealthy or developed countries in Southern and Eastern Europe. The Fund
will invest in established markets and companies with large capitalizations as
well as newer markets and smaller companies, and the portion of the Fund's
assets invested in each will vary from time to time. The Fund seeks to benefit
from accelerating economic growth transformation and deregulation taking hold in
Europe. These developments involve, among other things, increased privatizations
and corporate restructurings, the reopening of equity markets and economies in
Eastern Europe, further broadening of the European Union, and the implementation
of economic policies to promote non-inflationary growth. The Fund invests in
companies it believes are well placed to benefit from these and other structural
and cyclical changes now underway in this region.

Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.

The Fund will invest, under normal market conditions, at least 65% of its total
assets in the equity securities of European companies. The Fund defines a
European company as: (i) a company organized under the laws of a European
country and that has a principal office in a European country; or (ii) a
company, wherever organized, where at least 50% of the company's non-current
assets, capitalization, gross revenue or profit in its most recent fiscal year
represents (directly or indirectly through subsidiaries) assets or activities
located in Europe; or (iii) a company whose equity securities are traded
principally in European securities markets. The Fund's definition of European
companies may include companies that have characteristics and business
relationships common to companies in other regions. As a result, the value of
the securities of such companies may reflect economic and


                                       8
<PAGE>

market forces applicable to other regions, as well as to Europe. The Fund
believes, however, that investment in such companies will be appropriate in
light of the Fund's investment objective, because the Investment Manager will
select among such companies only those which, in its view, have sufficiently
strong exposure to economic and market forces in Europe such that their value
will tend to reflect European developments to a greater extent than developments
in other regions. For example, the Investment Manager may invest in companies
organized and located in the U.S. or other countries outside of Europe,
including companies having their entire production facilities outside of Europe,
when such companies meet one or more elements of the Fund's definition of
European companies so long as the Investment Manager believes at the time of
investment that the value of the company's securities will reflect principally
conditions in Europe.

The Fund expects the majority of its equity assets to be invested in the more
established and liquid markets of Western and Southern Europe. These more
established Western and Southern European countries include: Austria, Belgium,
Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom. To
enhance return potential, however, the Fund may pursue investment opportunities
in the less wealthy nations of Southern Europe, currently Greece, Portugal and
Turkey, and the former communist countries of Eastern Europe, including
countries once part of the Soviet Union. The Fund may invest in other countries
of Europe when their markets become sufficiently developed, in the opinion of
the Investment Manager.

The Fund intends to allocate its investments among at least three countries at
all times. The Fund's equity investments may consist of: common stock, preferred
stock (convertible or non-convertible), depositary receipts (sponsored or
unsponsored) and warrants. These may be illiquid securities. Equity securities
may also be purchased through rights. Securities may be listed on securities
exchanges, traded over-the-counter ("OTC")or have no organized market. In
addition, the Fund may engage in strategic transactions, including derivatives.
The Fund may invest up to 15% of its total net assets in illiquid securities.

The Fund may invest, under normal market conditions, up to 20% of its total
assets in European debt securities. Capital appreciation in debt securities may
arise from a favorable change in relative interest rate levels or in the
creditworthiness of issuers. Within this 20% limit, the Fund may invest in debt
securities which are unrated, rated, or the equivalent of those rated below
investment grade (commonly referred to as "junk bonds"); that is, rated below
Baa by Moody's Investor Service, Inc. ("Moody's") or below BBB by Standard &
Poor's Ratings Service ("S&P"). Such securities may be in default with respect
to payment of principal or interest.

The Fund may invest in when-issued securities, illiquid and restricted
securities and convertible securities, may make short sales against-the-box and
may enter into repurchase agreements and reverse repurchase agreements. The Fund
may also invest in closed-end investment companies that invest primarily in
Europe.

When, in the opinion of the Investment Manager, market conditions warrant, as a
temporary defensive measure, the Fund may invest without limit in foreign or
U.S. debt instruments as well as cash or cash equivalents, including foreign and
domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements. In such a case, the Fund would not be
pursuing, and may not achieve, its investment objective. The Fund may also
invest up to 20% in these investments to maintain liquidity.

Foreign securities such as those purchased by the Fund may be subject to foreign
government taxes which could reduce the yield on such securities, although a
shareholder of the Fund may, subject to certain limitations, be entitled to
claim a credit or deduction for U.S. federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund.

From time to time, the Fund may be a purchaser of restricted debt or equity
securities (i.e., securities which may require registration under the Securities
Act of 1933, as amended (the "1933 Act"), or an exemption therefrom, in order to
be sold in the ordinary course of business) in a private placement. The Fund has
undertaken not to


                                       9
<PAGE>

purchase or acquire any such securities if, solely as a result of such purchase
or acquisition, more than 15% of the value of the Fund's net assets would be
invested in illiquid securities.

To a lesser extent, the Fund may also invest in "Specialized Investments" which
consist of equity securities of: (i) privately-held European companies; (ii)
European companies that have recently made initial public offerings of their
shares; (iii) government-owned or -controlled companies that are being
privatized; (iv) smaller publicly-held European companies, i.e., any European
company having a market capitalization of less than $500 million (the Board of
Directors of the Fund may, in the future, reevaluate and increase or decrease
the maximum market capitalization for qualification as a smaller European
company); (v) companies and joint ventures based in Europe; (vi) private
placements and joint venture participations in European companies that may not
be readily marketable; (vii) pooled investment funds that invest principally in
securities in which the Fund may invest, which are considered investment
companies for purposes of the 1940 Act restrictions described below; and (viii)
European companies with private market values perceived by the Investment
Manager to be substantially in excess of their publicly-traded values.

               ADDITIONAL INFORMATION ABOUT INVESTMENT TECHNIQUES

The following section includes disclosure about investment practices and
techniques which may be utilized by one or more funds described in this
Statement of Additional Information. The name of each fund authorized to utilize
the technique precedes its discussion. Specific limitations and policies
regarding the use of these techniques may be found in each fund's "Investment
Objective and Policies" section, as well as in "Investment Restrictions" below.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which a Fund may engage or a financial
instrument which a Fund may purchase are meant to describe the spectrum of
investments that the Investment Manager, in its discretion, might, but is not
required to, use in managing a Fund's portfolio assets. The Investment Manager
may, in its discretion, at any time employ such practice, technique or
instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper International Research Fund
Kemper New Europe Fund

Borrowing. The Fund will borrow only when the Investment Manager believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing. Borrowing by the Fund will involve special risk
considerations. 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, proportionately increasing exposure to capital risk.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

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


                                       10
<PAGE>

business performance of the issuing company, investor perception and general
economic and financial market movements. Despite the risk of price volatility,
however, common stocks have historically offered a greater potential for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents, although there can be no assurance that this will
be true in the future.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper International Research Fund
Kemper New Europe Fund

Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.

The convertible securities in which the Fund may invest are either fixed income
or zero coupon debt securities which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. The
exchange ratio for any particular convertible security may be adjusted from time
to time due to stock splits, dividends, spin-offs, other corporate distributions
or scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.

As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.

Of course, like all debt securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations.

Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).


                                       11
<PAGE>

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Depositary Receipts. The Fund may invest in sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and
other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary receipts provide
indirect investment in securities of foreign issuers. Prices of unsponsored
Depositary Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. ADRs are Depositary
Receipts which are bought and sold in the United States and are typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities by a foreign corporation. GDRs, IDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities. Depositary Receipts, including those denominated in U.S.
dollars will be subject to foreign currency exchange rate risk. However, by
investing in U.S. dollar-denominated 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.
However, certain Depositary Receipts may not be listed on an exchange and
therefore may be illiquid securities.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper New Europe Fund

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 have developing or "emerging" markets, which involves exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A developing or emerging
market country can be considered to be a country that is in the initial stages
of its industrialization cycle. Currently, emerging markets generally include
every country in the world other than the United States, Canada, Japan,
Australia, New Zealand, Hong Kong, Singapore and most Western European
countries. Currently, investing in many emerging markets may not be desirable or
feasible because of the lack of adequate custody arrangements for 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 may be expected to continue in the
future.


                                       12
<PAGE>

Most emerging securities markets have substantially less volume and are subject
to less governmental supervision than U.S. securities markets. Securities of
many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. In addition, there is less regulation
of securities exchanges, securities dealers, and listed and unlisted companies
in emerging markets than in the U.S.

Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
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. Costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in U.S. securities.
Such transactions also involve additional costs for the purchase or sale of
foreign currency.

Certain emerging markets require prior governmental approval of investments by
foreign persons, limit the amount of investment by foreign persons in a
particular company, limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors. Certain emerging markets may also
restrict investment opportunities in issuers in industries deemed important to
national interest.

Certain 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 or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.

In the course of investment in emerging markets, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. While the Fund will manage its assets in a manner that
will seek to minimize the exposure to such risks, there can be no assurance that
adverse political, social or economic changes will not cause the Fund to suffer
a loss of value in respect of the securities in the Fund's portfolio.

The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available. The Fund may suspend redemption of its shares for any
period during which an emergency exists, as determined by the Securities and
Exchange Commission. Accordingly if the Fund believes that appropriate
circumstances exist, it will promptly apply to the Securities and Exchange
Commission for a determination that an emergency is present. During the period
commencing from the Fund's identification of such condition until the date of
the Securities and Exchange Commission action, the Fund's securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Fund's Board.

Volume and liquidity in most foreign markets are less than in the U.S., and
securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less


                                       13
<PAGE>

reliable than within the U.S., thus increasing the risk of delayed settlements
of portfolio transactions or loss of certificates for certificated portfolio
securities. In addition, with respect to certain emerging markets, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Fund's
investments in those countries. Moreover, individual emerging market economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.

The Fund may have limited legal recourse in the event of a default with respect
to certain debt obligations it holds. If the issuer of a fixed-income security
owned by the Fund defaults, the Fund may incur additional expenses to seek
recovery. Debt obligations issued by emerging market country governments differ
from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements.

Income from securities held by the Fund could be reduced by a withholding tax at
the source or other taxes imposed by the emerging market countries in which the
Fund makes its investments. The Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the Fund or to
entities in which the Fund has invested. The Investment Manager will consider
the cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the taxes will not be subject to
change.

Many emerging markets have experienced substantial, and, in some periods,
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.

Emerging market governmental issuers are among the largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. Certain emerging market governmental issuers have not
been able to make payments of interest on or principal of debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.

Governments of many emerging market countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given country. As a result, government actions in the future could have a
significant effect on economic conditions in emerging markets, which in turn,
may adversely affect companies in the private sector, general market conditions
and prices and yields of certain of the securities in the Fund's portfolio.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments have occurred frequently over
the history of certain emerging markets and could adversely affect the Fund's
assets should these conditions recur.

The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities.


                                       14
<PAGE>

Increased protectionism on the part of an emerging market's trading partners
could also adversely affect the country's exports and diminish its trade account
surplus, if any. To the extent that emerging markets receive payment for its
exports in currencies other than dollars or non-emerging market currencies, its
ability to make debt payments denominated in dollars or non-emerging market
currencies could be affected.

Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.

To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and inflows of foreign investment. The access of emerging markets to these forms
of external funding may not be certain, and a withdrawal of external funding
could adversely affect the capacity of emerging market country governmental
issuers to make payments on their obligations. In addition, the cost of
servicing emerging market debt obligations can be affected by a change in
international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Foreign Investment. While the Fund offers the potential for substantial
appreciation over time, it also involves above-average investment risk in
comparison to a mutual fund investing in a broad range of U.S. equity
securities. The Fund is designed as a long-term investment and not for
short-term trading purposes. The Fund should not be considered a complete
investment program, although it could serve as a core international holding for
an individual's portfolio. The Fund's net asset value, or price, can fluctuate
significantly with changes in stock market levels, political developments,
movements in currencies, global investment flows and other factors.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as 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 and experience conversion difficulties and
uncertainties in connection with conversions between various currencies.
Fluctuations in exchange rates may also affect the earning power and asset value
of the foreign entity issuing the security.

The strength or weakness of the U.S. dollar against these currencies is
responsible for part of the Fund's investment performance. If the dollar falls
in value relative to the Japanese yen, for example, the dollar value of


                                       15
<PAGE>

a Japanese stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall. Many foreign
currencies have experienced significant devaluation relative to the dollar.

 Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. 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. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. 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 entering into
options or forward or futures contracts to purchase or sell foreign currencies.

Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper New Europe Fund

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

The value of the foreign fixed income securities held by 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. 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
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 proceed of sales by foreign investors. These restrictions or
controls may at times limit or preclude foreign investment in certain sovereign
debt or increase the costs and expenses of the Fund. Sovereign debt may be
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.


                                       16
<PAGE>

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Foreign Securities. Investing in foreign securities involves certain special
considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Investment Manager will endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less governmental
supervision and regulation of securities exchanges, brokers and listed companies
in foreign countries than in the U.S. It may be more difficult for the Fund's
agents to keep currently informed about corporate actions in foreign countries
which may affect the prices of portfolio securities. Communications between the
U.S. and foreign countries may be less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Payment for securities without delivery
may be required in certain foreign markets. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect U.S. investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. The
management of the Fund seeks to mitigate the risks associated with the foregoing
considerations through continuous professional management.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper New Europe Fund

High Yield/High Risk Bonds. The Fund may also purchase debt securities which are
rated below investment-grade (commonly referred to as "junk bonds"), that is,
rated below Baa by Moody's or below BBB by S&P and unrated securities judged to
be of equivalent quality as determined by the Investment Manager. These
securities usually entail greater risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk to principal and income, and may be less liquid,
than securities in the higher rating categories. The lower the ratings of such
debt securities, the more their risks render them like equity securities.
Securities rated D may be in default with respect to payment of principal or
interest. See the Appendix to this Statement of Additional Information for a
more complete description of the ratings assigned by ratings organizations and
their respective characteristics.

Issuers of such high yielding securities often are highly leveraged and may not
have available to them more traditional methods of financing. Therefore, the
risk associated with acquiring the securities of such issuers generally is
greater than is the case with higher rated securities. For example, during an
economic downturn or a


                                       17
<PAGE>

sustained period of rising interest rates, 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. Prices and yields of high yield securities will fluctuate over
time and, during periods of economic uncertainty, volatility of high yield
securities may adversely affect the Fund's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and may be subject
to greater fluctuations in value due to changes in interest rates.

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 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 for actual
sales. Adverse publicity and investor perceptions may decrease the values and
liquidity of high yield securities. These securities may also involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.

Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
generally the policy of the Investment Manager not to rely exclusively on
ratings issued by established credit rating agencies, but to supplement such
ratings with its own independent and on-going review of credit quality. The
achievement of the Fund's investment objective by investment in such securities
may be more dependent on the Investment Manager's credit analysis than is the
case for higher quality bonds. Should the rating of a portfolio security be
downgraded, the Investment Manager will determine whether it is in the best
interests of the Fund to retain or dispose of such security.

Prices for below investment-grade securities may be affected by legislative and
regulatory developments. Also, Congress has from time to time considered
legislation which would restrict or eliminate the corporate tax deduction for
interest payments in these securities and regulate corporate restructurings.
Such legislation may significantly depress the prices of outstanding securities
of this type.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund

Illiquid Securities and Restricted Securities. The Fund may purchase securities
that are subject to legal or contractual restrictions on resale ("restricted
securities"). Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the Securities Act of 1933, as
amended. Issuers of restricted securities may not be subject to the disclosure
and other investor protection requirements that would be applicable if their
securities were publicly traded.


                                       18
<PAGE>

Restricted securities are often illiquid, but they may also be liquid. For
example, restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid. ).

[The Fund's Board has approved guidelines for use by the Investment Manager in
determining whether a security is liquid or illiquid. Among the factors the
Investment Manager may consider in reaching liquidity decisions relating to Rule
144A securities are: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the market
for the security (i.e., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of the transfer]Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirement that would be applicable if their securities were publicly traded.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933, as amended when selling restricted securities to the
public and, in such event, the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.

The Fund may also purchase securities that are not subject to legal or
contractual restrictions on resale, but that are deemed illiquid. Such
securities may be illiquid, for example, because there is a limited trading
market for them.

The Fund may be unable to sell a restricted or illiquid security. In addition,
it may be more difficult to determine a market value for restricted or illiquid
securities. Moreover, if adverse market conditions were to develop during the
period between the Fund's decision to sell a restricted or illiquid security and
the point at which the Fund is permitted or able to sell such security, the Fund
might obtain a price less favorable than the price that prevailed when it
decided to sell. This investment practice, therefore, could have the effect of
increasing the level of illiquidity of the Fund.

Kemper International Research Fund

Indexed Securities. The Fund may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.

Indexed securities differ from other types of debt securities in which the Fund
may invest in several respects. First, the interest rate or, unlike other debt
securities, the principal amount payable at maturity of an indexed security may
vary based on changes in one or more specified reference instruments, such as an
interest rate compared with a fixed interest rate or the currency exchange rates
between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount


                                       19
<PAGE>

payable on maturity. Finally, indexed securities may be more volatile than the
reference instruments underlying the indexed securities.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC which permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Adviser. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.

[*Explanatory note: Depending on the non-fundamental borrowing policy of the
Fund[s] for which this SAI disclosure is made, the borrowing exceptions noted
for reverse repurchase agreements and dollar rolls may have to be revised.]

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.

For example, the Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the


                                       20
<PAGE>

index. The market prices of index-based investments will fluctuate in accordance
with both changes in the market value of their underlying portfolio securities
and due to supply and demand for the instruments on the exchanges on which they
are traded (which may result in their trading at a discount or premium to their
NAVs). Index-based investments may not replicate exactly the performance of
their specified index because of transaction costs and because of the temporary
unavailability of certain component securities of the index.

Examples of index-based investments include:

SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.

MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.

Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.

DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.

Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.

WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Research Fund

Investment-Grade Bonds. The Fund may purchase "investment-grade" bonds, which
are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Investment
Manager. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. To the extent that the Fund invests in
higher-grade securities, the Fund will not be able to avail itself of
opportunities for higher income which may be available at lower grades.


                                       21
<PAGE>

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Investment of Uninvested Cash Balances. The Fund may have cash balances that
have not been invested in portfolio securities ("Uninvested Cash"). Uninvested
Cash may result from a variety of sources, including dividends or interest
received from portfolio securities, unsettled securities transactions, reserves
held for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions and
dividend payments, and new cash received from investors. Uninvested Cash may be
invested directly in money market instruments or other short-term debt
obligations. Pursuant to an Exemptive Order issued by the SEC, the Fund may use
Uninvested Cash to purchase shares of affiliated funds including money market
funds, short-term bond funds and Scudder Cash Management Investment Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment advisor that operate as cash management investment vehicles and
that are excluded from the definition of investment company pursuant to section
3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (collectively, the
"Central Funds") in excess of the limitations of Section 12(d)(1) of the
Investment Company Act. Investment by the Fund in shares of the Central Funds
will be in accordance with the Fund's investment policies and restrictions as
set forth in its registration statement.

Certain of the Central Funds comply with rule 2a-7 under the Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance the Fund's ability to
manage Uninvested Cash.

The Fund will invest Uninvested Cash in Central Funds only to the extent that
the Fund's aggregate investment in the Central Funds does not exceed 25% of its
total assets in shares of the Central Funds. Purchase and sales of shares of
Central Funds are made at net asset value.

Kemper Asian Growth Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper New Europe Fund

Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions, and are required to be secured
continuously by collateral in cash or liquid assets, maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. The Fund has the right to call a loan and obtain the
securities loaned on five days' notice or, in connection with securities trading
on foreign markets, within such longer period of time which coincides with the
normal settlement period for purchases and sales of such securities in such
foreign markets. During the existence of a loan, the Fund continues to receive
the equivalent of any distributions paid by the issuer on the securities loaned
and also receives compensation based on investment of the collateral. The risks
in lending securities, as with other extensions of secured credit, consist of a
possible delay in recovery and a loss of rights in the collateral should the
borrower of the securities fail financially. Loans may be made only to firms
deemed by the Investment Manager to be of good standing and will not be made
unless, in the judgment of the Investment Manager, the consideration to be
earned from such loans would justify the risk.


                                       22
<PAGE>

Kemper International Research Fund

Loan Participations and Assignments. The Fund may invest in fixed- and
floating-rate loans ("Loans") arranged through private negotiations between an
issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.

When the Fund purchases Assignments from Lenders, it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by the Fund as the purchaser of an
Assignment may differ from, and may be more limited than, those held by the
assigning Lender.

The Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for these obligations typically exists, the Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on the Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for the Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.

Kemper Global Discovery Fund

Mortgage-Backed Securities and Mortgage Pass-Through Securities. Mortgage-backed
securities are interests in pools of mortgage loans, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations
as further described below. Underlying mortgages may be of a variety of types,
including adjustable rate, conventional 30-year, graduated payment and 15-year.

A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages, and may expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities. Mortgage-backed securities are subject to the risk of prepayment and
the risk that the underlying loans will not be repaid. Because principal may be
prepaid at any time, mortgage-backed securities may involve significantly
greater price and yield volatility than traditional debt securities.

When interest rates rise, mortgage prepayment rates tend to decline, thus
lengthening the life of a mortgage-related security and increasing the price
volatility of that security, affecting the price volatility of the Fund's
shares.


                                       23
<PAGE>

Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association ("GNMA")) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.

The principal governmental guarantor of mortgage-related securities is the GNMA.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage-backed securities or to the
value of Fund shares. Also, GNMA securities often are purchased at a premium
over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.

Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. Government) include Fannie Mae and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae is a government-sponsored corporation owned
entirely by private stockholders. It is subject to general regulation by the
Secretary of Housing and Urban Development. Fannie Mae purchases conventional
(i.e., not insured or guaranteed by any government agency) mortgages from a list
of approved seller/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by Fannie Mae are
guaranteed as to timely payment of principal and interest by Fannie Mae but are
not backed by the full faith and credit of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Investment Manager determines that
the securities meet the Fund's quality


                                       24
<PAGE>

standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable.

Kemper Asian Growth Fund
Kemper Global Income Fund
Kemper International Fund
Kemper New Europe Fund

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 may 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 an enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.

Prior to privatization, most of the state enterprises in which 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
operate effectively in a competitive market and may suffer losses or experience
bankruptcy due to such competition.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund

Real Estate Investment Trusts ("REITs"). REITs are sometimes informally
characterized as equity REITs, mortgage REITs and hybrid REITs. Investment in
REITs may subject the Fund to risks associated with the direct ownership of real
estate, such as decreases in real estate values, overbuilding, increased
competition and other risks related to local or general economic conditions,
increases in operating costs and property taxes, changes in zoning laws,
casualty or condemnation losses, possible environmental liabilities, regulatory
limitations on rent and fluctuations in rental income. Equity REITs generally
experience these risks directly through fee or leasehold interests, whereas
mortgage REITs generally experience these risks indirectly through


                                       25
<PAGE>

mortgage interests, unless the mortgage REIT forecloses on the underlying real
estate. Changes in interest rates may also affect the value of the Fund's
investment in REITs. For instance, during periods of declining interest rates,
certain mortgage REITs may hold mortgages that the mortgagors elect to prepay,
which prepayment may diminish the yield on securities issued by those REITs.

Certain REITs have relatively small market capitalizations, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended, and to maintain exemption from the registration requirements of the
Investment Company Act of 1940, as amended. By investing in REITs indirectly
through the Fund, a shareholder will bear not only his or her proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of the
REITs. In addition, REITs depend generally on their ability to generate cash
flow to make distributions to shareholders.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund

Regional Investments -- Investing in Africa. Africa is a continent of roughly 50
countries with a total population of approximately 840 million people. Literacy
rates (the percentage of people who are over 15 years of age and who can read
and write) are relatively low, ranging from 20% to 60%. The primary industries
include crude oil, natural gas, manganese ore, phosphate, bauxite, copper, iron,
diamond, cotton, coffee, cocoa, timber, tobacco, sugar, tourism, and cattle.

Many African countries are fraught with political instability. However, there
has been a trend in recent years toward democratization. Many countries are
moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.

Economically, the Northern Rim countries (including Morocco, Egypt, and Algeria)
and Nigeria, Zimbabwe and South Africa are the wealthier countries on the
continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.

On the other end of the economic spectrum are countries, such as Burkinafaso,
Madagascar, and Malawi, that are considered to be among the poorest or least
developed in the world. These countries are generally landlocked or have poor
natural resources. The economies of many African countries are heavily dependent
on international oil prices. Of all the African industries, oil has been the
most lucrative, accounting for 40% to 60% of many countries' GDP. However,
general decline in oil prices has had an adverse impact on many economies.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Regional Investments -- Investing in Europe. Most Eastern European nations,
including Hungary, Poland, Czechoslovakia, and Romania, have had centrally
planned, socialist economies since shortly after World War II. A number of their
governments, including those of Hungary, the Czech Republic, and Poland, are
currently implementing or considering reforms directed at political and economic
liberalization, including efforts to foster


                                       26
<PAGE>

multi-party political systems, decentralize economic planning, and move toward
free market economies. At present, no Eastern European country has a developed
stock market, but Poland, Hungary, and the Czech Republic have small securities
markets in operation. Ethnic and civil conflict currently rage through the
former Yugoslavia. The outcome is uncertain.

Both the European Community (the "EC") and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.

The conditions that have given rise to these developments are changeable, and
there is no assurance that reforms will continue or that their goals will be
achieved.

Portugal is a genuinely emerging market which has experienced rapid growth since
the mid-1980s, except for a brief period of stagnation over 1990-91. Portugal's
government remains committed to privatization of the financial system away from
one dependent upon the banking system to a more balanced structure appropriate
for the requirements of a modern economy. Inflation continues to be about three
times the EC average.

Economic reforms launched in the 1980s continue to benefit Turkey in the 1990s.
Turkey's economy has grown steadily since the early 1980s, with real growth in
per capita Gross Domestic Product (the "GDP") increasing more than 6% annually.
Agriculture remains the most important economic sector, employing approximately
55% of the labor force, and accounting for nearly 20% of GDP and 20% of exports.
Inflation and interest rates remain high, and a large budget deficit will
continue to cause difficulties in Turkey's substantial transformation to a
dynamic free market economy.

Like many other Western economies, Greece suffered severely from the global oil
price hikes of the 1970s, with annual GDP growth plunging from 8% to 2% in the
1980s, and inflation, unemployment, and budget deficits rising sharply. The fall
of the socialist government in 1989 and the inability of the conservative
opposition to obtain a clear majority have led to business uncertainty and the
continued prospects for flat economic performance. Once Greece has sorted out
its political situation, it will have to face the challenges posed by the
steadily increasing integration of the EC, including the progressive lowering of
trade and investment barriers. Tourism continues as a major industry, providing
a vital offset to a sizable commodity trade deficit.

Securities traded in certain emerging European securities markets may be subject
to risks due to the inexperience of financial intermediaries, the lack of modern
technology and the lack of a sufficient capital base to expand business
operations. Additionally, former Communist regimes of a number of Eastern
European countries had expropriated a large amount of property, the claims of
which have not been entirely settled. There can be no assurance that the Fund's
investments in Eastern Europe would not also be expropriated, nationalized or
otherwise confiscated. Finally, any change in leadership or policies of Eastern
European countries, or countries that exercise a significant influence over
those countries, may halt the expansion of or reverse the liberalization of
foreign investment policies now occurring and adversely affect existing
investment opportunities.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund


                                       27
<PAGE>

Regional Investments -- Investing in Latin America. Investing in securities of
Latin American issuers may entail risks relating to the potential political and
economic instability of certain Latin American countries and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.

The securities markets of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the U.S. Disclosure and regulatory standards are in many respects less
stringent than U.S. standards. Furthermore, there is a lower level of monitoring
and regulation of the markets and the activities of investors in such markets.

The limited size of many Latin American securities markets and limited trading
volume in the securities of Latin American issuers compared to volume of trading
in the securities of U.S. issuers could cause prices to be erratic for reasons
apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

Some Latin American countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
Latin American countries may restrict the free conversion of their currencies
into other currencies. Further, certain Latin American currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which Fund investments are denominated may have a detrimental impact on the
Fund's net asset value.

The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to a Fund
at a higher rate than those imposed by other foreign countries. This may reduce
the Fund's investment income available for distribution to shareholders.

Certain Latin American countries such as Argentina, Brazil and Mexico are among
the world's largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared moratoria on the payment
of principal and/or interest on outstanding debt.

Latin America is a region rich in natural resources such as oil, copper, tin,
silver, iron ore, forestry, fishing, livestock and agriculture. The region has a
large population (roughly 300 million) representing a large domestic market.
Economic growth was strong in the 1960s and 1970s, but slowed dramatically (and
in some instances was negative) in the 1980s as a result of poor economic
policies, higher international interest rates, and the denial of access to new
foreign capital. Although a number of Latin American countries are currently
experiencing lower rates of inflation and higher rates of real growth in gross
domestic product than they have in the past, other Latin American countries
continue to experience significant problems, including high inflation rates and
high interest rates. Capital flight has proven a persistent problem and external
debt has been forcibly restructured. Political turmoil, high inflation, capital
repatriation restrictions and nationalization have further exacerbated
conditions.

Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of


                                       28
<PAGE>

the largest in those countries. As a result, government actions in the future
could have a significant effect on economic conditions which may adversely
affect prices of certain portfolio securities. Expropriation, confiscatory
taxation, nationalization, political, economic or social instability or other
similar developments, such as military coups, have occurred in the past and
could also adversely affect a Fund's investments in this region.

Changes in political leadership, the implementation of market oriented economic
policies, such as privatization, trade reform and fiscal and monetary reform are
among the recent steps taken to renew economic growth. External debt is being
restructured and flight capital (domestic capital that has left home country)
has begun to return. Inflation control efforts have also been implemented. Free
Trade Zones are being discussed in various areas around the region, the most
notable being a free zone among Mexico, the U.S. and Canada and another zone
among four countries in the southernmost point of Latin America. Currencies are
typically weak, but most are now relatively free floating, and it is not unusual
for the currencies to undergo wide fluctuations in value over short periods of
time due to changes in the market.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund

Regional Investments -- Investing in the Pacific Basin. Economies of individual
Pacific Basin countries may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, interest rate levels, and
balance of payments position. Of particular importance, most of the economies in
this region of the world are heavily dependent upon exports, particularly to
developed countries, and, accordingly, have been and may continue to be
adversely affected by trade barriers, managed adjustments in relative currency
values, and other protectionist measures imposed or negotiated by the U.S. and
other countries with which they trade. These economies also have been and may
continue to be negatively impacted by economic conditions in the U.S. and other
trading partners, which can lower the demand for goods produced in the Pacific
Basin.

With respect to the Peoples Republic of China and other markets in which the
Fund may participate, there is the possibility of nationalization, expropriation
or confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments that could adversely impact a Pacific
Basin country including the Fund's investment in the debt of that country.

Foreign companies, including Pacific Basin companies, are not generally subject
to uniform accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently, there may be less publicly available information about such
companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Repurchase Agreements. The Fund may invest in repurchase agreements pursuant to
its investment guidelines. In a repurchase agreement, the Fund acquires
ownership of a security and simultaneously commits to resell that security to
the seller, typically a bank or broker/dealer.


                                       29
<PAGE>

A repurchase agreement provides a means for the Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., the Fund) acquires a security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and, as described in more detail below, the value of such securities is kept at
least equal to the repurchase price on a daily basis. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Fund together with the repurchase price upon repurchase. In
either case, the income to the Fund is unrelated to the interest rate on the
Obligation itself. Obligations will be held by the custodian or in the Federal
Reserve Book Entry System.

[It is not clear whether a court would consider the Obligation purchased by the
Fund subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller.] In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. [If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction.] As with any unsecured debt Obligation purchased for the Fund, the
Investment Manager seeks to reduce the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. However, if the
market value (including interest) of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including interest), the Fund
will direct the seller of the Obligation to deliver additional securities so
that the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price.

Kemper Global Blue Chip Fund
Kemper International Research Fund

Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase such securities at an agreed time and
price. The Fund maintains a segregated account in connection with outstanding
reverse repurchase agreements. The Fund will enter into reverse repurchase
agreements only when the Investment Manager believes that the interest income to
be earned from the investment of the proceeds of the transaction will be greater
than the interest expense of the transaction. Such transactions may increase
fluctuations in the market value of Fund assets and its yield.

Kemper Asian Growth Fund
Kemper Global Income Fund
Kemper International Research Fund
Kemper New Europe Fund

Short Sales Against the Box. The Fund may make short sales of common stocks if,
at all times when a short position is open, the Fund owns the stock or owns
preferred stocks or debt securities convertible or exchangeable, without payment
of further consideration, into the shares of common stock sold short. Short
sales of this kind are referred to as short sales "against the box." The
broker/dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to the Fund. Arrangements may be made with the
broker/dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds. The Fund will segregate the common stock or
convertible or exchangeable preferred stock or debt securities in a


                                       30
<PAGE>

special account with the custodian. Uncertainty regarding the tax effects of
short sales of appreciated investments may limit the extent to which the Fund
may enter into short sales against the box.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper International Research Fund
Kemper New Europe Fund

Small Company Risk. The Investment Manager believes that many small companies
may have sales and earnings growth rates which exceed those of larger companies,
and that such growth rates may in turn be reflected in more rapid share price
appreciation over time. However, investing in smaller company stocks involves
greater risk than is customarily associated with investing in larger, more
established companies. For example, smaller companies can have limited product
lines, markets, or financial and managerial resources. Smaller companies may
also be dependent on one or a few key persons, and may be more susceptible to
losses and risks of bankruptcy. Also, the securities of smaller companies may be
thinly traded (and therefore have to be sold at a discount from current market
prices or sold in small lots over an extended period of time). Transaction costs
in smaller company stocks may be higher than those of larger companies.

Kemper Asian Growth Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Research Fund
Kemper New Europe Fund

Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in the Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.

In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon, enter into various transactions such as swaps,
caps, floors, collars, currency forward contracts, currency futures contracts,
currency swaps or options on currencies, or currency futures and various other
currency transactions (collectively, all the above are called "Strategic
Transactions"). In addition, strategic transactions may also include new
techniques, instruments or strategies that are permitted as regulatory changes
occur. Strategic Transactions may be used without limit (subject to certain
limitations imposed by the 1940 Act) to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of the Fund, and
the


                                       31
<PAGE>

Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund.

Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than


                                       32
<PAGE>

taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.

If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including


                                       33
<PAGE>

convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. All calls sold by the Fund
must be "covered" (i.e., the Fund must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. Even though the Fund will receive the
option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts other
than futures on individual corporate debt and individual equity securities. The
Fund will not sell put options if, as a result, more than 50% of the Fund's
total assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that 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 and obligates the seller to deliver such
position.

The Fund's use of futures and options thereon will in all cases be consistent
with applicable regulatory requirements and in particular the rules and
regulations of the Commodity Futures Trading Commission and will be entered into
for bona fide hedging, risk management (including duration management) or other
portfolio and return enhancement management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.


                                       34
<PAGE>

Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) 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. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.

The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of the Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.

The Fund generally will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers


                                       35
<PAGE>

that the Austrian schilling is correlated to the German deutsche mark (the
"D-mark"), the Fund holds securities denominated in schillings and the Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a commitment or option to sell D-marks and buy dollars.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived correlation between various currencies may not be present or may not
be present during the particular time that the Fund is engaging in proxy
hedging. If the Fund enters into a currency hedging transaction, the Fund will
comply with the asset segregation requirements described below.

Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.


                                       36
<PAGE>

The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency will
generally require the Fund to hold an amount of that currency or liquid assets
denominated in that currency equal to the Fund's obligations or to segregate
cash or liquid assets equal to the amount of the Fund's obligation.


                                       37
<PAGE>

OTC options entered into by the Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash or liquid assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.

With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.

Kemper Global Blue Chip Fund
Kemper International Research Fund

Warrants. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.


                                       38
<PAGE>

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper International Research Fund
Kemper New Europe Fund

When-Issued Securities. The Fund may from time to time purchase equity and debt
securities on a "when-issued", "delayed delivery" or "forward delivery" basis.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment for the
securities takes place at a later date. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues
to the Fund. When the Fund purchases such securities, it immediately assumes the
risks of ownership, including the risk of price fluctuation. Failure to deliver
a security purchased on this basis may result in a loss or missed opportunity to
make an alternative investment.

To the extent that assets of the Fund are held in cash pending the settlement of
a purchase of securities, the Fund would earn no income. While such securities
may be sold prior to the settlement date, the Fund intends to purchase them with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
security on this basis, it will record the transaction and reflect the value of
the security in determining its net asset value. The market value of the
securities may be more or less than the purchase price. The Fund will establish
a segregated account in which it will maintain cash and liquid securities equal
in value to commitments for such securities.

Kemper Global Blue Chip Fund
Kemper Global Discovery Fund

Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. 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 securities which are convertible into common
stock offer the opportunity for capital appreciation (or depreciation) as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks, as they usually are issued with maturities of 15 years
or less and are issued with options and/or redemption features exercisable by
the holder of the obligation entitling the holder to redeem the obligation and
receive a defined cash payment.

                             INVESTMENT RESTRICTIONS

The following restrictions may not be changed with respect to a Fund without the
approval of a majority of the outstanding voting securities of such Fund which,
under the 1940 Act and the rules thereunder and as used in this Statement of
Additional Information, means the lesser of (i) 67% of the shares of such Fund
present at a meeting if the holders of more than 50% of the outstanding shares
of such Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of such Fund.

Global Discovery Fund, Kemper Asian Growth Fund, Kemper Global Blue Chip Fund,
Kemper International Fund and Kemper International Research Fund have elected to
be classified as diversified series of open-end


                                       39
<PAGE>

management investment companies. Kemper Global Income Fund and Kemper New Europe
Fund are non-diversified open-end investment management companies.

In addition, as a matter of fundamental policy, each Fund except Kemper
International Research Fund will not:

      (1)   borrow money, except as permitted under the Investment Company Act
            of 1940, as amended, and as interpreted or modified by regulatory
            authority having jurisdiction, from time to time;

      (2)   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;

      (3)   purchase physical commodities or contracts relating to physical
            commodities;

      (4)   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;

      (5)   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;

      (6)   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; and

      (7)   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.

As a matter of fundamental policy, Kemper International Research Fund will not:

      (1)   make loans except to the extent that the purchase of portfolio
            securities consistent with the Fund's investment objective and
            policies or the acquisition of securities subject to repurchase
            agreements may be deemed to be loans;

      (2)   borrow money or issue senior securities, except as permitted under
            the 1940 Act and as interpreted or modified by regulatory authority
            having jurisdiction, from time to time;

      (3)   pledge, hypothecate, mortgage or otherwise encumber its assets,
            except to secure permitted borrowings or in connection with hedging
            and risk management strategies as described under investment
            Policies and Techniques herein;

      (4)   invest in companies for the purpose of exercising control or
            participation in management;

      (5)   make short sales of securities or maintain a short position in any
            security except as described under Investment Policies and
            Techniques herein;

      (6)   (i) purchase or sell real estate, except that it may purchase and
            sell securities of companies which deal in real estate or interests
            therein, (ii) purchase or sell commodities or commodity contracts
            except that the Fund may enter into foreign currency and stock index
            futures


                                       40
<PAGE>

            contracts and options thereon and may buy or sell forward currency
            contracts and options on foreign currencies, (iii) invest in
            interests in oil, gas, or other mineral exploration or development
            programs, except that it may purchase and sell securities of
            companies which deal in oil, gas or other mineral exploration or
            development programs, (iv) purchase securities on margin, except for
            such short-term credits as may be necessary for the clearance of
            transactions as described under the heading Investment Policies and
            Techniques herein, and (v) act as an underwriter of securities,
            except that the Fund may acquire securities in private placements in
            circumstances in which, if such securities were sold, the Fund might
            be deemed to be an underwriter within the meaning of the Securities
            Act of 1933, as amended; and (g) invest in securities of other
            investment companies, except as part of a merger, consolidation or
            other acquisition, if more than 3% of the outstanding voting stock
            of any such investment company would be held by the Fund, if more
            than 5% of the total assets of the Fund would be invested in any
            such investment company, or if the Fund would own, in the aggregate,
            securities of investment companies representing more than 10% of its
            total assets.

Each Fund has adopted the following non-fundamental restrictions, which may be
changed by the Board without shareholder approval. Each Fund may not:

      (1)   borrow money in an amount greater than 5% of its total assets,
            except (i) for temporary or emergency purposes and (ii) by engaging
            in reverse repurchase agreements, dollar rolls, or other investments
            or transactions described in the Fund's registration statement which
            may be deemed to be borrowings;

      (2)   (for Kemper Asian Growth Fund, Kemper International Fund and Kemper
            International Research Fund) enter into either of reverse repurchase
            agreements or dollar rolls in an amount greater than 5% of its total
            assets;

      (3)   purchase securities on margin or make short sales, except (i) short
            sales against the box, (ii) in connection with arbitrage
            transactions, (iii) for margin deposits in connection with futures
            contracts, options or other permitted investments, (iv) that
            transactions in futures contracts and options shall not be deemed to
            constitute selling securities short, and (v) that the Fund may
            obtain such short-term credits as may be necessary for the clearance
            of securities transactions;

      (4)   purchase options, unless the aggregate premiums paid on all such
            options held by the Fund at any time do not exceed 20% of its total
            assets; or sell put options, if as a result, the aggregate value of
            the obligations underlying such put options would exceed 50% of its
            total assets;

      (5)   enter into futures contracts or purchase options thereon unless
            immediately after the purchase, the value of the aggregate initial
            margin with respect to such futures contracts entered into on behalf
            of the Fund and the premiums paid for such options on futures
            contracts does not exceed 5% of the fair market value of the Fund's
            total assets; provided that in the case of an option that is
            in-the-money at the time of purchase, the in-the-money amount may be
            excluded in computing the 5% limit;

      (6)   purchase warrants if as a result, such securities, taken at the
            lower of cost or market value, would represent more than 5% of the
            value of the Fund's total assets (for this purpose, warrants
            acquired in units or attached to securities will be deemed to have
            no value);

      (7)   (each Fund except Kemper International Research Fund) lend portfolio
            securities in an amount greater than 5% (one third of total assets
            for Kemper Asian Growth Fund and Kemper Global Income Fund)of its
            total assets; and


                                       41
<PAGE>

      (8)   Invest more than 15% of net assets in illiquid securities (except
            Global Discovery Fund, which limits investments in illiquid
            securities according to the Investment Company Act of 1940)

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

                                 NET ASSET VALUE

The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A shares of a Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of [the/a] Fund is computed as of the close of regular
trading on the Exchange on each day the Exchange is open for trading (the "Value
Time"). The Exchange is scheduled to be closed on the following holidays: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Net asset value per share is determined by
dividing the value of the total assets of [the/a] Fund, less all liabilities, by
the total number of shares outstanding.

An exchange-traded equity security is valued at its most recent sale price on
the exchange it is traded as of the Value Time. Lacking any sales, the security
is valued at the calculated mean between the most recent bid quotation and the
most recent asked quotation (the "Calculated Mean") on such exchange as of the
Value Time. Lacking a Calculated Mean the security is valued at the most recent
bid quotation on such exchange as of the Value Time. An equity security which is
traded on the National Association of Securities Dealers Automated Quotation
("Nasdaq") system will be valued at its most recent sale price on such system as
of the Value Time. Lacking any sales, the security is valued at the most recent
bid quotation as of the Value Time. The value of an equity security not quoted
on the Nasdaq System, but traded in another over-the-counter market, is its most
recent sale price if there are any sales of such security on such market as of
the Value Time. Lacking any sales, the security is valued at the Calculated Mean
quotation for such security as of the Value Time. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation as of the Value Time.

Debt securities, other than money market instruments, are valued at prices
supplied by a pricing agent(s) which reflect broker/dealer supplied valuations
and electronic data processing techniques. Money market instruments purchased
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the investment manager of the particular
fund may calculate the price of that debt security, subject to limitations
established by the Board.

An exchange traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date..


                                       42
<PAGE>

If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.

With respect to Funds with securities listed primarily on foreign exchanges,
such securities may trade on days when the Fund's net asset value is not
computed; and therefore, the net asset value of a Fund may be significantly
affected on days when the investor has no access to the Fund.

If, in the opinion of the Valuation Committee, the value of a portfolio asset as
determined in accordance with these procedures does not represent the fair
market value of the portfolio asset, the value of the portfolio asset is taken
to be an amount which, in the opinion of the Valuation Committee, represents
fair market value on the basis of all available information. The value of other
portfolio holdings owned by [the/a] Fund is determined in a manner which, in the
discretion of the Valuation Committee most fairly reflects market value of the
property on the valuation date.

Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.

Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, MA, 02110, a subsidiary of the Investment Manager,
is responsible for determining the daily net asset value per share of the
[Funds/Fund] and maintaining all accounting records related thereto. Currently,
Scudder Fund Accounting Corporation receives an annual fee of [confirm
individual fee arrangements].

Payments to Scudder Fund Accounting Corporation for the three most recent fiscal
periods are as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
            Fund              Fiscal Year/Period   Fiscal Year/Period  Fiscal Year/Period
                                 Ended ____:         Ended ____:          Ended ____:
-------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                  <C>
Kemper Asian Growth Fund
-------------------------------------------------------------------------------------------
Kemper Global Blue Chip Fund
-------------------------------------------------------------------------------------------
Kemper Global Discovery Fund
-------------------------------------------------------------------------------------------
Kemper Global Income Fund
-------------------------------------------------------------------------------------------
Kemper International Fund
-------------------------------------------------------------------------------------------
Kemper International
Research Fund
-------------------------------------------------------------------------------------------
Kemper New Europe Fund
-------------------------------------------------------------------------------------------
</TABLE>

[ADD FOOTNOTES FOR ANY EXPENSE REIMBURSEMENT]

The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.

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


                                       43
<PAGE>

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

Each Fund receives the entire net asset value of all its Class A shares sold.
Kemper Distributors, Inc. ("KDI"), the Funds' principal underwriter, retains the
sales charge on sales of Class A shares from which it allows discounts from the
applicable public offering price to investment dealers, which discounts are
uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow to dealers 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 a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" totals
at least $1,000,000 (the "Large Order NAV Purchase Privilege") 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 "Purchase, Repurchase and
Redemption of Shares -- Contingent Deferred Sales Charge -- Large Order NAV
Purchase Privilege."

KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 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
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 under [a/the Fund's] foregoing schedule, KDI
will consider the cumulative amount invested by the purchaser in a Fund and
other Kemper Mutual Funds listed under "Special Features -- Class A Shares --
Combined Purchases," including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features referred to above and
including purchases of class R shares of certain Scudder funds. The privilege of
purchasing Class A shares of a Fund at net asset value under the Large Order NAV
Purchase Privilege is not available if another net asset value purchase
privilege also applies.

Class A shares of a Fund or any other Kemper Mutual Fund listed under "Special
Features -- Class A Shares -- Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court


                                       44
<PAGE>

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 a 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
a Fund, its Manager , its principal underwriter or certain affiliated companies,
for themselves or members of their families; (b) registered representatives and
employees of broker-dealers having selling group agreements with KDI and
officers, directors and employees of service agents of the Funds, for themselves
or their spouses or dependent children; (c) shareholders who owned shares of
Kemper Value Series, Inc. ("KVS") on September 8, 1995, and have continuously
owned shares of KVS (or a Kemper Fund acquired by exchange of KVS shares) since
that date, for themselves or members of their families; (d) any trust, pension,
profit-sharing or other benefit plan for only such persons; (e) 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; and (f) persons who purchase shares of the Fund
through KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Funds for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase a Fund's Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisors registered under the Investment Advisors 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 advisor or other firm for portfolio
management and other services. Such shares are sold for investment purposes and
on the condition that they will not be resold except through redemption or
repurchase by the Funds. The Funds may also issue Class A shares at net asset
value in connection with the acquisition of the assets of or merger or
consolidation with another investment company, or to shareholders in connection
with the investment or reinvestment of income and capital gain dividends.

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

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.


                                       45
<PAGE>

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 "Purchase, Repurchase and Redemption of Shares -- Contingent
Deferred Sales Charge -- Class B Shares."

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

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

Purchase of Class C Shares. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Purchase, Repurchase and Redemption 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 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 each Fund for services as distributor and principal
underwriter for Class C shares. See "Investment Manager and Underwriter."

Purchase of Class I Shares. Class I shares are offered at net asset value
without an initial sales charge and are not subject to a contingent deferred
sales charge or a Rule 12b-1 distribution fee. Also, there is no administration
services fee charged to Class I shares. As a result of the relatively lower
expenses for Class I shares, the level of income dividends per share (as a
percentage of net asset value) and, therefore, the overall investment value,
will typically be higher for Class I shares than for Class A, Class B, or Class
C shares.

Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of the
Investment Manager and its affiliates and rollover accounts from those plans;
(2) the following investment advisory clients of the Investment Manager and its
investment advisory affiliates that invest at least $1 million in a Fund:
unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and self-directed retirement plans); unaffiliated
banks and insurance companies purchasing for their own accounts; and endowment
funds of unaffiliated non-profit organizations; (3) investment-only accounts for
large qualified plans, with at least $50 million in total plan assets or at
least 1000 participants; (4) trust and fiduciary accounts of trust companies and
bank trust departments providing fee based advisory services that invest at
least $1 million in a Fund on behalf of each trust; (5) policy holders under
Zurich-American Insurance Group's collateral investment program investing at
least $200,000 in a Fund; and (6) investment companies managed by the Investment
Manager that invest primarily in other investment companies. Class I shares
currently are available for purchase only from KDI, principal underwriter for
the Funds, and, in the case of category (4) above, selected dealers authorized
by KDI. Share certificates are not available for Class I shares.


                                       46
<PAGE>

Which Arrangement is Better for You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or 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.
[ONLY Class I shares are available only to certain institutional investors.

General. Shares of a Fund are sold at their public offering price, which is the
net asset value per share of the Fund next determined after an order is received
in proper form plus, with respect to Class A shares, an initial sales charge.
The minimum initial investment is $1,000 and the minimum subsequent investment
is $100 but such minimum amounts may be changed at any time. 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 a Fund determines that it
has received payment of the proceeds of the check. The time required for such a
determination will vary and cannot be determined in advance. Upon receipt by the
Shareholder Service Agent of a request for redemption, shares of a Fund will be
redeemed by a Fund at the applicable net asset value per share of such Fund. The
amount received by a shareholder upon redemption or repurchase may be more or
less than the amount paid for such shares depending on the market value of a
Trust's portfolio securities at the time.

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 are provided because of anticipated economies in
sales and sales related efforts.

Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires each Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. Each Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period. Shareholders should
direct their inquiries to Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105-2005 or to the firm from which they received this Statement of
Additional Information.

Redemptions and Exchanges

A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange ("Exchange") is closed
other than customary weekend and holiday closings or during any period in which
trading on the Exchange is restricted, (b) during any period when an emergency
exists as a result of which (i) disposal of a Fund's investments is not
reasonably practicable, or (ii) it


                                       47
<PAGE>

is not reasonably practicable for a Fund to determine the value of its net
assets, or (c) for such other periods as the Securities and Exchange Commission
may by order permit for the protection of a Fund's shareholders.

The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares and the assessment of the administrative services fee with
respect to each class does not result in a 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.

The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI to accept purchase and
redemption orders for a Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on a Fund's behalf. Orders for
purchase or redemption will be deemed to have been received by a Fund when such
brokers or their authorized designees accept the orders. Subject to the terms of
the contract between a Fund and the broker, ordinarily orders will be priced at
a Fund's net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or redemptions of a Fund's shares
are arranged and settlement is made at an investor's election through any other
authorized NASD member, that member may, at its discretion, charge a fee for
that service. The Board of Trustees or Directors as the case may be ("Board") of
a Fund and KDI each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Board and KDI may suspend or terminate the
offering of shares of a Fund at any time for any reason.

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

The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet received
good payment (i.e., purchases by check, EXPRESS-Transfer or Bank Direct
Deposit), it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which may be up to 10 days from receipt by a Fund of the purchase
amount. The redemption within two years of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge (see "Purchase, Repurchase and Redemption 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


                                       48
<PAGE>

purchase may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge -- Class C Shares" below).

Because of the high cost of maintaining small accounts, the Funds 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. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless a Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephone 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, guardian and custodial account
holders, provided the trustee, executor, guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Funds reserve the right to terminate or modify
this privilege at any time.

Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the applicable 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.


                                       49
<PAGE>

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

Contingent Deferred Sales Charge -- Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% 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 a Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.

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

                                          Contingent Deferred
  Year of Redemption After Purchase          Sales Charge
  ---------------------------------          ------------

First                                             4%
Second                                            3%
Third                                             3%
Fourth                                            2%
Fifth                                             2%
Sixth                                             1%


                                       50
<PAGE>

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 a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.

Contingent Deferred Sales Charge -- Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived 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; (b) redemptions by employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent; (c) redemption of shares of a
shareholder (including a registered joint owner) who has died; (d) redemption of
shares of a shareholder (including a registered joint owner) who after purchase
of the shares being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security Administration); (e) redemptions
under a Fund's Systematic Withdrawal Plan at a maximum of 10% per year of the
net asset value of the account; (f) 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; (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; and
(h) redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year administrative services and
distribution fees applicable to such shares and has agreed 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 a Fund's Class B shares and that
16 months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.


                                       51
<PAGE>

The rate of the contingent deferred sales charge under the schedule above 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. In the event no
specific order is requested when redeeming shares subject to a contingent
deferred sales charge, the redemption will be made first from shares
representing reinvested dividends and then from the earliest purchase of shares.
KDI receives any contingent deferred sales charge directly.

Reinvestment Privilege. A shareholder who has redeemed Class A shares of a Fund
or any Kemper Mutual Fund listed under "Special Features -- Class A Shares --
Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the listed Kemper Mutual Funds. A shareholder of a Fund or Kemper
Mutual Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase, Repurchase and Redemption of Shares --
Initial Sales Charge Alternative -- Class A Shares") or Class B shares or Class
C shares and incurs a contingent deferred sales charge may reinvest up to the
full amount redeemed at net asset value at the time of the reinvestment in Class
A shares, Class B shares or Class C shares, as the case may be, of a Fund or of
Kemper Mutual Funds. The amount of any contingent deferred sales charge also
will be reinvested. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares of a Fund or of the 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 a Funds'
shares, the reinvestment in the same 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. In addition, upon
a reinvestment, the shareholder may not be permitted to take into account sales
charges incurred on the original purchase of shares in computing their taxable
gain or loss. The reinvestment privilege may be terminated or modified at any
time.

Special Features

Class A Shares -- Combined Purchases. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Aggressive Growth Fund, Kemper Asian Growth Fund, Kemper
Blue Chip Fund, Kemper California Tax-Free Income Fund, Kemper Cash Reserves
Fund, Kemper Contrarian Fund, Kemper Florida Tax-Free Income Fund, Kemper Global
Blue Chip Fund, Kemper Global Income Fund, Kemper Growth Fund, Kemper High Yield
Fund, Kemper High Yield Fund II, Kemper High Yield Opportunity Fund, Kemper
Horizon 10+ Portfolio, Kemper Horizon 20+ Portfolio, Kemper Horizon 5 Portfolio,
Kemper Income and Capital Preservation Fund, Kemper Intermediate Municipal Bond
Fund, Kemper International Fund, Kemper International Research Fund, Kemper
Large Company Growth Fund (currently available only to employees of Zurich
Scudder Investments, Inc.; not available in all states), Kemper Municipal Bond
Fund, Kemper New Europe Fund, Kemper New York Tax-Free Income Fund, Kemper Ohio
Tax-Free Income Fund, Kemper Research Fund (currently available only to
employees of Zurich Scudder Investments, Inc.; not available in all states),
Kemper Retirement Fund -- Series II, Kemper Retirement Fund -- Series III,
Kemper Retirement Fund -- Series IV, Kemper Retirement Fund -- Series V, Kemper
Retirement Fund -- Series VI, Kemper Retirement Fund -- Series VII, Kemper S&P
500 Index Fund, Kemper Short-Term U.S. Government Fund, Kemper Small Cap Value
Fund, Kemper Small Cap Value+Growth Fund (currently available only to employees
of Zurich Scudder Investments, Inc.; not available in all states), Kemper Small
Capitalization Equity Fund, Kemper Strategic Income Fund, Kemper Target 2010
Fund, Kemper Technology Fund, Kemper Total


                                       52
<PAGE>

Return Fund, Kemper U.S. Government Securities Fund, Kemper U.S. Growth and
Income Fund, Kemper U.S. Mortgage Fund, Kemper Value+Growth Fund, Kemper
Worldwide 2004 Fund, Kemper-Dreman Financial Services Fund, Kemper-Dreman High
Return Equity 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, 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 or its affiliates 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 a Fund are included for this privilege.

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

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

Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of 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 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.


                                       53
<PAGE>

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

Class B Shares. Class B shares of a Fund and Class B shares of any 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 shares received on exchange, amounts
exchanged retain their original cost and purchase date.

Class C Shares. Class C shares of a Fund and Class C shares of any 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, amounts exchanged retain their cost and purchase.

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"). The Fund reserves
the right to invoke the 15-Day Hold Policy of exchanges of $1,000,000 or less
if, in the Investment Manager's judgment, the exchange activity may have an
adverse effect on the fund. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to the Kemper fund and
therefore may be subject to 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.
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 "Purchase, Repurchase and
Redemption 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 Kemper Funds
that are eligible 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.


                                       54
<PAGE>

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

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

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

Systematic Withdrawal Plan. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount 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, Class A shares purchased under the Large Order NAV Purchase Privilege
and Class C shares in their first year following the purchase may be redeemed
under a systematic withdrawal plan is 10% of the net asset


                                       55
<PAGE>

value of the account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.

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

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

o     Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
      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.

o     403(b)(7) Custodial Accounts. This type of plan is available to employees
      of most non-profit organizations.

o     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 the Fund's custodian describe the current
fees payable for its services as custodian. Investors should consult with their
own tax advisers before establishing a retirement plan.

Additional Transaction Information

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

KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a 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
Kemper Service Company ("KSvC"), (iii) the registered representative placing the
trade is a member of ProStar, a group of persons designated by KDI in


                                       56
<PAGE>

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, to firms that sell shares of the Funds. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Funds or other funds underwritten by
KDI.

Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. See "Purchase and Redemption of
Shares."

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

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

Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this Statement of Additional Information.

                                    DIVIDENDS

Kemper Global Income Fund normally distributes monthly dividends of net
investment income, the Asian and International Funds normally distribute annual
dividends of net investment income and each Fund distributes any net realized
short-term and long-term capital gains at least annually.


                                       57
<PAGE>

Global Blue Chip Fund, Kemper New Europe Fund, Global Discovery Fund and Kemper
International Research Fund normally distribute annual dividends of net
investment income. Any net realized short-term and long-term capital gains for
the Funds are distributed at least annually. Distributions of net capital gains
realized during each fiscal year will be made at least annually before the end
of each Fund's fiscal year. Additional distributions, including distributions of
net short-term capital gains in excess of net long-term capital losses, may be
made, if necessary.

Each 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 its Board determines appropriate under the then
current circumstances. In particular, and without limiting the foregoing,
[the/a] Fund may make additional distributions of net investment income or
capital gain net income in order to satisfy the minimum distribution
requirements contained in the Internal Revenue Code (the "Code").

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

Income and capital gain dividends, if any, for [the/a] 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:

      (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 both income and capital gain dividends in cash.

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

                             PERFORMANCE INFORMATION

From time to time, quotations of [the/a] Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be computed separately for each class.

Average Annual Total Return

Average annual total return is the average annual compound rate of return for
the periods of one year, five years and ten years (or such shorter periods as
may be applicable dating from the commencement of [the/a] Fund's operations),
all ended on the last day of a recent calendar quarter. Average annual total
return quotations reflect


                                       58
<PAGE>

changes in the price of [the/a] Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by computing the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):

                               T = (ERV/P)^1/n - 1

Where:

              T       =      Average Annual Total Return
              P       =      a hypothetical initial investment of $1,000
              n       =      number of years
              ERV     =      ending redeemable value: ERV is the value, at the
                             end of the applicable period, of a hypothetical
                             $1,000 investment made at the beginning of the
                             applicable period.

   Average Annual Total Returns for the Period Ended _______(FYE)_____________

                             1 Year       5 Years      10 Years     Life of Fund
 _____ Fund, Class ___             %             %             %             %

[REPEAT FOR ADDITIONAL FUNDS AND CLASSES AS NEEDED]

[(1)INSERT FOOTNOTES AS NEEDED]

As described above, average annual total return is based on historical earnings
and is not intended to indicate future performance. Average annual total return
for [the/a] Fund or class will vary based on changes in market conditions and
the level of [the/a] Fund's and class' expenses.

In connection with communicating its average annual total return to current or
prospective shareholders, [the/a] Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.

Cumulative Total Return

Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of [the/a] Fund's shares and assume that
all dividends and capital gains distributions during the period were reinvested
in Fund shares. Cumulative total return is calculated by computing the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):

                                 C = (ERV/P) - 1

Where:

              C       =      Cumulative Total Return
              P       =      a hypothetical initial investment of $1,000
              ERV     =      ending redeemable value: ERV is the value, at the
                             end of the applicable period, of a hypothetical
                             $1,000 investment made at the beginning of the
                             applicable period.


                                       59
<PAGE>

     Cumulative Total Returns for the Period Ended _______(FYE)_____________

                            1 Year        5 Years      10 Years     Life of Fund
_____ Fund, Class S               %              %             %             %

[REPEAT FOR ADDITIONAL FUNDS AND CLASSES AS NEEDED]

[(1)INSERT FOOTNOTES AS NEEDED]

Total Return

Total return is the rate of return on an investment for a specified period of
time calculated in the same manner as cumulative total return.

From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of [the/a] Fund apart from capital appreciation will be cited,
as an update to the information in this section, including, but not limited to:
net cash flow, net subscriptions, gross subscriptions, net asset growth, net
account growth, and subscription rates. Capital appreciation generally will be
covered by marketing literature as part of [the/a] Fund's and classes'
performance data.

KEMPER INTERNATIONAL FUND

Performance figures for Class B and C shares of the Fund for the period May 31,
1994 to October 31, 2000 reflect the actual performance of these classes of
shares. Returns for Class B and C shares for the period May 21, 1981 to May 31,
1994 are derived from the historical performance of Class A shares, adjusted to
reflect the operating expenses applicable to Class B and C shares, which may be
higher or lower than those of Class A shares. The performance figures are also
adjusted to reflect the maximum sales charge of 5.75% for Class A shares and the
maximum current contingent deferred sales charge of 4% for Class B shares and 1%
for Class C shares.

The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class A shares of the Fund as described above; they
do not guarantee future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.

KEMPER INTERNATIONAL FUND -- AS OF OCTOBER 31, 2000*

AVERAGE ANNUAL                           Class A        Class B         Class C
TOTAL RETURNS                             Shares        Shares           Shares
-------------                             ------        ------           ------

Life of Class(+)                            %              %               %
Ten Years                                   %              %               %
Five Years                                  %              %               %
One Year                                    %              %               %

(+) Since May 21, 1981 for Class A shares. Since May 31, 1994 for Class B and
Class C shares.

* Because Class B and C shares were not introduced until May 31, 1994, the total
return for Class B and C shares for the period prior to their introduction is
based upon the performance of Class A shares from the commencement of investment
operations, May 21, 1981 through May 31, 1994. Actual performance of Class B and
C shares is shown beginning May 31, 1994.

KEMPER GLOBAL DISCOVERY FUND


                                       60
<PAGE>

Performance figures for Class A, B and C shares for the period September 9, 1996
(Class A shares) and April 16, 1998 (Class B and C shares) to October 31, 2000
reflect the actual performance of these classes of shares. Returns for Class A,
B and C shares for the period September 9, 1996 to April 16, 1998 are derived
from the historical performance of Class S shares, adjusted to reflect the
operating expenses applicable to Class A, B and C shares, which may be higher or
lower than those of Class S shares. The performance figures are also adjusted to
reflect the maximum sales charge of 5.75% for Class A shares and the current
maximum contingent deferred sales charge of 4% for Class B shares and 1% for
Class C shares.

The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class A, B and C shares of the Fund as described
above; they do not guarantee future results. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.

       Average Annual Total Return for the periods ended October 31, 2000

                      One Year            Five Year             Life of Class*
Class A                   %                   %                       %
Class B                   %                   %                       %
Class C                   %                   %                       %

* Because Class A, B and C shares were not introduced until April 16, 1998, the
total return for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S shares from the
commencement of investment operations, September 9, 1996 through April 16, 1998.
Actual performance of Class B and C shares is shown beginning April 16, 1998.

KEMPER GLOBAL INCOME FUND

Performance figures for Class B and C shares of the Fund for the period May 31,
1994 to December 31, 2000 reflect the actual performance of these classes of
shares. Returns for Class B and C shares for the period October 1, 1989 to May
31, 1994 are derived from the historical performance of Class A shares, adjusted
to reflect the operating expenses applicable to Class B and C shares, which may
be higher or lower than those of Class A shares. The performance figures are
also adjusted to reflect the maximum sales charge of 5.75% for Class A shares
and the current maximum contingent deferred sales charge of 4% for Class B
shares and 1% for Class C shares.

The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class A shares of the Fund as described above; they
do not guarantee future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.

KEMPER GLOBAL INCOME FUND -- AS OF DECEMBER 31, 2000*

AVERAGE ANNUAL                         Class A          Class B         Class C
TOTAL RETURNS                           Shares           Shares          Shares
-------------                           ------           ------          ------

Life of Class(+)                        %                %               %
Ten Years                               %                %               %
FiveYears                               %                %               %
One Year                                %                %               %

(+) Since October 1, 1989 for Class A shares. Since May 31, 1994 for Class B and
Class C shares.


                                       61
<PAGE>

* Because Class B and C shares were not introduced until May 31, 1994, the total
return for Class B and C shares for the period prior to their introduction is
based upon the performance of Class A shares from the commencement of investment
operations, October 1, 1989 through May 31, 1994. Actual performance of Class B
and C shares is shown beginning May 31, 1994.

KEMPER INTERNATIONAL RESEARCH FUND

The Growth Fund of Spain, Inc. ("GSP") was reorganized as an open-end series of
the Corporation consisting of Class A, Class B, and Class C shares (the
"Reorganization"). GSP had only one class of shares, which were not subject to
Rule 12b-1 fees or sales charges; the shares of GSP outstanding as of December
11, 1998 were exchanged for Class A shares of the Fund, which class also has no
Rule 12b-1 fees but is subject to an administrative services fee. The
performance figures shown below reflect the performance of the Fund prior to the
Reorganization, restated in the case of standardized return, to reflect the
sales charge of the Fund's Class A shares. Different fees and expenses
applicable to each of the classes, including Rule 12b-1 fees applicable to the
Class B and C shares (shares of which did not exist as of the close of the
Fund's most recent fiscal year) and an administrative services fee applicable to
each class, will affect the performance of those classes.

For purposes of the performance computations for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment (for Class B
shares and Class C shares, the applicable CDSC imposed upon redemption of Class
B shares or Class C shares held for the period would be deducted). Standardized
Return quotations for the Fund do not take into account any applicable
redemption fees or required payments for federal or state income taxes.
Standardized Return quotations are determined to the nearest 1/100 of 1%.

The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Initial sales charges, CDSCs and redemption fees
are not taken into account in calculating Non-Standardized Return; a sales
charge or redemption fee, if deducted, would reduce the return.

The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A shares of the Fund based on performance
information of The Growth Fund of Spain, Inc. for the periods indicated. During
the periods covered by the tables, the Fund was subadvised by BSN Gestion. This
subadvisory relationship was discontinued in connection with the Reorganization.

On April 6, 2000, the Fund changed from Growth Fund of Spain, an open-end equity
fund that sought long-term capital appreciation by investing primarily in the
equity securities of Spanish companies, to its current strategy. The fund's
performance prior to that date would have been different had the current
strategy been in effect.

Performance figures for Class B and C shares of the Fund for the period May 31,
1994 to October 31, 2000 reflect the actual performance of this class of shares.
Returns for Class B and C shares for the period October 1, 1979 to May 31, 1994
are derived from the historical performance of Class A shares, adjusted to
reflect the operating expenses applicable to Class B and C shares, which may be
higher or lower than those of Class A shares. The performance figures are also
adjusted to reflect the maximum sales charge of 4.50% for Class A shares and the
current contingent deferred sales charge of 4% for Class B shares and 1% for
Class C shares.

The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and performance figures
of the Class A shares of the Fund, adjusted as described above; they do not
guarantee future results. Investment return and principal value will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.


                                       62
<PAGE>

        Average Annual Total Return for Period as of October 31, 2000(1)

                       One Year         Five Year       Life of Class

         Class A            %                 %               %(2)

         Class B            --                --               (3)

         Class C            --                --               (3)

----------
(1)     Reflects the deduction of the maximum initial sales charge of 5.75%, but
        does reflect any applicable redemption fees.

(2)     Since February 14, 1990 (The Growth Fund of Spain, Inc.).

(3)     Since December 14, 1998 (Growth Fund of Spain).

* Because Class A and C shares were not introduced until October 26, 1984 and
May 31, 1994, respectively, the total return for Class A and C shares for the
period prior to their introduction is based pon the performance of Class B
shares from the commencement of investment operations, October 26, 1984 through
May 31, 1994. Actual performance of Class A and C shares is shown beginning
January 10, 1992 and May 31, 1994, respectively.

KEMPER NEW EUROPE FUND

Performance figures for Class B and C shares of the Fund for the period May 31,
1994 to October 31, 1999 reflect the actual performance of this class of shares.
Returns for Class B and C shares for the period October 1, 1979 to May 31, 1994
are derived from the historical performance of Class A shares, adjusted to
reflect the operating expenses applicable to Class B and C shares, which may be
higher or lower than those of Class A shares. The performance figures are also
adjusted to reflect the maximum sales charge of 4.50% for Class A shares and the
current contingent deferred sales charge of 4% for Class B shares and 1% for
Class C shares.

The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and performance figures
of the Class A shares of the Fund, adjusted as described above; they do not
guarantee future results. Investment return and principal value will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.

KEMPER NEW EUROPE FUND - AS OF OCTOBER 31, 2000

 Average Annual Total Returns       Class A    Class B    Class C     Class M(1)
-----------------------------       -------    -------    -------    -----------

One Year                            %          %          %               %
Five Years                          %          %          %               %
Since Inception(3)                  %          %          %               %

----------
(1)   The one year average annual total return reflects the imposition of a 2%
      redemption fee.

(2)   The Morgan Stanley Capital International Europe Index is an unmanaged
      index that is generally representative of the equity securities of the
      European markets. Index returns assume reinvestment of dividends and
      unlike the Fund's returns, do not reflect any fees, expenses or sales
      charges.

(3)   Inception date for Class M Shares is February 16, 1990.


                                       63
<PAGE>

* Because Class B and C shares were not introduced until May 31, 1994, the total
return for Class B and C shares for the period prior to their introduction is
based upon the performance of Class A shares from the commencement of investment
operations, April 20, 1976 through May 31, 1994. Actual performance of Class B
and C shares is shown beginning May 31, 1994.

ASIAN FUND--NOVEMBER 30, 2000

                                      Fund       Fund       Fund
             AVERAGE ANNUAL          Class A    Class B    Class C
           TOTAL RETURN TABLE        Shares     Shares     Shares
           ------------------        ------     ------     ------

      Life of Class(+)                   %          %          %
      Three Year                         %          %          %
      One Year                           %          %          %

      (+) Since October 21, 1996 for all classes.

KEMPER GLOBAL BLUE CHIP FUND - AS OF OCTOBER 31, 2000

                                   Class A         Class B             Class C
               Fund                Shares           Shares              Shares

 Global Blue Chip Fund

 One Year                          9.60%           12.10%              15.19%

 Life of the Fund*                 9.32%           10.32%              11.92%

*     Since the Funds' commencement of operations on December 31, 1997.

Yield

Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield, sometimes referred to
as [the/a] Fund's "SEC yield," is calculated by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period according to the following formula:

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

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

SEC 30-day yield for the period ended ______FYE_______.


                                       64
<PAGE>

  _____________ Fund Class   ________%

(REPEAT FOR ADDITIONAL FUNDS AS NEEDED)

Quotations of a Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of that Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of that Fund's expenses. In periods
of declining interest rates a Fund's quoted yield will tend to be somewhat
higher than prevailing market rates, and in periods of rising interest rates
that Fund's quoted yield will tend to be somewhat lower.

[The/A] Fund's performance figures are based upon historical results and are not
representative of future performance. [The/Each] Fund's Class A shares are sold
at net asset value plus a maximum sales charge. While the maximum sales charge
is normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included. Class B shares and Class C shares are sold at net
asset value. Redemptions of Class B shares within the first six years after
purchase may be subject to a contingent deferred sales charge that ranges from
4% during the first year to 0% after six years. Redemption of Class C shares
within the first year after purchase may be subject to a 1% contingent deferred
sales charge. Average annual total return figures do, and total return figures
may, include the effect of the contingent deferred sales charge for the Class B
shares and Class C shares that may be imposed at the end of the period in
question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.

Additional information about [the/each] Fund's performance also appears in its
Annual Report to Shareholders, which is available without charge from the Fund.
If the Fund's fees or expenses are being waived or absorbed by the investment
Manager, the Fund may also advertise performance information before and after
the effect of the fee waiver or expense absorption.

Comparison of Fund Performance

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of [the/a] Fund with performance quoted with respect to other
investment companies or types of investments.

In connection with communicating performance to current or prospective
shareholders, the [Fund / Funds] also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs.

Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the [Fund/Funds]. Such
historical information is not indicative of future fluctuations in the value of
the U.S. dollar against these currencies. In addition, marketing materials may
cite country and economic statistics and historical stock market performance for
any of the countries in which [the/a] Fund invests.


                                       65
<PAGE>

From time to time, in advertising and marketing literature, [the/a] Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.

From time to time, in marketing and other Fund literature, members of the Board
and officers of [the/a] Fund, its Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.

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

Marketing and other Fund literature may include a description of the potential
risks and rewards associated with an investment in [the/a] Fund. The description
may include a "risk/return spectrum" which compares the Fund to other Scudder
funds or broad categories of funds, such as money market, bond or equity funds,
in terms of potential risks and returns. Money market funds are designed to
maintain a constant $1.00 share price and have a fluctuating yield. Share price,
yield and total return of a bond fund will fluctuate. The share price and return
of an equity fund also will fluctuate. The description may also compare the Fund
to bank products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S. government and
offer a fixed rate of return. 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.

Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risks/returns associated with an investment in bond or equity funds depend upon
many factors. For bond funds these factors include, but are not limited to, a
fund's overall investment objective, the average portfolio maturity, credit
quality of the securities held, and interest rate movements. For equity funds,
factors include a fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns associated with an investment in international bond or equity
funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return than growth funds. In
addition, international equity funds usually are considered more risky than
domestic equity funds but generally offer the potential for greater return.

Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning [the/a] Fund,
including reprints of, or selections from, editorials or articles about [the/a]
Fund.


                                       66
<PAGE>

                                FUND ORGANIZATION

The Growth Fund of Spain, Inc. ("GSP"), a predecessor of Kemper International
Research Fund, commenced investment operations in 1990 as a closed-end
management investment company organized as a Maryland corporation. At a meeting
of the shareholders of GSP held October 28, 1998, the shareholders voted to
approve the conversion of the Fund to an open-end investment company and the
reorganization of GSP as a new series of the Corporation. Pursuant to the
reorganization agreement between GSP and the Corporation, GSP transferred all of
its assets to the Fund in exchange for Class A shares of the Fund and the
assumption by the Fund of the liabilities of GSP on December 11, 1998. GSP then
distributed the Class A shares of the Fund received in the reorganization to its
shareholders. On April 6, 2000, GSP changed its name to Kemper International
Research Fund and changed its investment strategy. The Corporation may issue a
series or 600,000,000 shares of capital stock, all having $.001 par value, which
may be divided by the Board of Directors into classes of shares. 100,000,000
shares have been classified for each of the Corporation's six series. Currently,
each series offers three classes of shares. These are Class A, Class B and Class
C shares.

The Asian Fund was organized as a business trust under the laws of Massachusetts
on June 12, 1995. The Global Income Fund was organized as a business trust under
the laws of Massachusetts on August 3, 1988. The International Fund was
organized as a business trust under the laws of Massachusetts on October 24,
1985 and, effective January 31, 1986, that Fund pursuant to a reorganization
succeeded to the assets and liabilities of Kemper International Fund, Inc., a
Maryland corporation organized in 1980. The Asian Fund and the Global Income
Fund each may in the future seek to achieve its investment objective by pooling
its assets with assets of other mutual funds for investment in another
investment company having the same investment objective and substantially the
same investment policies and restrictions as such Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to reduce costs.
It is expected that any such investment company will be managed by the
Investment Manager in substantially the same manner as the corresponding Fund.
Currently, each Fund offers four classes of shares of a single Portfolio. These
are Class A, Class B and Class C shares, as well as Class I shares.

Kemper Global Blue Chip Fund is a series of the Corporation, an open-end
management investment company registered under the 1940 Act. The Corporation was
organized as a corporation under the laws of Maryland on October 2, 1997. The
Corporation may issue an indefinite amount of shares of capital stock, all
having $.001 par value, which may be divided by the Board of Directors into
classes of shares. Initially, 100,000,000 shares were classified for each, at
that time, of the Corporation's five series. Currently, each Fund offers three
classes of shares. These are Class A, Class B and Class C shares.

Global Discovery Fund is a separate series of Global/International Fund, Inc., a
Maryland corporation organized on May 15, 1986. The name of the Corporation was
changed from Scudder Global Fund, Inc. on May 28, 1998. The name of the Fund was
changed, effective April 16, 1998, from Scudder Global Discovery Fund to Global
Discovery Fund. The Corporation's shares are currently divided into five series:
Global Discovery Fund, Scudder Global Fund, Scudder Emerging Markets Income
Fund, Scudder Global Bond Fund and Scudder International Bond Fund. The Fund's
shares are currently divided into four classes: the Scudder Shares, and Kemper
Global Discovery Fund Class A, B and C shares.

Kemper New Europe Fund was organized as a Maryland corporation on November 22,
1989. The Fund began operations on February 9, 1990 as a closed-end management
investment company. On July 20, 1999, the Fund's shareholders approved the
conversion of the Fund to an open-end investment company. As a result of the
conversion and the reorganization with Kemper Europe Fund, the Fund changed its
name to "Kemper New Europe Fund, Inc." and issued newly designated Class A,
Class B and Class C shares to the shareholders of Kemper Europe Fund and Class M
shares to its existing shareholders. Class M shares will automatically convert
to Class A shares on September 3, 2000. Currently, the Fund offers three classes
of shares. These are Class A, Class B and Class C shares, which have different
expenses, which may affect performance. Class M shares of the Fund are no longer
offered.


                                       67
<PAGE>

The Board may authorize the issuance of additional classes and additional series
if deemed desirable, each with its own investment objectives, policies and
restrictions. Although shareholders of different classes of a Fund have interest
in the same portfolio of assets, shareholders of different classes may bear
different expenses in connection with different methods of distribution. Since
the [Trust/Corporation] may offer multiple Funds, each is known as a "series
company."

Shares of a Fund have equal noncumulative voting rights [FOR FUNDS OFFERING
CLASSES WITH Rule 12b-1 Plans: except that Class B and Class C shares have
separate and exclusive voting rights with respect to each such class' Rule 12b-1
Plan.] Shares of each class also have equal rights with respect to dividends,
assets and liquidation of such Fund subject to any preferences (such as
resulting from different Rule 12b-1 distribution fees), rights or privileges of
any classes of shares of the Fund. Shares of each Fund are fully paid and
nonassessable when issued, are transferable without restriction, have no
preemptive or conversion rights and are redeemable as described in this
Statement of Additional Information and in the prospectus. Each Fund's
activities are supervised by the [Trust's/Corporation's} Board of
[Trustees/Directors]. The [Trust/Corporation] is not required to hold and has no
current intention of holding annual shareholder meetings, although special
meetings may be called for purposes such as electing or removing
[Trustees/Directors], changing fundamental investment policies or approving an
investment management contract.

Shareholders will be assisted in communicating with other shareholders in
connection with removing a Director as if Section 16(c) of the 1940 Act were
applicable.

In the event of the liquidation or dissolution of the [Trust/Corporation],
shares of a Fund are entitled to receive the assets attributable to that Fund
that are available for distribution, and a proportionate distribution, based
upon the relative net assets of the Funds, of any general assets not
attributable to a Fund that are available for distribution.

Master/feeder structure

The Board has the discretion to retain the current distribution arrangement for
each Fund while investing in a master fund in a master/feeder structure fund as
described below.

A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.

                               INVESTMENT MANAGER

Zurich Scudder Investments, Inc. (the "Investment Manager"), 345 Park Avenue,
New York, NY, an investment counsel firm, acts as investment adviser to the
[Fund / Funds]. This organization, the predecessor of which is Scudder, Stevens
& Clark, Inc., is one of the most experienced investment counsel firms in the U.
S. It was established as a partnership in 1919 and pioneered the practice of
providing investment counsel to individual clients on a fee basis. In 1928 it
introduced the first no-load mutual fund to the public. In 1953 the Investment
Manager introduced Scudder International Fund, Inc., the first mutual fund
available in the U.S. investing internationally in securities of issuers in
several foreign countries. The predecessor firm reorganized from a


                                       68
<PAGE>

partnership to a corporation on June 28, 1985. On December 31, 1997, Zurich
Insurance Company ("Zurich") acquired a majority interest in the Investment
Manager, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of the Investment Manager. The Investment Manager's name changed to Scudder
Kemper Investments, Inc. On September 7, 1998, the businesses of 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. On October
17, 2000, the dual-headed holding company structure of Zurich Financial Services
Group, comprised of Allied Zurich p.l.c. in the United Kingdom and Zurich Allied
in Switzerland, was unified into a single Swiss holding company, Zurich
Financial Services. On January 1, 2001, the Investment Manager's name changed to
Zurich Scudder Investments, Inc.

Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.

The principal source of the Investment Manager's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over [XX] open and
closed-end mutual funds.

The Investment Manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Investment Manager receives
published reports and statistical compilations from issuers and other sources,
as well as analyses from brokers and dealers who may execute portfolio
transactions for the Investment Manager's clients. However, the Investment
Manager regards this information and material as an adjunct to its own research
activities. The Investment Manager's international investment management team
travels the world, researching hundreds of companies. In selecting the
securities in which the [Fund / Funds] may invest, the conclusions and
investment decisions of the Investment Manager with respect to the Funds are
based primarily on the analyses of its own research department.

Certain investments may be appropriate for a fund and also for other clients
advised by the Investment Manager. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Investment Manager to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by a fund. Purchase and sale orders for a fund may be combined
with those of other clients of the Investment Manager in the interest of
achieving the most favorable net results to that fund.

In certain cases, the investments for [the / a] fund are managed by the same
individuals who manage one or more other mutual funds advised by the Investment
Manager, that have similar names, objectives and investment styles. You should
be aware that the [Fund is / Funds are] likely to differ from these other mutual
funds in size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the [Fund / Funds]can be expected to vary from those of these
other mutual funds.


                                       69
<PAGE>

[INSERT FUND SPECIFIC INVESTMENT MANAGEMENT AGREEMENT LANGUAGE HERE]

The present investment management agreements [(the "Agreements") were / (the
"Agreement") was] approved by the [Directors / Trustees] on [August 10, 1998],
became effective [September 7, 1998], and [was / were] approved at a shareholder
meeting held on [December 15, 1998]. The [Agreement / Agreements] will continue
in effect [(Note: Agreements not always approved by shareholder meeting.) until
September 30, 1999 and from year to year thereafter] only if [their / its]
continuance is approved annually by the vote of a majority of those [Directors /
Trustees] who are not parties to such [Agreement / Agreements] or interested
persons of the Investment Manager or the [Trust / Corporation], cast in person
at a meeting called for the purpose of voting on such approval, and either by a
vote of the [Corporation's Directors / Trust's Trustees] or of a majority of the
outstanding voting securities of the [respective] Fund. The [Agreement /
Agreements] may be terminated at any time without payment of penalty by either
party on sixty days' written notice and automatically terminate in the event of
[its / their] assignment.

The Manager may serve as adviser to other funds with investment objectives and
policies similar to those of the Funds that may have different distribution
arrangements or expenses, which may affect performance.

Fund Sub-Adviser. Scudder Investments U.K., Limited ("Scudder UK"), 1 South
Place, London, U.K. EC42M 2ZS, an affiliate of the Investment Manager, is the
sub-adviser for the Global Income and International Funds. Scudder UK acts as
sub-adviser pursuant to the terms of the sub-advisory agreement between it and
the Investment Manager for each Fund. Scudder UK is subject to regulations by
the Investment Management Regulatory Organization (IMRO) in England as well as
the U.S. Securities and Exchange Commission.

Under the terms of the sub-advisory agreement for a Fund, Scudder UK renders
investment advisory and management services with regard to that portion of the
Fund's portfolio as may be allocated to Scudder UK by the Investment Manager
from time to time for management, including services related to foreign
securities, foreign currency transactions and related investments. Scudder UK
may, under the terms of each sub-advisory agreement, render similar services to
others including other investment companies. For its services, Scudder UK will
receive from the Investment Manager a monthly fee at the annual rate of 0.30%
for the Global Income Fund and 0.35% for the International Funds of the portion
of the average daily net assets of each Fund allocated by the Investment Manager
to Scudder UK for management. Scudder UK permits any of its officers or
employees to serve without compensation as trustees or officers of the Fund if
elected to such positions.

Each sub-advisory agreement provides that Scudder UK will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the sub-advisory agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Scudder UK in the performance of its duties or from reckless disregard
by Scudder UK of its obligations and duties under the sub-advisory agreement.

Each sub-advisory agreement continues in effect from year to year so long as its
continuation is approved at least annually by a majority of the trustees who are
not parties to such agreement or interested persons of any such party except in
their capacity as trustees of the Fund and by the shareholders of the Fund
subject thereto or the Board of Trustees. Each sub-advisory agreement may be
terminated at any time for a Fund upon 60 days notice by the Investment Manger,
Scudder UK or the Board of Trustees, or by a majority vote of the outstanding
shares of the Fund subject thereto, and will terminate automatically upon
assignment or upon the termination of the Fund's investment management
agreement. If additional Funds become subject to a sub-advisory agreement, the
provisions concerning continuation, amendment and termination shall be on a
Fund-by-Fund basis. Additional Funds may be subject to a different agreement. No
sub-advisory fees were paid by the Investment Manager to Scudder UK for periods
prior to the 1997 fiscal year, although in such periods the Investment Manager
has paid Scudder UK for its services to the Investment Manager with respect to
foreign securities investments of the Funds.


                                       70
<PAGE>

The sub-advisory fees paid by each Fund for its last three fiscal years are
shown below.

Fund                          Fiscal 2000       Fiscal 1999      Fiscal 1998
----                          -----------       -----------      -----------


Code of Ethics

The Funds, the Investment Manager and principal underwriter have each adopted
codes of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Funds and employees of the Investment Manager and principal
underwriter are permitted to make personal securities transactions, including
transactions in securities that may be purchased or held by the Funds, subject
to requirements and restrictions set forth in the applicable Code of Ethics. The
Investment Manager's Code of Ethics contains provisions and requirements
designed to identify and address certain conflicts of interest between personal
investment activities and the interests of the Funds. Among other things, the
Investment Manager's Code of Ethics prohibits certain types of transactions
absent prior approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and quarterly reporting of securities transactions.
Additional restrictions apply to portfolio managers, traders, research analysts
and others involved in the investment advisory process. Exceptions to these and
other provisions of the Investment Manager's Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

Administrative Services. Administrative services are provided to [each/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 [a/the] Fund, including the payment of
service fees. For the services under the administrative agreement, [each/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 each class 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 [a/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 [a/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 of [INSERT SPECIFIC RATE AND
DETAILS].

Administrative services fees paid by [each/the] Fund are set forth below:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                  Administrative Service Fees Paid by Fund
                                  ----------------------------------------
-------------------------------------------------------------------------------------------------------------------
                                                                          Total Service Fees   Service Fees Paid by
                               Fiscal                                           Paid by             KDI to KDI
Fund                            Year    Class A     Class B     Class C      KDI to Firms        Affiliated Firms
----                            ----    -------     -------     -------      ------------        ----------------
-------------------------------------------------------------------------------------------------------------------
<S>                            <C>      <C>         <C>         <C>       <C>                  <C>
Kemper Asian Growth Fund       2000
-------------------------------------------------------------------------------------------------------------------
                               1999
-------------------------------------------------------------------------------------------------------------------
                               1998
-------------------------------------------------------------------------------------------------------------------
Kemper Global Blue Chip Fund   2000
-------------------------------------------------------------------------------------------------------------------
                               1999
-------------------------------------------------------------------------------------------------------------------
                               1998
-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       71
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                  Administrative Service Fees Paid by Fund
                                  ----------------------------------------
-------------------------------------------------------------------------------------------------------------------
                                                                          Total Service Fees   Service Fees Paid by
                               Fiscal                                           Paid by             KDI to KDI
Fund                            Year    Class A     Class B     Class C      KDI to Firms        Affiliated Firms
----                            ----    -------     -------     -------      ------------        ----------------
-------------------------------------------------------------------------------------------------------------------
<S>                            <C>      <C>         <C>         <C>       <C>                  <C>
Kemper Global Discovery Fund   2000
-------------------------------------------------------------------------------------------------------------------
                               1999
-------------------------------------------------------------------------------------------------------------------
                               1998
-------------------------------------------------------------------------------------------------------------------
Kemper Global Income Fund      2000
-------------------------------------------------------------------------------------------------------------------
                               1999
-------------------------------------------------------------------------------------------------------------------
                               1998
-------------------------------------------------------------------------------------------------------------------
Kemper International Fund      2000
-------------------------------------------------------------------------------------------------------------------
                               1999
-------------------------------------------------------------------------------------------------------------------
                               1998
-------------------------------------------------------------------------------------------------------------------
Kemper International Research
Fund                           2000
-------------------------------------------------------------------------------------------------------------------
                               1999
-------------------------------------------------------------------------------------------------------------------
                               1998
-------------------------------------------------------------------------------------------------------------------
Kemper New Europe Fund         2000
-------------------------------------------------------------------------------------------------------------------
                               1999
-------------------------------------------------------------------------------------------------------------------
                               1998
-------------------------------------------------------------------------------------------------------------------
</TABLE>

[ADD FOOTNOTES FOR SHORTER PERIODS, EXPENSE REIMBURSEMENT & ETC.]

KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for [a/the] Fund. The
administrative services fee payable to KDI [INSERT SPECIFIC RATE AND DETAILS].

The effective administrative services fee rate to be charged against all assets
of [a/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
acquired prior to October 1, 1993, the date when shares representing such assets
were purchased. The Board of a Fund, in its discretion, may approve paying the
fee to KDI at [INSERT SPECIFIC RATE AND DETAILS].

Certain trustees or officers of the Funds are also directors or officers of the
Investment Manager or KDI as indicated under "Officers and Trustees."

[Confirm Custodian, Auditor and Legal Counsel for each fund:

Custodian, Transfer Agent And Shareholder Service Agent. [State Street Bank and
Trust Company ("SSB"), 225 Franklin Street, Boston, Massachusetts 02110], as
custodian, has custody of all securities and cash of [each/the] Fund. It attends
to the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by [each/the] Fund.


                                       72
<PAGE>

SSB is also [each/the] Fund's transfer agent and dividend-paying agent. Pursuant
to a services agreement with SSB, Kemper Service Company ("KSvC"), an affiliate
of the Investment Manager, serves as "Shareholder Service Agent" of [each/the]
Fund and, as such, performs all of SSB's duties as transfer agent and dividend
paying agent. SSB receives as transfer agent, and pays to KSvC as follows:
[INSERT SPECIFIC RATE AND DETAILS].

          -------------------------------------------------------------------
          Fund                              Fees SSB Paid to KSvC
          -------------------------------------------------------------------
          Kemper Asian Growth
          Fund
          -------------------------------------------------------------------
          Kemper Global Blue
          Chip Fund
          -------------------------------------------------------------------
          Kemper Global
          Discovery Fund
          -------------------------------------------------------------------
          Kemper Global Income
          Fund
          -------------------------------------------------------------------
          Kemper International
          Fund
          -------------------------------------------------------------------
          Kemper International
          Research Fund
          -------------------------------------------------------------------
          Kemper New Europe Fund
          -------------------------------------------------------------------

[ADD FOOTNOTES FOR SHORTER PERIODS, EXPENSE REIMBURSEMENT & ETC.]

Independent Auditors And Reports To Shareholders. The [Funds'/Fund's]
independent auditors, [Ernst & Young LLP, 233 South Wacker Drive, Chicago,
Illinois 60606], audit and report on the [Funds'/Fund's] annual financial
statements, review certain regulatory reports and the [Funds'/Fund's] federal
income tax returns, and perform other professional accounting, auditing, tax and
advisory services when engaged to do so by the [Funds/Fund]. Shareholders will
receive annual audited financial statements and semi-annual unaudited financial
statements.

Legal Counsel. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601], serves as legal counsel to the Funds .

[Trustees/Directors] and Officers

The officers and trustees of Kemper Asian Growth Fund, Kemper Global Blue Chip
Fund, Kemper Global Income Fund and Kemper International Fund, their birth
dates, their principal occupations and their affiliations, if any, with the
Investment Manager, Scudder UK, the sub-adviser of the Global and International
Funds, and KDI, principal underwriter, are listed below. All persons named as
trustees also serve in similar capacities for other funds advised by the
Investment Manager.

Trustees --

JOHN W. BALLANTINE (2/16/46), Trustee, 1500 North Lake Shore Drive, Chicago,
Illinois; First Chicago NBD Corporation/The First National Bank of Chicago:
1996-1998 Executive Vice President and Chief Risk Management Officer; 1995-1996
Executive Vice President and Head of International Banking; 1992-1995 Executive
Vice President, Chief Credit and Market Risk Officer.

LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.


                                       73
<PAGE>

LINDA C. COUGHLIN (1/1/52), Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Zurich Scudder Investments, Inc.

DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Blvd., Naples, Florida;
Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).

ROBERT B. HOFFMAN (12/11/36), Trustee, 1530 North State Parkway, Chicago,
Illinois; Chairman, Harnischfeger Industries, Inc. (machinery for the mining and
paper industries); formerly, Vice Chairman and Chief Financial Officer, Monsanto
Company (agricultural, pharmaceutical and nutritional/food products); formerly,
Vice President, Head of International Operations, FMC Corporation (manufacturer
of machinery and chemicals).

DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.

THOMAS W. LITTAUER (4/26/55), Trustee and Vice President*, Two International
Place, Boston, Massachusetts; Managing Director, Zurich Scudder Investments;
formerly, Head of Broker Dealer Division of an unaffiliated investment
management firm during 1997; prior thereto, President of Client Management
Services of an unaffiliated investment management firm from 1991 to 1996.

SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, Partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General, U.S. Department of Justice; Director, Bethlehem Steel Corp.

WILLIAM P. SOMMERS (7/22/33), Trustee, 24717 Harbour View Drive, Ponte Vedra
Beach, Florida; Consultant and Director, SRI International (research and
development); prior thereto, President and Chief Executive Officer, SRI
International; prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) ; Director, PSI Inc., Evergreen Solar, Inc., and Litton Industries.

Officers -- All Funds

MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Zurich Scudder Investments.

PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, Zurich Scudder Investments.

THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Zurich Scudder Investments.

ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Zurich Scudder Investments.

KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Zurich Scudder Investments.

LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Zurich Scudder Investments.


                                       74
<PAGE>

JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Zurich Scudder Investments.

BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Zurich Scudder Investments.

CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Zurich Scudder Investments.

MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Zurich Scudder Investments.

Additional Officers for Global Income Fund only:

ROBERT C. PECK, JR. (10/1/46), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Zurich Scudder Investments; formerly,
Executive Vice President and Chief Investment Officer with an unaffiliated
investment management firm from 1988 to June 1997.

JAN C. FALLER (8/18/66), Vice President*, Two International Place, Boston,
Massachusetts; Vice President, Zurich Scudder Investments.

Additional Officers for Asian Fund only:

THERESA GUSMAN (2/29/60), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Zurich Scudder Investments.

TIEN YU SIEH (9/26/69), Senior Vice President*, 345 Park Avenue, New York, New
York, Senior Vice President, Zurich Scudder Investments.

WILLIAM T. TRUSCOTT (9/14/60), Vice President*, 345 Park Avenue, New York, New
York, Managing Director, Zurich Scudder Investments.

Additional Officers for International Fund only:

IRENE CHENG (6/6/54),Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Zurich Scudder Investments.

WILLIAM T. TRUSCOTT (9/14/60), Vice President*, 345 Park Avenue, New York, New
York, Managing Director, Zurich Scudder Investments.

* Interested persons of the Fund as defined in the Investment Company Act of
1940.

    The trustees and officers who are "interested persons" as designated above
    receive no compensation from the Funds. The tables below shows amounts paid
    or accrued to those trustees who are not designated "interested persons"
    during each Fund's 1999 fiscal year except that the information in the last
    column is for calendar year 1999.


                                       75
<PAGE>

Trustees -- Asian, Global and International Funds

<TABLE>
<CAPTION>
                                                                                         Total Compensation
                                                                                           From Funds and
                                            Aggregate Compensation From Funds           Kemper Fund Complex

Name of Trustee                    Fund Name                                             Paid To Trustees**
---------------                    ---------                                             ------------------

<S>                                    <C>                                                         <C>
John W. Ballantine                     $                                                           $
Lewis A. Burnham                       $                                                           $
Donald L. Dunaway*                     $                                                           $
Robert B. Hoffman                      $                                                           $
Donald R. Jones                        $                                                           $
Shirley D. Peterson                    $                                                           $
William P. Sommers                     $                                                           $
</TABLE>

*     Pursuant to deferred compensation agreements with certain Kemper funds,
      deferred amounts accrue interest monthly at a rate equal to the yield of
      Zurich Money Funds -- Zurich Money Market Fund. Total deferred fees
      (including interest thereon) payable from Asian, Global and International
      Funds, respectively are $0, $14,400 and $17,000 to Mr. Dunaway for each
      Fund's most recent fiscal year.

**    Includes compensation for service on the boards of 26 Kemper funds with 48
      fund portfolios. Each trustee currently serves as a trustee of 26 Kemper
      Funds with 45 fund portfolios.

      As of January 29, 2000, the trustees and officers as a group owned less
      than 1% of the then outstanding shares of each Fund and no person owned of
      record more than 5% of the outstanding shares of any class of either Fund,
      except as shown below:

                            Kemper Asian Growth Fund

--------------------------------------------------------------------------------
NAME                      CLASS                         PERCENTAGE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                          Kemper Global Blue Chip Fund

--------------------------------------------------------------------------------
NAME                      CLASS                         PERCENTAGE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                          Kemper Global Discovery Fund

--------------------------------------------------------------------------------
NAME                      CLASS                         PERCENTAGE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                            Kemper Global Income Fund

--------------------------------------------------------------------------------
NAME                      CLASS                         PERCENTAGE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                            Kemper International Fund

--------------------------------------------------------------------------------
NAME                      CLASS                         PERCENTAGE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------


                                       76
<PAGE>

                       Kemper International Research Fund

--------------------------------------------------------------------------------
NAME                      CLASS                         PERCENTAGE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                             Kemper New Europe Fund

--------------------------------------------------------------------------------
NAME                      CLASS                         PERCENTAGE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Officers And Directors

The officers and directors of Kemper International Research Fund, their birth
dates, their principal occupations and their affiliations, if any, with the
Investment Manager, and KDI, the principal underwriter, are listed below. All
persons named as directors also serve in similar capacities for other funds
advised by the Investment Manager:

MARK S. CASADY (9/21/60)* President, Two International Place, Boston,
Massachusetts, Managing Director, Investment Manager; formerly, Institutional
Sales Manager of an unaffiliated mutual fund distributor.

JAMES E. AKINS (10/15/26) Director (15), 2904 Garfield Terrace, N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer, Energy Investment
Manager for the White House and United States Ambassador to Saudi Arabia,
1973-76.

JAMES R. EDGAR (07/22/46) Director, 1927 County Road, 150E, Seymour, Illinois;
Distinguished Fellow, Institute of Government and Public Affairs, University of
Illinois; Director, Kemper Insurance Companies; formerly, Governor of the State
of Illinois, 1991-1999.

ARTHUR R. GOTTSCHALK (2/13/25) Director (15), 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelly Corp; formerly, attorney.

FREDERICK T. KELSEY (4/25/27) Director (15), 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Northern Institutional Funds,
formerly, Trustee of the Pilot Funds.

THOMAS W. LITTAUER (4/26/55)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Zurich Scudder Investments, Inc.

FRED B. RENWICK (2/1/30) Director (15), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartburg Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly member of the Investment Committee
of Atlanta University Board of Trustees; formerly Director of Board of Pensions,
Evangelical Lutheran Church of America.

KATHRYN L. QUIRK (12/3/52)*, Director and Vice President, 345 Park Avenue, New
York, New York; Managing Director, Investment Manager

JOHN G. WEITHERS (8/8/33) Director (15), 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University.


                                       77
<PAGE>

PHILIP J. COLLORA (11/15/45)* Vice President and Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President and Assistant Secretary,
Investment Manager.

JOYCE E. CORNELL (3/26/44)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Zurich Scudder Investments, Inc.

DIEGO ESPINOSA (6/30/62)* Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Zurich Scudder Investments, Inc.

JOAN R. GREGORY (8/4/45)* Vice President, 345 Park Avenue, New York, New York;
Vice President, Zurich Scudder Investments, Inc.

TARA C. KENNEY (10/7/60)* Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Zurich Scudder Investments, Inc.

ANN M. McCREARY (11/6/56)* Vice President, 345 Park Avenue, New York, New York;
Managing Director, Zurich Scudder Investments, Inc.

SHERIDAN P. REILLY (2/27/52)* Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Zurich Scudder Investments, Inc.

M. ISABEL SALTZMAN (12/22/54)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Zurich Scudder Investments, Inc.

WILLIAM F. TRUSCOTT (9/14/60)* Vice President, 345 Park Avenue, New York, New
York; Managing Director, Zurich Scudder Investments, Inc.

LINDA J. WONDRACK (9/12/64)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Zurich Scudder Investments, Inc.

JOHN R. HEBBLE (6/27/58)*, Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Investment Manager.

BRENDA LYONS (2/21/63)*, Assistant Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Investment Manager.

MAUREEN E. KANE (2/14/62)*, Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Investment Manager; formerly, Assistant
Vice President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).

CAROLINE PEARSON (4/1/62)*, Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Investment Manager; formerly,
Associate, Dechert Price & Rhoads

* Interested persons of the Corporation as defined in the 1940 Act.

Compensation of Officers and Directors

The Directors and Officers who are "interested persons" as designated above
receive no compensation from the Funds. The table below shows amounts paid or
accrued to those Directors who are not designated "interested persons" by the
Corporation, during the 1999 fiscal year.


                                       78
<PAGE>

<TABLE>
<CAPTION>
                                                         Aggregate
                                                        Compensation
                                                   From all Funds in the
                                                       Kemper Global/                                         Total
                                                   International Series,                                  Compensation
                                                           Inc.,                                        From Kemper Fund
                                                         Except for        Total Compensation from       Complex Paid to
              Name of Board Member                 International Research   International Research      Board Members(1)
              --------------------                 ----------------------   ----------------------      ----------------

<S>                                                               <C>                      <C>                       <C>
James E. Akins..............................                      $                        $                         $
James R. Edgar(2) ..........................                      $                        $                         $
Arthur R. Gottschalk (3)....................                      $                        $                         $
Frederick T. Kelsey.........................                      $                        $                         $
Fred B. Renwick.............................                      $                        $                         $
John G. Weithers............................                      $                        $                         $
</TABLE>

(1)   Includes compensation for service on the boards of xx Kemper funds with xx
      portfolios. Each board member currently serves as a board member of xx
      Kemper Funds with xx fund portfolios.

(2)   Appointed as director on May 27, 1999

(3)   Includes deferred fees. Pursuant to deferred compensation agreements with
      certain Kemper funds. deferred amounts accrue interest monthly at a rate
      approximate to the yield of Zurich Money Funds -- Zurich Money Market
      Fund. Total deferred amounts and interest accrued for the latest fiscal
      year for Growth Fund of Spain amounted to $25,000 for Mr. Gottschalk.

The officers and directors of Global Discovery Fund, their birth dates, their
principal occupations and their affiliations, if any, with the Investment
Manager, and the principal underwriter, are listed below. All persons named as
directors also serve in similar capacities for other funds advised by the
Investment Manager:

<TABLE>
<CAPTION>
                                                                                                  Position with
                                                                                                  Underwriter,
                                                                                                  Scudder Investor
Name, Age, and Address            Position with Fund         Principal Occupation**               Services, Inc.
----------------------            ------------------         --------------------                 --------------

<S>                               <C>                        <C>                                  <C>
Henry P. Becton, Jr. (56)         [Trustee/Director]         President, WGBH Educational                    --
WGBH                                                         Foundation
125 Western Avenue
Allston, MA 02134

Linda C. Coughlin (48)+*          [Trustee/Director]         Managing Director of Scudder         Senior Vice President
                                                             Kemper Investments, Inc.

Dawn-Marie Driscoll (53)          [Trustee/Director]         Executive Fellow, Center for                   --
4909 SW 9th Place                                            Business Ethics, Bentley College;
Cape Coral, FL  33914                                        President, Driscoll Associates

Edgar R. Fiedler (70)             [Trustee/Director]         Senior Fellow and Economic                     --
50023 Brogden                                                Counselor, The Conference Board,
Chapel Hill, NC                                              Inc.

Keith R. Fox (45)                 [Trustee/Director]         Private Equity Investor,                       --
10 East 53rd Street                                          President, Exeter Capital
New York, NY  10022                                          Management Corporation
</TABLE>


                                       79
<PAGE>

<TABLE>
<CAPTION>
                                                                                                  Position with
                                                                                                  Underwriter,
                                                                                                  Scudder Investor
Name, Age, and Address            Position with Fund         Principal Occupation**               Services, Inc.
----------------------            ------------------         --------------------                 --------------

<S>                               <C>                        <C>                                  <C>
Joan E. Spero (55)                [Trustee/Director]         President, Doris Duke Charitable               --
Doris Duke Charitable Foundation                             Foundation; Department of State -
650 Fifth Avenue                                             Undersecretary of State for
New York, NY  10128                                          Economic, Business and
                                                             Agricultural Affairs (March 1993
                                                             to January 1997)

Jean Gleason Stromberg (56)       [Trustee/Director]         Consultant; Director, Financial                --
3816 Military Road, NW                                       Institutions Issues, U.S. General
Washington, D.C.                                             Accounting Office (1996-1997);
                                                             Partner, Fulbright & Jaworski Law
                                                             Firm (1978-1996)

Jean C. Tempel (56)               [Trustee/Director]         Managing  Director, First Light                --
One Boston Place 23rd Floor                                  Capital (venture capital firm)
Boston, MA 02108

Steven Zaleznick (45)*            [Trustee/Director]         President and CEO, AARP Services,              --
601 E Street                                                 Inc.
Washington, D.C. 20004

Ann M. McCreary (43) ++           Vice President             Managing Director of Scudder                   --
                                                             Kemper Investments, Inc.

John R. Hebble (42)+              Treasurer                  Senior Vice President of Scudder     Assistant Treasurer
                                                             Kemper Investments, Inc.

Caroline Pearson (38)+            Assistant Secretary        Senior Vice President of Scudder     Clerk
                                                             Kemper Investments, Inc.;
                                                             Associate, Dechert Price & Rhoads
                                                             (law firm) 1989 - 1997

John Millette (37)+               Vice President and         Vice President of Scudder Kemper               --
                                  Secretary                  Investments, Inc.
</TABLE>

[OTHER OFFICERS ON A PER-FUND BASIS]

*     Ms. Coughlin and Mr. Zaleznick are considered by the [Funds/Fund] and
      [their/its] counsel to be persons who are "interested persons" of the
      Adviser or of the [Trust/Corporation], within the meaning of the
      Investment Company Act of 1940, as amended.

**    Unless otherwise stated, all of the [Trustee/Director] and officers have
      been associated with their respective companies for more than five years,
      but not necessarily in the same capacity.

+     Address: Two International Place, Boston, Massachusetts

++    Address: 345 Park Avenue, New York, New York

The [Trustee/Director] and officers of the [Funds/Fund] also serve in similar
capacities with other Scudder Funds.


                                       80
<PAGE>

As of _______________, all [Trustee/Director] and officers of the [Funds/Fund]
as a group owned beneficially (as that term is defined is section 13(d) of the
Securities Exchange Act of 1934) less than 1% of [each/the] Fund.

The officers and directors of Kemper New Europe Fund, their birthdates, their
principal occupations, addresses, and their affiliations, if any, with the
Adviser and KDI are listed below. All persons named as directors also serve in
similar capacities for other funds managed by the Adviser.

James E. Akins (10/15/26), Director, 2904 Garfield Terrace N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly, a
career United States Foreign Service Officer; Energy Adviser for the White
House; United States Ambassador to Saudi Arabia, 1973-1976.

James R. Edgar (07/22/46) Director, 1927 County Road, 150E, Seymour, Illinois;
Distinguished Fellow, Institute of Government and Public Affairs, University of
Illinois; Director, Kemper Insurance Companies; formerly, Governor of the State
of Illinois, 1991- 1999.

Arthur R. Gottschalk (2/13/25), Director, 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelley Corp.; formerly, attorney.

Frederick T. Kelsey (4/25/27), Director, 738 York Court, Northbrook, Illinois;
Retired; formerly, consultant to Goldman, Sachs & Co.; formerly, President,
Treasurer and Trustee of Institutional Liquid Assets and its affiliated mutual
funds; Trustee of the Northern Institutional Funds; formerly, Trustee of the
Pilot Funds.

*Thomas W. Littauer (4/26/55), Director and Vice President, Two International
Place, Boston, Massachusetts; Managing Director, Scudder Kemper; formerly, Head
of Broker Dealer Division of an unaffiliated investment management firm during
1997; prior thereto, President of Client Management Services of an unaffiliated
investment management firm from 1991 to 1996.

Fred B. Renwick (2/1/30), Director, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Warburg Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church in America.

John G. Weithers (8/8/33), Director, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.

Officers

*Mark S. Casady (9/21/60), President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.

*Philip J. Collora (11/15/45), Vice President and Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper.

*Carol L. Franklin (12/3/52), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper

*Ann M. McCreary (11/6/56), Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.


                                       81
<PAGE>

*Kathryn L. Quirk (12/3/52), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.

*Linda J. Wondrack (9/12/64), Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.

*John R. Hebble (6/27/58), Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.

*Brenda Lyons (2/21/63), Assistant Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.

*William F. Truscott (9/14/60)* Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.

*Caroline Pearson (4/1/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.

*Maureen E. Kane (2/14/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.

* Interested persons of the Fund as defined in the 1940 Act.

The directors and officers who are "interested persons" as designated above
receive no compensation from the Fund. The tables below shows amounts estimated
to be paid or accrued to those directors who are not designated "interested
persons" during the Fund's first full fiscal year following its reorganization
to open-end status except that the information in the last column is for
calendar year 2000.

--------------------------------------------------------------------------------
                                                     Total Compensation From
                           Aggregate                 Kemper Fund Complex Paid
                           Compensation              To Board
Name of Director           From Fund                 Members(2)
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

(1)   Includes deferred fees, Pursuant to deferred compensation agreements with
      the Kemper Fund,. deferred amounts accrue interest monthly at a rate
      approximate to the yield of Zurich Money Funds -- Zurich Money Market
      Fund. Total deferred fees (including interest thereon) payable from the
      Fund to Mr. Gottschalk during the Fund's most recent fiscal year was
      $5,400.

(2)   Includes compensation for service on the Boards of xx Kemper Funds with xx
      fund portfolios. Each Director currently serves as a board member of xx
      Kemper funds with xx fund portfolios.

As of January 1, 2000, the directors and officers as a group owned less than 1%
of the then outstanding shares of the Fund .

Principal Underwriter. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of
the Investment Manager, is the principal underwriter and distributor for the
shares of each Fund and acts as agent of the Fund in the continuous offering of
its shares. KDI bears all of its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. Each Fund pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI


                                       82
<PAGE>

pays for the printing and distribution of copies thereof used in connection with
the offering of shares to prospective investors. KDI also pays for supplementary
sales literature and advertising costs.

Each distribution agreement continues in effect from year to year so long as
such continuance is approved for each class at least annually by a vote of the
Board of Trustees of the Fund, including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
agreement. Each agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
Fund or by KDI upon 60 days' notice. Termination by a Fund with respect to a
class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
Investment Company Act of 1940. The agreement may not be amended for a class to
increase the fee to be paid by a Fund with respect to such class without
approval by a majority of the outstanding voting securities of such class of the
Fund and all material amendments must in any event be approved by the Board of
Trustees in the manner described above with respect to the continuation of the
agreement. The provisions concerning the continuation, amendment and termination
of the distribution agreement are on a Fund by Fund basis and for each Fund on a
class by class basis.

Class A Shares. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares. The
following information concerns the underwriting commissions paid in connection
with the distribution of each Fund's Class A shares for the fiscal years noted.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                         Commissions       Commissions     Commissions Paid
                                Fiscal   Retained By    Underwriter Paid      To Kemper
            Fund                 Year    Underwriter      To All Firms     Affiliated Firms
---------------------------------------------------------------------------------------------
<S>                               <C>            <C>                <C>             <C>
Kemper Asian Growth Fund          2000           $                  $               --
---------------------------------------------------------------------------------------------
                                  1999           $                  $               --
---------------------------------------------------------------------------------------------
                                  1998           $                  $               --
---------------------------------------------------------------------------------------------
Kemper Global Blue Chip Fund      2000           $                  $               --
---------------------------------------------------------------------------------------------
                                  1999           $                  $               --
---------------------------------------------------------------------------------------------
                                  1998           $                  $               --
---------------------------------------------------------------------------------------------
Kemper Global Discovery Fund      2000           $                  $               --
---------------------------------------------------------------------------------------------
                                  1999           $                  $               --
---------------------------------------------------------------------------------------------
                                  1998           $                  $               --
---------------------------------------------------------------------------------------------
Kemper Global Income Fund         2000           $                  $               --
---------------------------------------------------------------------------------------------
                                  1999           $                  $               --
---------------------------------------------------------------------------------------------
                                  1998           $                  $               --
---------------------------------------------------------------------------------------------
Kemper International Fund         2000           $                  $               --
---------------------------------------------------------------------------------------------
                                  1999           $                  $               --
---------------------------------------------------------------------------------------------
                                  1998           $                  $               --
---------------------------------------------------------------------------------------------
Kemper International              2000           $                  $               --
Research Fund
---------------------------------------------------------------------------------------------
                                  1999           $                  $               --
---------------------------------------------------------------------------------------------
                                  1998           $                  $               --
---------------------------------------------------------------------------------------------
Kemper New Europe Fund            2000           $                  $               --
---------------------------------------------------------------------------------------------
                                  1999           $                  $               --
---------------------------------------------------------------------------------------------
                                  1998           $                  $               --
---------------------------------------------------------------------------------------------
</TABLE>

Class B Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% of average daily net assets of each Fund attributable to Class B
shares. This fee is accrued daily as an expense of Class B shares. KDI also
receives any contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales


                                       83
<PAGE>

Charge -- Class B Shares." KDI currently compensates firms for sales of Class B
shares at a commission rate of 3.75%.

Class C Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% of average daily net assets of each Fund attributable to Class C
shares. This fee is accrued daily as an expense of Class C shares. KDI currently
advances to firms the first year distribution fee at a rate of 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 a Fund. KDI also receives any contingent deferred sales
charges. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charges--Class C Shares".

Class B Shares And Class C Shares. Each Fund has adopted a plan under Rule 12b-1
that provides for fees payable as an expense of the Class B shares and Class C
shares that are used by KDI to pay for distribution and services for those
classes. Because 12b-1 fees are paid out of fund assets on an ongoing basis,
they will, over time, increase the cost of an investment and cost more than
other types of sales charges.

Expenses of the Funds and of KDI, in connection with the Rule 12b-1 Plans for
the Class B and Class C shares are set forth below. A portion of the marketing,
sales and operating expenses shown below could be considered overhead expense.

        Other Distribution Expenses Paid By Underwriter -- Class B Share

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                     Total     Commissions
                     Distribution   Contingent    Commissions     Paid By
                     Fees Paid By    Deferred       Paid By     Underwriter  Advertising              Marketing    Misc.    Interest
Fund Class Fiscal      Fund To    Sales Charges  Underwriter  To Affiliated     and      Prospectus  and Sales  Operating    Fund
 B Shares    Year    Underwriter  To Underwriter   To Firms        Firms     Literature    Printing    Expenses  Expenses   Expenses
 --------    ----    -----------     -----------   --------        -----     ----------    --------    --------  --------   --------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
<S>          <C>          <C>           <C>            <C>          <C>           <C>          <C>        <C>        <C>       <C>
Asian        2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Blue Chip    2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Discovery    2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Income       2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Int'l        2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Research     2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
New Europe   2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       84
<PAGE>

        Other Distribution Expenses Paid By Underwriter -- Class C Share

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                     Total     Commissions
                     Distribution   Contingent    Commissions     Paid By
                     Fees Paid By    Deferred       Paid By     Underwriter  Advertising              Marketing    Misc.    Interest
Fund Class Fiscal      Fund To    Sales Charges  Underwriter  To Affiliated     and      Prospectus  and Sales  Operating    Fund
 C Shares    Year    Underwriter  To Underwriter   To Firms        Firms     Literature    Printing    Expenses  Expenses   Expenses
 --------    ----    -----------     -----------   --------        -----     ----------    --------    --------  --------   --------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
<S>          <C>          <C>           <C>            <C>          <C>           <C>          <C>        <C>        <C>       <C>
Asian        2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Blue Chip    2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Discovery    2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Income       2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Int'l        2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
Research     2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
New Europe   2000         $             $              $             0            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1999         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
             1998         $             $              $            --            $            $          $          $         $
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call
1-800-621-1048.

                                      TAXES

Taxes. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, generally will not
be liable for federal income taxes to the extent its earnings are distributed.
To so qualify, each Fund must satisfy certain income and asset diversification
requirements, and must distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gains in
excess of net long-term capital losses).

If for any taxable year a Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of a Fund's
earnings and profits, and would be eligible for the dividends-received deduction
in the case of corporate shareholders.

Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions


                                       85
<PAGE>

representing at least 98% of the Fund's ordinary income for each calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.

Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of a Fund.

Distributions of investment company taxable income are taxable to shareholders
as ordinary income.

If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by a Fund for reinvestment, requiring federal income
taxes to be paid thereon by the Fund, the Fund intends to elect to treat such
capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains , will be
able to claim a relative share of federal income taxes paid by a Fund on such
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on Fund shares by the difference
between such reported gains and the individual tax credit.

Dividends from domestic corporations may comprise some part of the gross income
of the Funds. To the extent that such dividends constitute a portion of a Fund's
gross income, a portion of the income distributions of the Fund may be eligible
for the deduction for dividends received by corporations. Shareholders will be
informed of the portion of dividends which so qualify. The dividends-received
deduction is reduced to the extent the shares of a Fund with respect to which
the dividends are received are treated as debt-financed under federal income tax
law, and is eliminated if either those shares or the shares of the Fund are
deemed to have been held by the Fund or the shareholder, as the case may be, for
less than 46 days during the 90-day period beginning 45 days before the shares
become ex-dividend.

Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains , regardless of the length of time the shares of a Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.

If shares are held in a tax-deferred account, such as a retirement plan, income
and gain will not be taxable each year. Instead, the taxable portion of amounts
held in a tax-deferred account generally will be subject to tax as ordinary
income only when distributed from that account.

All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.


                                       86
<PAGE>

Distributions by a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

Dividend and interest income received by a Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.

Each Fund may qualify for and make the election permitted under Section 853 of
the Code so that shareholders may (subject to limitations) be able to claim a
credit or deduction on their federal income tax return form and may be required
to treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes related
primarily to investment income) Each Fund may make an election under Section 853
of the Code, provided that more than 50% of the value of the total assets of the
Fund at the close of the taxable year consists of securities as foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code, except in the case of certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income. Furthermore, the
foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholders, as the case may be, for less than 16 days. (46
days in the case of preferred shares) during the 30-day period (90-day period
for preferred shares) beginning 15 days (45 days for preferred shares) before
the shares become ex-dividend. In addition, if a Fund fails to satisfy these
holding period requirements, it cannot elect under Section 853 to pass through
to shareholders the ability to claim a deduction for the related foreign taxes.

Each Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
a Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which a Fund held the PFIC shares. Each Fund will be subject to
tax on the portion, if any, of an excess distribution that is allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Excess distributions allocated
to the current taxable year are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions might have
been classified as capital gain.

A Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.

Equity options (including covered call options on portfolio stock) written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a


                                       87
<PAGE>

premium in connection with the purchase of a put or call option. The character
of any gain or loss recognized (i.e., long-term or short-term) will generally
depend, in the case of a lapse or sale of the option, on a Fund's holding period
for the option and, in the case of an exercise of the option, on a Fund's
holding period for the underlying security. The purchase of a put option may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or substantially identical
security in a Fund's portfolio. If a Fund writes a call option, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as a short-term capital gain or loss. If a call
option is exercised, any resulting gain or loss is short-term or long-term
capital gain or loss depending on the holding period of the underlying security.
The exercise of a put option written by a Fund is not a taxable transaction for
a Fund.

Many futures and forward contracts entered into by a Fund and all listed
nonequity options written or purchased by a Fund (including covered call options
written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of a Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by a Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in a
Fund's portfolio.

Positions of a Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes a Fund's risk of loss with respect to such stock could be treated as
a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by a Fund.

Positions of a Fund consisting of at least one position not governed by Section
1256 and at least one future, forward, or nonequity option contract which is
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. A Fund will monitor its transactions in options and
futures and may make certain tax elections in connection with these investments.

Notwithstanding any of the foregoing, recent tax law changes may require a Fund
to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of a Fund's taxable year, if certain
conditions are met.

Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.


                                       88
<PAGE>

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time a Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain futures, forward or options
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contracts and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.

If a Fund holds zero coupon securities or other securities which are issued at a
discount a portion of the difference between the issue price and the face value
of such securities ("original issue discount") will be treated as income to a
Fund each year, even though a Fund will not receive cash interest payments from
these securities. This original issue discount (imputed income) will comprise a
part of the investment company taxable income of a Fund which must be
distributed to shareholders in order to maintain the qualification of a Fund as
a regulated investment company and to avoid federal income tax at a Fund level.
In addition, if a Fund invest in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such an event, properly designated dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of the accrued original
issue discount, may be eligible for the deduction received by corporations.

Each Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss held by the shareholder as a capital asset,
and may be long-term or short-term depending upon the shareholder's holding
period for the shares. A shareholder who has redeemed shares of a Fund or any
other Kemper Mutual Fund (other than shares of Kemper Cash Reserves Fund not
acquired by exchange from another Kemper Mutual Fund) may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption. If redeemed shares were held less than 91 days, then the lesser of
(a) the sales charge waived on the reinvested shares, or (b) the sales charge
incurred on the redeemed shares, is included in the basis of the reinvested
shares and is not included in the basis of the redeemed shares. If a shareholder
realizes a loss on the redemption or exchange of a 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 a Fund's shares for shares of another fund is treated as a
redemption and reinvestment for federal income tax purposes upon which gain or
loss may be recognized.

After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation


                                       89
<PAGE>

statements or year-end statements for tax reporting purposes. However, those who
have incomplete records may obtain historical account transaction information at
a reasonable fee.

When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account. In January of each year a Fund issues to each
shareholder a statement of the federal income tax status of all distributions.

The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.

Shareholders of a Fund may be subject to state, local and foreign taxes on Fund
distributions and disposition of Fund shares. Shareholders should consult their
tax advisers about the application of the provisions of tax law in light of
their particular tax situations.

                              FINANCIAL STATEMENTS

The financial statements appearing in each Fund's Annual Report to Shareholders
are incorporated herein by reference. Each Fund's Annual Report accompanies this
Statement of Additional Information.


                                       90
<PAGE>

                       APPENDIX -- RATINGS OF INVESTMENTS

Standard & Poor's Corporation Bond Ratings

AAA. Debt rated AAA had the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

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

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

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

BB, B, CCC, CC and 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.


                                       91
<PAGE>

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.

Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Fitch Long-Term Debt Ratings

AAA. Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

AA. Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A. High credit quality. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

BBB. Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

BB. Speculative. 'BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.

B. Highly speculative. 'B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.

CCC, CC, C. High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A 'CC' rating indicates that default of some
kind appears probable. 'C' ratings signal imminent default.

DDD, DD, D. Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines.


                                       92
<PAGE>

'DDD' obligations have the highest potential for recovery, around 90%-100% of
outstanding amounts and accrued interest. 'DD' indicates potential recoveries in
the range of 50%-90%, and 'D' the lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated 'DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities rated 'D' have a
poor prospect for repaying all obligations.

Fitch Short-Term Debt Ratings

F1. Highest credit quality. Indicates the Best capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.

F2. Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.

F3. Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.

B. Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.

C. High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.

D. Default. Denotes actual or imminent payment default.

Commercial Paper Ratings

Commercial paper rated by Standard & Poor's Ratings Services ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-1 or A-2.

The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors
considered by it in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated Prime-1 or 2.


                                       93
<PAGE>

Municipal Notes

Moody's: The highest ratings for state and municipal short-term obligations are
"MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the case of
an issue having a variable rate demand feature). Notes rated "MIG 1" or "VMIG 1"
are judged to be of the "best quality". Notes rated "MIG 2" or "VMIG 2" are of
"high quality," with margins or protection "ample although not as large as in
the preceding group". Notes rated "MIG 3" or "VMIG 3" are of "favorable
quality," with all security elements accounted for but lacking the strength of
the preceding grades.

S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest". Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+". The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.

Fitch: The highest ratings for state and municipal short-term obligations are
"F-1+," "F-1," and "F-2".


                                       94


<PAGE>

                              GLOBAL DISCOVERY FUND


                               Class S Class AARP


            Global Discovery Fund is a series of Global/International
                                   Fund, Inc.

                  A Diversified Mutual Fund Series Which Seeks
            Above-Average Capital Appreciation over the Long Term by
              Investing Primarily in the Equity Securities of Small
                     Companies Located Throughout the World




--------------------------------------------------------------------------------

                       STATEMENT OF ADDITIONAL INFORMATION


                                  March 1, 2001



--------------------------------------------------------------------------------



         This  Statement of  Additional  Information  is not a  prospectus.  The
prospectus of the Class S and Class AARP shares of Global  Discovery  Fund dated
March 1, 2001, as amended from time to time,  may be obtained  without charge by
writing to Scudder Investor  Services,  Inc., Two International  Place,  Boston,
Massachusetts 02110-4103 or by calling 1-800-225-2470.

         The Annual Report to  Shareholders  of Scudder  Global  Discovery  Fund
dated October 31, 2000, is incorporated by reference and are hereby deemed to be
part of this Statement of Additional Information.




<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                      Page


<S>                                                                                                     <C>
THE FUND'S INVESTMENT OBJECTIVES AND POLICIES............................................................1
         General Investment Objective and Policies.......................................................1
         Risk Factors....................................................................................2
         Specialized Investment Techniques...............................................................9
         Investment Restrictions........................................................................14

PURCHASES...............................................................................................22
         Additional Information About Opening An Account................................................21
         Minimum Balances...............................................................................21
         Additional Information About Making Subsequent
              Investments...............................................................................21
         Additional Information About Making Subsequent
              Investments by QuickBuy...................................................................22
         Checks.........................................................................................22
         Wire Transfer of Federal Funds.................................................................22
         Share Price....................................................................................22
         Share Certificates.............................................................................22
         Other Information..............................................................................22

EXCHANGES AND REDEMPTIONS...............................................................................29
         Exchanges......................................................................................23
         Redemption by Telephone........................................................................32
         Redemption by QuickSell........................................................................25
         Redemption by Mail or Fax......................................................................33
         Redemption-in-Kind.............................................................................34
         Other Information..............................................................................34

FEATURES AND SERVICES OFFERED BY THE FUND...............................................................35
         The No-Load Concept............................................................................35
         Internet Access................................................................................28
         Dividend and Capital Gain Distribution Options.................................................36
         Diversification................................................................................39
         Reports to Shareholders........................................................................39
         Transaction Summaries..........................................................................40

THE SCUDDER FAMILY OF FUNDS.............................................................................30

SPECIAL PLAN ACCOUNTS...................................................................................40
         Scudder Retirement Plans:  Profit-Sharing and Money Purchase Pension Plans for Corporations
         and Self-Employed Individuals..................................................................43
         Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
         Self-Employed Individuals......................................................................43
         Scudder IRA:  Individual Retirement Account....................................................43
         Scudder Roth IRA:  Individual Retirement Account...............................................44
         Scudder 403(b) Plan............................................................................44
         Automatic Withdrawal Plan......................................................................44
         Group or Salary Deduction Plan.................................................................45
         Automatic Investment Plan......................................................................45
         Uniform Transfers/Gifts to Minors Act..........................................................45

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS...............................................................45

PERFORMANCE INFORMATION.................................................................................46
         Average Annual Total Return....................................................................46
         Cumulative Total Return........................................................................46
         Total Return...................................................................................48
         Comparison of Portfolio Performance............................................................38



                                        i
<PAGE>

                          TABLE OF CONTENTS (continued)
                                                                                                      Page

         Taking a Global Approach.......................................................................38

ORGANIZATION OF THE FUND................................................................................48

INVESTMENT ADVISER......................................................................................50
         Personal Investments by Employees of the Adviser...............................................53

DIRECTORS AND OFFICERS..................................................................................54

REMUNERATION............................................................................................56
         Responsibilities of the Board -- Board and Committee Meetings..................................56
         Compensation of Officers and Directors.........................................................57

DISTRIBUTOR.............................................................................................58

TAXES...................................................................................................60

PORTFOLIO TRANSACTIONS..................................................................................63
         Brokerage......................................................................................63
         Portfolio Turnover.............................................................................65

NET ASSET VALUE.........................................................................................65

ADDITIONAL INFORMATION..................................................................................66
         Experts........................................................................................66
         Other Information..............................................................................66

FINANCIAL STATEMENTS....................................................................................67


APPENDIX
</TABLE>

                                       ii

<PAGE>
                  THE FUND'S INVESTMENT OBJECTIVES AND POLICIES

         Global  Discovery  Fund  (the  "Fund")  is  a  diversified   series  of
Global/International  Fund,  Inc. (the  "Corporation"),  an open-end  management
investment company which continuously offers and redeems its shares at net asset
value.  The Fund is a  company  of the  type  commonly  known as a mutual  fund.
Scudder Global Discovery Fund changed its name to Global Discovery Fund on April
16, 1998.


         Global Discovery Fund offers the following  classes of shares:  Class S
and Class AARP Shares (the "Shares"),  and Kemper Global Discovery Fund Class A,
B and C Shares.  Only the Class S and Class AARP Shares of Global Discovery Fund
are offered herein.


         Changes in  portfolio  securities  are made on the basis of  investment
considerations,  and it is against the policy of  management to make changes for
trading purposes. The Fund cannot guarantee a gain or eliminate the risk of loss
and the net asset  value of the Fund's  shares will  increase  or decrease  with
changes in the market price of the Fund's investments.

         Foreign  securities such as those that may be purchased by the Fund may
be subject to foreign  governmental  taxes which could reduce the yield, if any,
on such  securities,  although a shareholder of the Fund may, subject to certain
limitations,  be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her  proportionate  share of such foreign  taxes paid by
the Fund. (See "TAXES.")

         Because of the Fund's  investment  considerations  discussed herein and
their investment  policies,  investment in Shares of the Fund is not intended to
provide a complete  investment program for an investor.  The value of the Fund's
Shares when sold may be higher or lower than when purchased.

General Investment Objective and Policies


         Descriptions   in  this  Statement  of  Additional   Information  of  a
particular  investment  practice or technique in which Global Discovery Fund may
engage (such as short selling, hedging, etc.) or a financial instrument in which
the Fund may purchase  (such as options,  forward  foreign  currency  contracts,
etc.) are meant to describe the  spectrum of  investments  that  Scudder  Kemper
Investments, Inc. (the "Adviser"), in its discretion, might, but is not required
to, use in  managing  the Fund's  portfolio  assets.  The  Adviser  may,  in its
discretion, at any time employ such practice, technique or instrument for one or
more funds but not for all fund advised by it. Furthermore,  it is possible that
certain types of financial instruments or investment techniques described herein
may not be available, permissible,  economically feasible or effective for their
intended purposes in all markets. Certain practices,  techniques, or instruments
may not be principal  activities of the Fund but, to the extent employed,  could
from time to time have a material impact on the Fund's performance.


         Global Discovery Fund seeks above-average capital appreciation over the
long term by investing  primarily in the equity  securities  of small  companies
located  throughout  the world.  The Fund is designed for investors  looking for
above-average  appreciation  potential (when compared with the overall  domestic
stock market as reflected by Standard & Poor's 500  Corporation  Composite Price
Index) and the  benefits of  investing  globally,  but who are willing to accept
above-average  stock market risk, the impact of currency  fluctuation and little
or no current income.

         In  pursuit  of its  objective,  the Fund  generally  invests in small,
rapidly growing  companies which offer the potential for  above-average  returns
relative to larger companies, yet are frequently overlooked and thus undervalued
by the  market.  The Fund has the  flexibility  to invest  in any  region of the
world.  It can invest in companies based in emerging  markets,  typically in the
Far East,  Latin America and Eastern  Europe,  as well as in firms  operating in
developed  economies,  such as those of the  United  States,  Japan and  Western
Europe.

         The Adviser  invests the Fund's  assets in companies it believes  offer
above-average  earnings, cash flow or asset growth potential. It also invests in
companies  which may receive greater market  recognition  over time. The Adviser
believes that these factors offer significant  opportunity for long-term capital
appreciation.  The  Adviser  evaluates  investments  for the  Fund  from  both a
macroeconomic  and  microeconomic   perspective,   using  fundamental  analysis,
including field research. The Adviser analyzes the growth potential and relative
value of possible  investments.  When  evaluating  an  individual  company,  the
Adviser  takes into  consideration  numerous  factors,  including  the depth and
quality  of  management;   a  company's  product  line,  business  strategy  and
competitive  position;  research and development  efforts;  financial  strength,
including  degree of  leverage;  cost  structure;  revenue and  earnings  growth
potential;   price-earnings   ratios  and  other   stock   valuation   measures.
Secondarily,  the Adviser weighs the attractiveness of the country and region in
which a company is located.

<PAGE>

         While the Fund's Adviser believes that smaller,  lesser-known companies
can offer greater growth  potential than larger,  more  established  firms,  the
former also involve greater risk and price volatility.  To help reduce risk, the
Fund expects,  under usual market conditions,  to diversify its portfolio widely
by company,  industry and country. Under normal circumstances,  the Fund invests
at least 65% of its total assets in the equity  securities  of small  companies.
The Fund intends to allocate  investments  among at least three countries at all
times, one of which may be the United States.


         The Fund invests  primarily in companies whose individual equity market
capitalization  would  place  them  in the  same  size  range  as  companies  in
approximately  the lowest 20% of world market  capitalization  as represented by
the Salomon Brothers Broad Market Index, an index comprised of equity securities
of more than 6,500 small-, medium- and large-sized companies based in 22 markets
around  the  globe.  ^ As of  December  31,  2000,  companies  in which the Fund
typically invests have a market  capitalization of between $___ million and $___
billion.


         The equity  securities  in which the Fund may invest  consist of common
stocks,  preferred  stocks (either  convertible or  nonconvertible),  rights and
warrants.  These  securities  may be listed on the U.S.  or  foreign  securities
exchanges or traded  over-the-counter.  For capital appreciation  purposes,  the
Fund may purchase  notes,  bonds,  debentures,  government  securities  and zero
coupon bonds (any of which may be convertible or  nonconvertible).  The Fund may
invest in foreign  securities  and  American  Depositary  Receipts  which may be
sponsored  or  unsponsored.  The Fund may also invest in  closed-end  investment
companies  holding  foreign  securities,  enter into  repurchase  agreements and
engage in strategic  transactions.  For temporary defensive  purposes,  the Fund
may, during periods in which conditions in securities  markets  warrant,  invest
without limit in cash and cash equivalents. It is impossible to predict how long
such alternative strategies will be utilized.  More information about investment
techniques is provided under "Specialized Investment Techniques of the Funds."

Small Company Risk. The Adviser believes that smaller companies often have sales
and earnings growth rates which exceed those of larger companies,  and that such
growth  rates may in turn be  reflected  in more rapid share price  appreciation
over time.  However,  investing in smaller company stocks involves  greater risk
than is  customarily  associated  with  investing  in larger,  more  established
companies.  For  example,  smaller  companies  can have limited  product  lines,
markets,  or financial and managerial  resources.  Smaller companies may also be
dependent on one or a few key persons, and may be more susceptible to losses and
risks of bankruptcy.  Also,  the  securities of smaller  companies may be thinly
traded (and  therefore  have to be sold at a discount from current market prices
or sold in small lots over an  extended  period of time).  Transaction  costs in
smaller company stocks may be higher than those of larger companies.

Master/feeder structure. The Board of Directors has the discretion to retain the
current  distribution  arrangement for the Fund while investing in a master fund
in a master/feeder structure fund as described below.

         A  master/feeder  fund  structure  is one in  which a fund  (a  "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment  objective and policies as
the feeder fund.  Such a structure  permits the pooling of assets of two or more
feeder funds,  preserving  separate  identities or distribution  channels at the
feeder  fund  level.  Based on the  premise  that  certain  of the  expenses  of
operating an investment  portfolio are  relatively  fixed,  a larger  investment
portfolio may eventually  achieve a lower ratio of operating expenses to average
net assets. An existing  investment  company is able to convert to a feeder fund
by  selling  all  of  its  investments,   which  involves  brokerage  and  other
transaction  costs and realization of a taxable gain or loss, or by contributing
its assets to the master  fund and  avoiding  transaction  costs and,  if proper
procedures are followed, the realization of taxable gain or loss.

Interfund  Borrowing  and Lending  Program.  The ^ Fund has  received  exemptive
relief  from the SEC  which  permits  the Fund to  participate  in an  interfund
lending program among certain investment companies advised by the Adviser. ^ The
interfund lending program ^ allows the participating  funds to borrow money from
and loan money to each other for temporary or emergency purposes.  The program ^
is subject  to a number of  conditions  designed  to ensure  fair and  equitable
treatment of all participating funds,  including the following:  (1) no fund may
borrow money through the program  unless it receives a more  favorable  interest
rate than a rate  approximating  the  lowest  interest  rate at which bank loans
would be available to any of the participating funds under a loan agreement; and
(2) no fund may lend  money  through  the  program  unless  it  receives  a more
favorable return than that available from an investment in repurchase agreements
and,  to the  extent  applicable,  money  market  cash  sweep  arrangements.  In
addition, a fund ^ may participate in the program only if and to the extent that
such  participation  is consistent  with the fund's  investment  objectives  and
policies (for instance,  money market funds would normally  participate  only as
lenders and tax exempt funds only as borrowers).  Interfund loans and borrowings
^ may extend overnight, but could have a maximum duration of seven days. Loans ^
may be called on one day's  notice.  A fund may have to borrow  from a bank at a
higher interest rate if an interfund loan is called or not renewed. Any delay in
repayment  to a lending fund could result in a lost  investment  opportunity  or
additional costs. The program is subject to the oversight and periodic review of
the  Boards of the  participating  funds.  To the  extent  the Fund is  actually
engaged in


                                       2
<PAGE>

borrowing  through  the  interfund  lending  program,  the Fund,  as a matter of
non-fundamental  policy,  may not borrow for other than  temporary  or emergency
purposes  (and not for  leveraging),  except that the Fund may engage in reverse
repurchase agreements and dollar rolls for any purpose.

Risk Factors

Foreign Securities.  Global Discovery Fund is intended to provide individual and
institutional  investors with an opportunity to invest a portion of their assets
in a diversified  portfolio of securities of U.S. and foreign  companies located
worldwide and is designed for long-term  investors who can accept  international
investment  risk. The Fund is designed for investors who can accept currency and
other  forms  of  international  investment  risk.  The  Adviser  believes  that
allocation of the Fund's assets on a global basis  decreases the degree to which
events in any one country,  including the U.S., will affect an investor's entire
investment  holdings.  In the period  since World War II, many  leading  foreign
economies  have grown more rapidly  than the U.S.  economy and from time to time
have had interest  rate levels that had a higher real return than the U.S.  bond
market. Consequently, the securities of foreign issuers have provided attractive
returns  relative to the returns  provided by the  securities  of U.S.  issuers,
although there can be no assurance that this will be true in the future.

         Investors  should  recognize  that  investing  in  foreign   securities
involves certain special considerations,  including those set forth below, which
are not typically  associated  with  investing in U.S.  securities and which may
affect the Fund's performance favorably or unfavorably. As foreign companies are
not generally subject to uniform  accounting,  auditing and financial  reporting
standards, practices and requirements comparable to those applicable to domestic
companies,  there may be less  publicly  available  information  about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity,  have  substantially less volume than that of the
New York Stock Exchange,  and securities of some foreign issuers are less liquid
and more volatile than  securities of domestic  issuers.  Similarly,  volume and
liquidity in most foreign bond markets is less than that in the U.S.  market and
at times,  volatility of price can be greater than in the U.S. Further,  foreign
markets  have  different  clearance  and  settlement  procedures  and 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. Delays in settlement could result in temporary periods when assets
of the Fund are uninvested and no return is earned thereon. The inability of the
Fund to make intended security purchases due to settlement  problems could cause
the Fund to miss attractive  investment  opportunities.  Inability to dispose of
portfolio securities due to settlement problems either could result 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.   Fixed  commissions  on  some  foreign
securities  exchanges are generally  higher than negotiated  commissions on U.S.
exchanges,  although the Adviser will endeavor to achieve the most favorable net
results on the Fund's portfolio  transactions.  Further,  the Fund may encounter
difficulties  or be unable to pursue  legal  remedies  and  obtain  judgment  in
foreign courts. There is generally less government supervision and regulation of
business  and  industry  practices,  securities  exchanges,  brokers  and listed
companies  than in the U.S. It may be more  difficult  for the Fund's  agents to
keep currently informed about corporate actions such as stock dividends or other
matters  which may  affect the prices of  portfolio  securities.  Communications
between the U.S.  and foreign  countries  may be less  reliable  than within the
U.S., thus increasing the risk of delayed settlements of portfolio  transactions
or loss of certificates for portfolio securities.  In addition,  with respect to
certain  foreign  countries,   there  is  the  possibility  of  nationalization,
expropriation,   the  imposition  of  confiscatory   or  withholding   taxation,
political,  social or economic  instability,  or diplomatic  developments  which
could  affect  U.S.  investments  in those  countries.  Investments  in  foreign
securities may also entail certain risks, such as possible currency blockages or
transfer  restrictions,   and  the  difficulty  of  enforcing  rights  in  other
countries.  Moreover,  individual  foreign  economies  may differ  favorably  or
unfavorably  from the U.S.  economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment,  resource self-sufficiency and
balance of payments  position.  The Adviser  seeks to mitigate  the risks to the
Fund associated with the foregoing  considerations  through investment variation
and continuous professional management.

Eastern Europe. Investments in companies domiciled in Eastern European countries
may be subject to potentially greater risks than those of other foreign issuers.
These  risks  include  (i)  potentially  less  social,  political  and  economic
stability;  (ii) the small current size of the markets for such  securities  and
the low volume of trading,  which result in less  liquidity and in greater price
volatility;  (iii)  certain  national  policies  which may  restrict  the Fund's
investment  opportunities,  including  restrictions  on investment in issuers or
industries deemed sensitive to national  interests;  (iv) foreign taxation;  (v)
the  absence  of  developed  legal  structures   governing  private  or  foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries,  of a capital
market  structure or  market-oriented  economy;  and (vii) the possibility  that
recent  favorable  economic  developments  in  Eastern  Europe  may be slowed or
reversed by  unanticipated  political or social events in such countries,  or in
the countries of the former Soviet Union. Global Discovery Fund may invest up to
5% of its  total  assets in the  securities  of  issuers  domiciled  in  Eastern
European countries.



                                       3
<PAGE>

         Investments  in  such  countries  involve  risks  of   nationalization,
expropriation and confiscatory  taxation.  The Communist governments of a number
of East European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there may be no assurance
that  such  expropriation  will not  occur in the  future.  In the event of such
expropriation,  the Fund could lose a substantial  portion of any investments it
has made in the affected countries.  Further,  no accounting  standards exist in
East European countries.  Finally,  even though certain East European currencies
may be convertible into U.S. dollars,  the conversion rates may be artificial to
the actual market values and may be adverse to the Fund's shareholders.

Foreign  Currencies.  Investments  in foreign  securities  usually  will involve
currencies of foreign countries.  Moreover,  the Fund may temporarily hold funds
in bank  deposits in foreign  currencies  during the  completion  of  investment
programs and may purchase forward foreign currency  contracts,  foreign currency
futures contracts and options on such contracts.  Because of these factors,  the
value of the assets of the Fund as  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. Although the Funds' custodian values the
Fund's  assets  daily in terms of U.S.  dollars,  none of the Funds  intends  to
convert its holdings of foreign  currencies into U.S.  dollars on a daily basis.
The Fund  will do so from  time to time,  and  investors  should be aware of the
costs of currency conversion.  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.  Thus, a dealer may offer to sell a foreign  currency to the Fund at
one rate,  while  offering a lesser rate of  exchange  should the Fund desire to
resell that currency to the dealer.  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 entering into
forward or futures contracts to purchase or sell foreign currencies.

         Because the Fund  normally  will be  invested in both U.S.  and foreign
securities markets, changes in the Fund's share price may have a low correlation
with  movements  in the U.S.  markets.  The Fund's  share price will reflect the
movements of both the  different  stock and bond markets in which it is invested
and of the currencies in which the investments are denominated;  the strength or
weakness of the U.S. dollar against  foreign  currencies may account for part of
the Fund's investment  performance.  U.S. and foreign  securities markets do not
always  move in step  with each  other,  and the total  returns  from  different
markets may vary  significantly.  The Funds  invest in many  securities  markets
around the world in an attempt to take advantage of opportunities  wherever they
may arise.

Investing  in  Emerging  Markets.  Most  emerging  securities  markets  may have
substantially  less volume and are subject to less government  supervision  than
U.S. securities  markets.  Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges,  securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.

         Emerging   markets  also  have   different   clearance  and  settlement
procedures,  and in certain markets there have been times when  settlements have
been unable to keep pace with the volume of securities  transactions.  Delays in
settlement could result in temporary periods when a portion of the assets of the
Fund is uninvested and no cash is earned  thereon.  The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment  opportunities.  Inability to dispose of portfolio
securities due to 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.  Costs  associated  with  transactions  in foreign
securities are generally higher than costs associated with  transactions in U.S.
securities.  Such transactions also involve additional costs for the purchase or
sale of foreign currency.

         Foreign  investment  in certain  emerging  market debt  obligations  is
restricted or controlled to varying degrees.  These restrictions or controls may
at times limit or preclude  foreign  investment in certain emerging markets debt
obligations  and increase the costs and expenses of the Fund.  Certain  emerging
markets require prior  governmental  approval of investments by foreign persons,
limit the amount of investment by foreign persons in a particular company, limit
the  investment by foreign  persons only to a specific  class of securities of a
company that may have less  advantageous  rights than the classes  available for
purchase by  domiciliaries  of the countries  and/or impose  additional taxes on
foreign  investors.  Certain  emerging  markets  may  also  restrict  investment
opportunities in issuers in industries deemed important to national interest.

         Certain  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 or for other  reasons,  a country  could
impose temporary restrictions on foreign capital remittances.  The Fund could be
adversely   affected  by  delays  in,  or  a  refusal  to  grant,  any  required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.



                                       4
<PAGE>

         In the course of investment in emerging  market debt  obligations,  the
Fund will be exposed to the direct or indirect consequences of political, social
and  economic  changes in one or more  emerging  markets.  Political  changes in
emerging  market  countries  may affect the  willingness  of an emerging  market
country  governmental  issuer to make or  provide  for  timely  payments  of its
obligations. The country's economic status, as reflected, among other things, in
its  inflation  rate,  the amount of its  external  debt and its gross  domestic
product,  also  affects  its  ability to honor its  obligations.  While the Fund
manages its assets in a manner that will seek to minimize  the  exposure to such
risks,  and will further reduce risk by owning the bonds of many issuers,  there
can be no assurance that adverse political,  social or economic changes will not
cause the Fund to suffer a loss of value in  respect  of the  securities  in the
Fund's portfolio.

         The risk also exists that an  emergency  situation  may arise in one or
more emerging  markets as a result of which  trading of securities  may cease or
may be  substantially  curtailed  and prices for the Fund's  securities  in such
markets may not be readily available.  The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly if the Fund believes
that  appropriate  circumstances  exist, it will promptly apply to the SEC for a
determination  that an emergency is present.  During the period  commencing from
the Fund's  identification  of such condition  until the date of the SEC action,
the  Fund's  securities  in the  affected  markets  will be valued at fair value
determined in good faith by or under the direction of the Corporation's Board of
Directors.
Volume and  liquidity in most foreign bond markets are less than in the U.S. and
securities  of many foreign  companies  are less liquid and more  volatile  than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally  higher than negotiated  commissions on U.S.  exchanges,
although  the Fund  endeavors to achieve the most  favorable  net results on its
portfolio  transactions.  There is generally  less  government  supervision  and
regulation of business and industry practices,  securities  exchanges,  brokers,
dealers and listed  companies than in the U.S. Mail service between the U.S. and
foreign  countries  may be slower or less  reliable  than within the U.S.,  thus
increasing the risk of delayed settlements of portfolio  transactions or loss of
certificates  for  portfolio  securities.  In addition,  with respect to certain
emerging  markets,  there is the  possibility of  expropriation  or confiscatory
taxation,  political or social  instability,  or diplomatic  developments  which
could affect the Fund's  investments in those  countries.  Moreover,  individual
emerging  market  economies may differ  favorably or  unfavorably  from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital  reinvestment,   resource   self-sufficiency  and  balance  of  payments
position.

         ^ The Fund may have  limited  legal  recourse in the event of a default
with  respect  to  certain  debt  obligations  it  holds.  If  the  issuer  of a
fixed-income security owned by the Fund defaults,  the Fund may incur additional
expenses to seek recovery.  Debt  obligations  issued by emerging market country
governments  differ from debt  obligations  of private  entities;  remedies from
defaults on debt obligations issued by emerging market governments, unlike those
on private debt,  must be pursued in the courts of the defaulting  party itself.
The Fund's ability to enforce its rights against private issuers may be limited.
The  ability  to attach  assets to  enforce a  judgment  may be  limited.  Legal
recourse is therefore  somewhat  diminished.  Bankruptcy,  moratorium  and other
similar  laws  applicable  to  private  issuers  of  debt   obligations  may  be
substantially  different from those of other countries.  The political  context,
expressed as an emerging market  governmental  issuer's  willingness to meet the
terms of the debt obligation,  for example,  is of considerable  importance.  In
addition, no assurance can be given that the holders of commercial bank debt may
not contest  payments to the holders of debt obligations in the event of default
under commercial bank loan  agreements.  With four  exceptions,  (Panama,  Cuba,
Costa Rica and Yugoslavia), no sovereign emerging markets borrower has defaulted
on an external bond issue since World War II.

         Income  from  securities  held  by  the  Fund  could  be  reduced  by a
withholding  tax on the source or other  taxes  imposed by the  emerging  market
countries  in which the Fund makes its  investments.  The Fund's net asset value
may also be affected  by changes in the rates or methods of taxation  applicable
to the Fund or to entities  in which the Fund has  invested.  The  Adviser  will
consider the cost of any taxes in determining  whether to acquire any particular
investments,  but can provide no assurance that the taxes will not be subject to
change.

         Many emerging markets have experienced substantial, and in some periods
extremely  high  rates  of  inflation  for  many  years.   Inflation  and  rapid
fluctuations  in  inflation  rates  have had and may  continue  to have  adverse
effects on the  economies  and  securities  markets of certain  emerging  market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain  countries.  Of these countries,  some, in recent years, have
begun to control inflation through prudent economic policies.

         Emerging market  governmental  issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions.  Certain emerging market governmental issuers have
not been able to make  payments of interest on or principal of debt  obligations
as those  payments have come due.  Obligations  arising from past  restructuring
agreements  may  affect  the  economic  performance  and  political  and  social
stability of those issuers.



                                       5
<PAGE>

         Governments  of many  emerging  market  countries  have  exercised  and
continue  to exercise  substantial  influence  over many  aspects of the private
sector through the ownership or control of many companies, including some of the
largest  in any given  country.  As a result,  government  actions in the future
could have a  significant  effect on economic  conditions  in emerging  markets,
which in turn, may adversely  affect  companies in the private  sector,  general
market  conditions  and prices and  yields of certain of the  securities  in the
Fund's  portfolio.   Expropriation,   confiscatory  taxation,   nationalization,
political,  economic or social  instability or other similar  developments  have
occurred  frequently  over the  history of certain  emerging  markets  and could
adversely affect the Fund's assets should these conditions recur.

         The ability of emerging  market  country  governmental  issuers to make
timely payments on their obligations is likely to be influenced  strongly by the
issuer's balance of payments,  including export  performance,  and its access to
international  credits and  investments.  An emerging  market whose  exports are
concentrated  in a few  commodities  could be  vulnerable  to a  decline  in the
international   prices   of  one  or  more  of  those   commodities.   Increased
protectionism  on the part of an emerging  market's  trading partners could also
adversely  affect the country's  exports and diminish its trade account surplus,
if any. To the extent that emerging  markets  receive payment for its exports in
currencies other than dollars or non-emerging market currencies,  its ability to
make debt payments  denominated  in dollars or  non-emerging  market  currencies
could be affected.

         To the extent that an emerging  market country cannot  generate a trade
surplus,   it  must  depend  on  continuing  loans  from  foreign   governments,
multilateral  organizations  or private  commercial  banks,  aid  payments  from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain,  and a withdrawal
of external  funding  could  adversely  affect the  capacity of emerging  market
country governmental issuers to make payments on their obligations. In addition,
the cost of  servicing  emerging  market debt  obligations  can be affected by a
change in international  interest rates since the majority of these  obligations
carry interest  rates that are adjusted  periodically  based upon  international
rates.

         Another factor bearing on the ability of emerging  market  countries to
repay debt  obligations is the level of  international  reserves of the country.
Fluctuations  in the  level of these  reserves  affect  the  amount  of  foreign
exchange  readily  available  for external  debt  payments and thus could have a
bearing on the capacity of emerging  market  countries to make payments on these
debt obligations.

Investing in Latin America.  Investing in securities of Latin  American  issuers
may entail risks relating to the potential political and economic instability of
certain   Latin   American   countries   and   the   risks   of   expropriation,
nationalization,  confiscation  or the  imposition  of  restrictions  on foreign
investment  and  on   repatriation  of  capital   invested.   In  the  event  of
expropriation,  nationalization or other  confiscation by any country,  the Fund
could lose its entire investment in any such country.

         The securities  markets of Latin American  countries are  substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S.  Disclosure  and  regulatory  standards are in many respects
less  stringent  than U.S.  standards.  Furthermore,  there is a lower  level of
monitoring and regulation of the markets and the activities of investors in such
markets.

         The limited size of many Latin American  securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the  securities of U.S.  issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and  competitiveness of the
securities  issuers.  For  example,  limited  market size may cause prices to be
unduly influenced by traders who control large positions.  Adverse publicity and
investors'  perceptions,  whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

         The Fund may invest a portion of its assets in  securities  denominated
in currencies of Latin American countries.  Accordingly, changes in the value of
these currencies against the U.S. dollar may result in corresponding  changes in
the U.S. dollar value of the Fund's assets denominated in those currencies.

         Some Latin American countries also may have managed  currencies,  which
are not free floating against the U.S. dollar.  In addition,  there is risk that
certain  Latin  American  countries  may restrict the free  conversion  of their
currencies into other currencies. Further, certain Latin American currencies may
not be  internationally  traded.  Certain of these currencies have experienced a
steep  devaluation  relative  to  the  U.S.  dollar.  Any  devaluations  in  the
currencies in which the Fund's  portfolio  securities are denominated may have a
detrimental impact on the Fund's net asset value.

         The  economies  of  individual  Latin  American  countries  may  differ
favorably or unfavorably  from the U.S.  economy in such respects as the rate of
growth of gross domestic product, the rate of inflation,  capital  reinvestment,
resource  self-


                                       6
<PAGE>

sufficiency and balance of payments  position.  Certain Latin American countries
have experienced  high levels of inflation which can have a debilitating  effect
on an economy,  although  some have begun to control  inflation  in recent years
through prudent economic policies. Furthermore, certain Latin American countries
may impose  withholding  taxes on dividends payable to the Fund at a higher rate
than  those  imposed  by other  foreign  countries.  This may  reduce the Fund's
investment income available for distribution to shareholders.

         Certain Latin American  countries such as Argentina,  Brazil and Mexico
are  among  the  world's  largest  debtors  to  commercial   banks  and  foreign
governments.  At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt.

         Latin  America  is a  region  rich in  natural  resources  such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region  has a  large  population  (roughly  300  million)  representing  a large
domestic  market.  Economic growth was strong in the 1960s and 1970s, but slowed
dramatically  (and in some  instances  was negative) in the 1980s as a result of
poor economic policies,  higher international  interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently  experiencing lower rates of inflation and higher rates of real growth
in gross  domestic  product  than they have in the past,  other  Latin  American
countries continue to experience significant problems,  including high inflation
rates and high interest  rates.  Capital flight has proven a persistent  problem
and  external  debt has been  forcibly  restructured.  Political  turmoil,  high
inflation,  capital repatriation restrictions,  and nationalization have further
exacerbated conditions.

         Governments  of  many  Latin  American  countries  have  exercised  and
continue  to exercise  substantial  influence  over many  aspects of the private
sector through the ownership or control of many companies, including some of the
largest in those countries. As a result,  government actions in the future could
have a significant  effect on economic  conditions  which may  adversely  affect
prices of certain portfolio securities.  Expropriation,  confiscatory  taxation,
nationalization,  political,  economic or social  instability  or other  similar
developments,  such as military coups,  have occurred in the past and could also
adversely affect the Fund's investments in this region.

         Changes in political leadership,  the implementation of market oriented
economic policies,  such as privatization,  trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth.  External debt
is being  restructured and flight capital  (domestic  capital that has left home
country)  has  begun  to  return.  Inflation  control  efforts  have  also  been
implemented.  Free Trade Zones are being  discussed in various  areas around the
region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four  countries in the  southernmost  point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the  currencies  to undergo wide  fluctuations  in value over
short periods of time due to changes in the market.

Investing in the Pacific Basin.  Economies of individual Pacific Basin countries
may differ  favorably or unfavorably  from the U.S.  economy in such respects as
growth of gross  national  product,  rate of  inflation,  capital  reinvestment,
resource  self-sufficiency,  interest  rate  levels,  and  balance  of  payments
position. Of particular importance,  most of the economies in this region of the
world are heavily dependent upon exports,  particularly to developed  countries,
and,  accordingly,  have been and may continue to be adversely affected by trade
barriers,   managed   adjustments  in  relative   currency  values,   and  other
protectionist  measures  imposed or negotiated  by the U.S. and other  countries
with which they trade.  These  economies  also have been and may  continue to be
negatively  impacted  by  economic  conditions  in the U.S.  and  other  trading
partners, which can lower the demand for goods produced in the Pacific Basin.

         With  respect to the  Peoples  Republic  of China and other  markets in
which the Fund may  participate,  there is the  possibility of  nationalization,
expropriation   or  confiscatory   taxation,   political   changes,   government
regulation,  social instability or diplomatic  developments that could adversely
impact a Pacific  Basin  country  or the Fund's  investment  in the debt of that
country.

         Foreign companies, including Pacific Basin companies, are not generally
subject to uniform  accounting,  auditing  and  financial  reporting  standards,
practices and  disclosure  requirements  comparable to those  applicable to U.S.
companies.  Consequently, there may be less publicly available information about
such  companies  than about U.S.  companies.  Moreover,  there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.

Investing in Europe. Most Eastern European nations,  including Hungary,  Poland,
Czech  Republic,  Slovak  Republic,  and  Romania  have had  centrally  planned,
socialist  economies  since  shortly  after  World  War II.  A  number  of their
governments,  including  those of Hungary,  the Czech  Republic,  and Poland are
currently implementing or considering reforms directed at political and economic
liberalization,  including  efforts  to foster  multi-party  political  systems,
decentralize  economic  planning,  and move  toward free  market  economies.  At
present,  no Eastern European country has a developed stock market,


                                       7
<PAGE>

but Poland,  Hungary,  and the Czech Republic have small  securities  markets in
operation.   Ethnic  and  civil  conflict  currently  rage  through  the  former
Yugoslavia. The outcome is uncertain.

         Both the European  Community (the "EC") and Japan,  among others,  have
made  overtures to  establish  trading  arrangements  and assist in the economic
development  of the Eastern  European  nations.  A great deal of  interest  also
surrounds  opportunities  created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable  member  of the EC  and  numerous  other  international  alliances  and
organizations.  To reduce  inflation  caused by the unification of East and West
Germany,  Germany has adopted a tight monetary  policy which has led to weakened
exports and a reduced  domestic demand for goods and services.  However,  in the
long-term,   reunification  could  prove  to  be  an  engine  for  domestic  and
international growth.

         The  conditions  that  have  given  rise  to  these   developments  are
changeable,  and there is no assurance  that reforms will continue or that their
goals will be achieved.

         Portugal is a genuinely  emerging  market which has  experienced  rapid
growth  since  the  mid-1980s,  except  for a brief  period of  stagnation  over
1990-91.  Portugal's  government  remains  committed  to  privatization  of  the
financial  system  away from one  dependent  upon the  banking  system to a more
balanced  structure  appropriate  for  the  requirements  of a  modern  economy.
Inflation continues to be about three times the EC average.

         Economic  reforms  launched in the 1980s  continue to benefit Turkey in
the 1990s.  Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita Gross Domestic Product (the "GDP")  increasing more than 6%
annually.  Agriculture  remains the most important  economic  sector,  employing
approximately  55% of the labor force,  and accounting for nearly 20% of GDP and
20% of exports.  Inflation  and interest  rates remain high,  and a large budget
deficit   will   continue  to  cause   difficulties   in  Turkey's   substantial
transformation to a dynamic free market economy.

         Like many other Western  economies,  Greece suffered  severely from the
global oil price hikes of the 1970s,  with annual GDP growth plunging from 8% to
2% in the  1980s,  and  inflation,  unemployment,  and  budget  deficits  rising
sharply.  The fall of the socialist  government in 1989 and the inability of the
conservative  opposition  to  obtain  a  clear  majority  have  led to  business
uncertainty  and the continued  prospects for flat  economic  performance.  Once
Greece  has  sorted  out  its  political  situation,  it will  have to face  the
challenges posed by the steadily increasing integration of the EC, including the
progressive  lowering of trade and investment  barriers.  Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.

         Securities traded in certain emerging European  securities  markets may
be subject to risks due to the  inexperience  of financial  intermediaries,  the
lack of modern  technology  and the lack of a sufficient  capital base to expand
business  operations.  Additionally,  former  Communist  regimes  of a number of
Eastern  European  countries had  expropriated  a large amount of property,  the
claims of which have not been entirely  settled.  There can be no assurance that
the  Fund's  investments  in  Eastern  Europe  would  not also be  expropriated,
nationalized  or otherwise  confiscated.  Finally,  any change in  leadership or
policies of Eastern European countries, or countries that exercise a significant
influence  over  those  countries,  may halt the  expansion  of or  reverse  the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities.

Investing in Africa.  Africa is a continent of roughly 50 countries with a total
population of approximately  840 million people.  Literacy rates (the percentage
of  people  who are  over 15  years  of age and who  can  read  and  write)  are
relatively low,  ranging from 20% to 60%. The primary  industries  include crude
oil, natural gas, manganese ore,  phosphate,  bauxite,  copper,  iron,  diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.

         Many of the countries are fraught with political instability.  However,
there has been a trend over the past five  years  toward  democratization.  Many
countries are moving from a military style,  Marxist, or single party government
to a multi-party  system.  Still, there remain many countries that do not have a
stable political  process.  Other countries have been enmeshed in civil wars and
border clashes.

         Economically,  the Northern Rim countries (including Morocco, Egypt and
Algeria) and Nigeria,  Zimbabwe and South Africa are the wealthier  countries on
the continent.  The market  capitalization  of these  countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges.  However, religious and ethnic strife has been a
significant source of instability.

         On the  other  end of the  economic  spectrum  are  countries,  such as
Burkinafaso,  Madagascar and Malawi, that are considered to be among the poorest
or least  developed in the world.  These  countries are generally  landlocked or
have poor


                                       8
<PAGE>

natural resources. The economies of many African countries are heavily dependent
on international  oil prices.  Of all the African  industries,  oil has been the
most  lucrative,  accounting  for 40% to 60% of many  countries'  GDP.  However,
general decline in oil prices has had an adverse impact on many economies.

Specialized Investment Techniques



Investment of Uninvested Cash Balances

         The  Fund may have  cash  balances  that  have  not  been  invested  in
portfolio  securities  ("Uninvested  Cash").  Uninvested  Cash may result from a
variety of sources,  including  dividends or interest  received  from  portfolio
securities,  unsettled  securities  transactions,  reserves held for  investment
strategy purposes, scheduled maturity of investments,  liquidation of investment
securities to meet anticipated  redemptions and dividend payments,  and new cash
received  from  investors.  Uninvested  Cash may be  invested  directly in money
market  instruments  or  other  short-term  debt  obligations.  Pursuant  to  an
Exemptive  Order issued by the SEC, the Fund may use Uninvested Cash to purchase
shares of affiliated  funds including money market funds,  short-term bond funds
and Scudder Cash Management Investment Trust, or one or more future entities for
which Scudder  Kemper  Investments  acts as trustee or  investment  advisor that
operate as cash  management  investment  vehicles and that are excluded from the
definition of investment  company  pursuant to section 3(c)(1) or 3(c)(7) of the
Investment Company Act of 1940 (collectively,  the "Central Funds") in excess of
the limitations of Section 12(d)(1) of the Investment Company Act. Investment by
the Fund in shares of the Central  Funds will be in  accordance  with the Fund's
investment policies and restrictions as set forth in its registration statement.

Certain of the  Central  Funds  comply  with rule 2a-7 under the Act.  The other
Central Funds are or will be short-term  bond funds that invest in  fixed-income
securities  and maintain a dollar  weighted  average  maturity of three years or
less.  Each of the  Central  Funds will be managed  specifically  to  maintain a
highly liquid  portfolio,  and access to them will enhance the Fund's ability to
manage Uninvested Cash.

The Fund will invest  Uninvested  Cash in Central  Funds only to the extent that
the Fund's aggregate  investment in the Central Funds does not exceed 25% of its
total  assets in shares of the Central  Funds.  Purchase  and sales of shares of
Central Funds are made at net asset value.



Debt Securities. If the Adviser determines that the capital appreciation on debt
securities  is likely to exceed  that of common  stocks,  the Fund may invest in
debt securities of foreign and U.S. issuers.  Portfolio debt investments will be
selected on the basis of capital appreciation  potential,  by evaluating,  among
other things,  potential  yield,  if any,  credit  quality,  and the fundamental
outlooks for currency and interest rate trends in different  parts of the world,
taking  into  account  the  ability to hedge a degree of  currency or local bond
price risk.  The Fund may  purchase  "investment-grade"  bonds,  which are those
rated Aaa, Aa, A or Baa by Moody's Investors  Service  ("Moody's") or AAA, AA, A
or BBB by  Standard  &  Poor's  Ratings  Services  ("S&P"),  a  division  of The
McGraw-Hill Companies,  Inc. or, if unrated,  judged to be of equivalent quality
as  determined  by the  Adviser.  Bonds  rated  Baa or BBB may have  speculative
elements as well as investment-grade  characteristics.  The Fund may also invest
up  to  5%  of  its  net  assets  in  debt  securities  which  are  rated  below
investment-grade, that is, rated below Baa by Moody's or below BBB by S&P and in
unrated securities of equivalent quality.

High Yield/High Risk Securities.  Below  investment-grade  securities,  commonly
referred to as "junk  bonds"  (rated Ba and lower by Moody's and BB and lower by
S&P), or unrated securities of equivalent  quality, in which the Fund may invest
up to 5% of its  net  assets,  carry  a  high  degree  of  risk  (including  the
possibility  of  default  or  bankruptcy  of the  issuers  of such  securities),
generally involve greater  volatility of price and risk of principal and income,
and may be less liquid,  than securities in the higher rating categories and are
considered  speculative.  The lower the  ratings  of such debt  securities,  the
greater their risks render them like equity securities. See the Appendix to this
Statement of  Additional  Information  for a more  complete  description  of the
ratings assigned by ratings organizations and their respective characteristics.

         Economic  downturns  may disrupt  the high yield  market and impair the
ability of  issuers to repay  principal  and  interest.  Also,  an  increase  in
interest  rates would likely have a greater  adverse impact on the value of such
obligations  than on  comparable  higher  quality  debt  securities.  During  an
economic  downturn or period of rising interest rates,  highly  leveraged issues
may experience  financial  stress which could adversely  affect their ability to
service their principal and interest payment  obligations.  Prices and yields of
high yield  securities  will fluctuate over time and, during periods of economic
uncertainty, volatility of high yield securities may adversely affect the Fund's
net  asset  value.  In  addition,


                                       9
<PAGE>

investments  in high  yield  zero  coupon  or  pay-in-kind  bonds,  rather  than
income-bearing high yield securities, may be more speculative and may be subject
to greater fluctuations in value due to changes in interest rates.

         The trading market for high yield  securities may be thin to the extent
that there is no established  retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately  value high yield  securities in the Fund's  portfolio and to
dispose of those  securities.  Adverse  publicity and investor  perceptions  may
decrease the values and liquidity of high yield securities. These securities may
also involve special registration  responsibilities,  liabilities and costs, and
liquidity and valuation difficulties.

         Credit quality in the high yield securities  market can change suddenly
and unexpectedly,  and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular  high-yield security.  For these reasons,
it is the policy of the Adviser  not to rely  exclusively  on ratings  issued by
established credit rating agencies,  but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment  objective by investment in such  securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds.  Should
the rating of a portfolio  security be  downgraded,  the Adviser will  determine
whether  it is in the best  interest  of the Fund to retain or  dispose  of such
security.

         Prices  for  below  investment-grade  securities  may  be  affected  by
legislative and regulatory developments.  For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security.  Also,  Congress has from time to time  considered  legislation  which
would restrict or eliminate the corporate tax deduction for interest payments in
these  securities and regulate  corporate  restructurings.  Such legislation may
significantly  depress the prices of  outstanding  securities of this type.  For
more  information  regarding tax issues  related to high yield  securities,  see
"TAXES."

Convertible Securities. The Fund may invest in convertible securities,  that is,
bonds,  notes,  debentures,  preferred  stocks  and other  securities  which are
convertible into common stock. Investments in convertible securities can provide
an  opportunity  for capital  appreciation  and/or income  through  interest and
dividend payments by virtue of their conversion or exchange features.

         The  convertible  securities  in which the Fund may  invest  are either
fixed income or zero coupon debt securities  which may be converted or exchanged
at a stated or  determinable  exchange  ratio into  underlying  shares of common
stock.  The  exchange  ratio  for any  particular  convertible  security  may be
adjusted  from time to time due to stock  splits,  dividends,  spin-offs,  other
corporate distributions or scheduled changes in the exchange ratio.  Convertible
debt securities and convertible preferred stocks, until converted,  have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt  securities  generally,  the market  value of  convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest  rates decline.  In addition,  because of the conversion or
exchange feature,  the market value of convertible  securities typically changes
as the market value of the underlying  common stocks  changes,  and,  therefore,
also tends to follow  movements in the general market for equity  securities.  A
unique  feature of  convertible  securities  is that as the market  price of the
underlying  common  stock  declines,   convertible   securities  tend  to  trade
increasingly on a yield basis,  and so may not experience  market value declines
to the same extent as the underlying  common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the  underlying  common stock,  although
typically  not as much as the  underlying  common  stock.  While  no  securities
investments are without risk,  investments in convertible  securities  generally
entail less risk than investments in common stock of the same issuer.

         As  debt  securities,  convertible  securities  are  investments  which
provide  for a  stream  of  income  (or in the case of zero  coupon  securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt  securities,  there can be no  assurance  of  income or  principal
payments because the issuers of the convertible  securities may default on their
obligations.   Convertible   securities   generally   offer  lower  yields  than
non-convertible  securities of similar  quality  because of their  conversion or
exchange features.

         Convertible  securities generally are subordinated to other similar but
non-convertible  securities of the same issuer,  although  convertible bonds, as
corporate debt  obligations,  enjoy  seniority in right of payment to all equity
securities,  and  convertible  preferred stock is senior to common stock, of the
same issuer.  However,  because of the subordination feature,  convertible bonds
and  convertible  preferred  stock  typically  have lower  ratings  than similar
non-convertible securities.

         Convertible  securities may be issued as fixed income  obligations that
pay current  income or as zero coupon  notes and bonds,  including  Liquid Yield
Option Notes  ("LYONs"(TM)).  Zero coupon  securities pay no cash income and are
sold at  substantial  discounts  from  their  value at  maturity.  When  held to
maturity,  their entire income,  which consists of accretion of


                                       10
<PAGE>

discount,  comes from the difference  between the issue price and their value at
maturity.  Zero coupon convertible  securities offer the opportunity for capital
appreciation  as increases  (or  decreases)  in market value of such  securities
closely follow the movements in the market value of the underlying common stock.
Zero coupon  convertible  securities  generally are expected to be less volatile
than the  underlying  common  stocks as they  usually  are issued  with  shorter
maturities  (15 years or less) and are issued  with  options  and/or  redemption
features  exercisable  by the holder of the  obligation  entitling the holder to
redeem the obligation and receive a defined cash payment.

Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market.  While such purchases may often offer attractive  opportunities
for  investment  not otherwise  available on the open market,  the securities so
purchased are often "restricted  securities" or "not readily  marketable," i.e.,
securities  which cannot be sold to the public  without  registration  under the
Securities Act of 1933 (the "1933 Act") or the availability of an exemption from
registration  (such as Rules 144 or 144A) or because  they are  subject to other
legal or contractual delays in or restrictions on resale.

         Generally speaking, restricted securities may be sold only to qualified
institutional  buyers,  or in a privately  negotiated  transaction  to a limited
number of purchasers,  or in limited  quantities after they have been held for a
specified  period of time and other  conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. The Fund may be deemed to be an "underwriter"  for
purposes of the 1933 Act when selling  restricted  securities to the public, and
in such event the Fund may be liable to  purchasers  of such  securities  if the
registration  statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.

Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, with any domestic or foreign  broker/dealer
which is recognized as a reporting government  securities dealer, or any foreign
bank, if the repurchase  agreement is fully secured by government  securities of
the particular  foreign  jurisdiction,  if the  creditworthiness  of the bank or
broker/dealer  has been determined by the Adviser to be at least as high as that
of other  obligations the Fund may purchase,  or to be at least equal to that of
issuers of  commercial  paper rated  within the two highest  grades  assigned by
Moody's or S&P.

         A repurchase  agreement provides a means for the Fund to earn income on
assets for periods as short as overnight.  It is an arrangement  under which the
Fund acquires a security  ("Obligation")  and the seller agrees,  at the time of
sale, to repurchase the  Obligation at a specified  time and price.  Obligations
subject to a repurchase agreement are held in a segregated account and the value
of such securities kept at least equal to the repurchase price on a daily basis.
The repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase  prices may be the same, with
interest at a stated rate due to the Fund  together  with the  repurchase  price
upon  repurchase.  In either  case,  the income to the Fund is  unrelated to the
interest  rate  on the  Obligation  itself.  Obligations  will  be  held  by the
custodian or in the Federal Reserve Book Entry system.

         For purposes of the 1940 Act, a repurchase  agreement is deemed to be a
loan from the Fund to the seller of the  Obligation  subject  to the  repurchase
agreement  and is  therefore  subject  to  that  Fund's  investment  restriction
applicable  to  loans.  It is not  clear  whether  a court  would  consider  the
Obligation  purchased  by the Fund  subject to a  repurchase  agreement as being
owned by the Fund or as being  collateral  for a loan by the Fund to the seller.
In the event of the  commencement of bankruptcy or insolvency  proceedings  with
respect to the seller of the  Obligation  before  repurchase  of the  Obligation
under a  repurchase  agreement,  the Fund may  encounter  delay and incur  costs
before being able to sell the  security.  Delays may involve loss of interest or
decline in price of the Obligation.  If the court  characterizes the transaction
as a loan and the Fund has not perfected a security  interest in the Obligation,
the Fund may be required to return the Obligation to the seller's  estate and be
treated as an unsecured  creditor of the seller. As an unsecured  creditor,  the
Fund would be at risk of losing some or all of the principal and income involved
in the  transaction.  As with any unsecured  debt  instrument  purchased for the
Fund,  the  Adviser  seeks  to  minimize  the  risk of loss  through  repurchase
agreements by analyzing the  creditworthiness  of the obligor,  in this case the
seller  of the  Obligation.  Apart  from the risk of  bankruptcy  or  insolvency
proceedings,  there is also the risk that the seller may fail to repurchase  the
Obligation,  in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third  party are less than the  repurchase  price.  To  protect
against such  potential  loss, if the market value  (including  interest) of the
Obligation subject to the repurchase  agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation to
deliver additional  securities so that the market value (including  interest) of
all  securities  subject to the  repurchase  agreement  will equal or exceed the
repurchase  price.  It is possible that the Fund will be unsuccessful in seeking
to  impose  on  the  seller  a  contractual  obligation  to  deliver  additional
securities.  A repurchase  agreement  with foreign  banks may be available  with
respect to government  securities of the particular  foreign  jurisdiction,  and
such repurchase  agreements involve risks similar to repurchase  agreements with
U.S. entities.



                                       11
<PAGE>

When-Issued Securities.  The Fund may from time to time purchase securities on a
"when-issued"  or "forward  delivery"  basis for payment and delivery at a later
date. The price of such  securities,  which may be expressed in yield terms,  is
fixed at the time the  commitment to purchase is made,  but delivery and payment
for the when-issued or forward delivery  securities takes place at a later date.
During the period  between  purchase and  settlement,  no payment is made by the
Fund to the  issuer and no  interest  accrues  to the Fund.  To the extent  that
assets of the Fund are held in cash  pending  the  settlement  of a purchase  of
securities,  the Fund would earn no income;  however, it is the Fund's intention
to be fully  invested  to the extent  practicable  and  subject to the  policies
stated above. While when-issued or forward delivery securities may be sold prior
to the settlement  date, the Fund intends to purchase such  securities  with the
purpose  of  actually  acquiring  them  unless  a  sale  appears  desirable  for
investment  reasons.  At the time the Fund makes the  commitment  to  purchase a
security  on a  when-issued  or  forward  delivery  basis,  it will  record  the
transaction  and reflect the value of the security in determining  its net asset
value. At the time of settlement, the market value of the when-issued or forward
delivery  securities may be more or less than the purchase price.  The Fund does
not believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis. The Fund will
establish  a  segregated  account  with the  Funds'  custodian  in which it will
maintain cash or liquid assets equal in value to commitments  for when-issued or
forward delivery securities.  Such segregated  securities either will mature or,
if necessary,  be sold on or before the settlement date. The Fund will not enter
into such transactions for leverage purposes.

Lending of  Portfolio  Securities.  The Fund may seek to increase  its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal  Reserve System and the SEC, such loans
may be made to member firms of the New York Stock Exchange (the "Exchange"), and
would be required to be secured  continuously  by  collateral  in cash or liquid
assets  maintained  on a current basis at an amount at least equal to the market
value and accrued  interest of the  securities  loaned.  The Fund would have the
right to call a loan and obtain the securities loaned on no more than five days'
notice.  During the existence of a loan,  the Fund would continue to receive the
equivalent of the interest paid by the issuer on the securities loaned and would
also receive  compensation based on investment of the collateral.  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 Adviser to be of
good standing, and when, in the judgment of the Adviser, the consideration which
can be  earned  currently  from  securities  loans of this  type  justifies  the
attendant risk. If the Fund determines to make  securities  loans,  the value of
the securities loaned will not exceed 5% of the value of the Fund's total assets
at the time any loan is made.

Zero Coupon Securities.  The Fund may invest in zero coupon securities which pay
no cash  income  and are  sold at  substantial  discounts  from  their  value at
maturity.  When  held to  maturity,  their  entire  income,  which  consists  of
accretion of  discount,  comes from the  difference  between the issue price and
their value at maturity.  Zero coupon  securities  are subject to greater market
value  fluctuations  from  changing  interest  rates  than debt  obligations  of
comparable  maturities which make current distributions of interest (cash). Zero
coupon  securities which are convertible into common stock offer the opportunity
for capital  appreciation  as increases  (or  decreases) in market value of such
securities  closely  follows the movements in the market value of the underlying
common stock. Zero coupon  convertible  securities  generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities  of 15 years or less and are issued with  options  and/or  redemption
features  exercisable  by the holder of the  obligation  entitling the holder to
redeem the obligation and receive a defined cash payment.

         Zero coupon securities  include  securities issued directly by the U.S.
Treasury,  and U.S. Treasury bonds or notes and their unmatured interest coupons
and  receipts  for  their  underlying  principal  ("coupons")  which  have  been
separated by their holder,  typically a custodian  bank or investment  brokerage
firm. A holder will separate the interest coupons from the underlying  principal
(the "corpus") of the U.S. Treasury  security.  A number of securities firms and
banks have  stripped the  interest  coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth  Receipts"  (TIGRS(TM))  and  Certificate of Accrual on Treasuries
(CATS(TM)).  The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e.,  unregistered  securities  which are owned  ostensibly  by the  bearer or
holder  thereof),  in trust on  behalf of the  owners  thereof.  Counsel  to the
underwriters  of these  certificates or other evidences of ownership of the U.S.
Treasury  securities have stated that, for federal tax and securities  purposes,
in their opinion purchasers of such certificates,  such as the Fund, most likely
will  be  deemed  the  beneficial  holder  of  the  underlying  U.S.  Government
securities.  The Fund  understands  that the staff of the Division of Investment
Management of the SEC no longer considers such privately stripped obligations to
be U.S. Government securities, as defined in the 1940 Act.

         The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting  separately for the beneficial  ownership of particular
interest coupon and corpus payments on Treasury  securities  through the Federal
Reserve  book-entry  record  keeping  system.  The  Federal  Reserve  program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered  Interest and Principal of Securities."  Under the STRIPS program,
the Fund


                                       12
<PAGE>

will be able to have its beneficial ownership of zero coupon securities recorded
directly  in the  book-entry  record-keeping  system  in lieu of  having to hold
certificates  or other  evidences of ownership of the underlying  U.S.  Treasury
securities.

         When U.S.  Treasury  obligations  have been stripped of their unmatured
interest  coupons  by the  holder,  the  principal  or  corpus is sold at a deep
discount  because the buyer  receives  only the right to receive a future  fixed
payment on the  security  and does not receive  any rights to periodic  interest
(cash) payments. Once stripped or separated,  the corpus and coupons may be sold
separately.  Typically,  the coupons are sold  separately  or grouped with other
coupons with like  maturity  dates and sold bundled in such form.  Purchasers of
stripped  obligations   acquire,  in  effect,   discount  obligations  that  are
economically  identical to the zero coupon  securities  that the Treasury  sells
itself (see "TAXES").

         The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting  separately for the beneficial  ownership of particular
interest coupon and corpus payments on Treasury  securities  through the Federal
Reserve  book-entry  record  keeping  system.  The  Federal  Reserve  program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered  Interest and Principal of Securities."  Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry  record-keeping  system in lieu of having to
hold  certificates  or other  evidences  of  ownership  of the  underlying  U.S.
Treasury securities.

         When U.S.  Treasury  obligations  have been stripped of their unmatured
interest  coupons  by the  holder,  the  principal  or  corpus is sold at a deep
discount  because the buyer  receives  only the right to receive a future  fixed
payment on the  security  and does not receive  any rights to periodic  interest
(cash) payments. Once stripped or separated,  the corpus and coupons may be sold
separately.  Typically,  the coupons are sold  separately  or grouped with other
coupons with like  maturity  dates and sold bundled in such form.  Purchasers of
stripped  obligations   acquire,  in  effect,   discount  obligations  that  are
economically  identical to the zero coupon  securities  that the Treasury  sells
itself (see "TAXES").


Real Estate Investment Trusts ("REITs"). The Fund may invest in REITs. REITs are
sometimes  informally  characterized as equity REITs,  mortgage REITs and hybrid
REITs.  Investment  in REITs may subject the Fund to risks  associated  with the
direct  ownership  of real  estate,  such as  decreases  in real estate  values,
overbuilding,  increased competition and other risks related to local or general
economic conditions, increases in operating costs and property taxes, changes in
zoning  laws,   casualty  or   condemnation   losses,   possible   environmental
liabilities,  regulatory  limitations on rent and fluctuations in rental income.
Equity REITs generally  experience these risks directly through fee or leasehold
interests,  whereas  mortgage REITs generally  experience these risks indirectly
through  mortgage  interests,   unless  the  mortgage  REIT  forecloses  on  the
underlying  real estate.  Changes in interest rates may also affect the value of
the Fund's  investment  in REITs.  For  instance,  during  periods of  declining
interest  rates,  certain  mortgage REITs may hold mortgages that the mortgagors
elect to prepay, which prepayment may diminish the yield on securities issued by
those REITs.

         Certain REITs have relatively  small market  capitalization,  which may
tend to  increase  the  volatility  of the  market  price of  their  securities.
Furthermore,  REITs are  dependent  upon  specialized  management  skills,  have
limited  diversification  and  are,  therefore,  subject  to risks  inherent  in
operating and financing a limited number of projects.  REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free  pass-through of income under the Internal  Revenue Code
of  1986,  as  amended,   and  to  maintain   exemption  from  the  registration
requirements  of the  Investment  Company  Act of 1940.  By  investing  in REITs
indirectly  through  the  Fund,  a  shareholder  will  bear  not only his or her
proportionate share of the expenses of the Fund, but also,  indirectly,  similar
expenses of the REITs. In addition,  REITs depend  generally on their ability to
generate cash flow to make distributions to shareholders.


FHLMC Collateralized  Mortgage  Obligations.  FHLMC CMOs are debt obligations of
FHLMC  issued in multiple  classes  having  different  maturity  dates which are
secured by the pledge of a pool of  conventional  mortgage  loans  purchased  by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semiannually,  as opposed to monthly.  The amount of  principal  payable on each
semiannual  payment date is  determined  in  accordance  with FHLMC's  mandatory
sinking fund schedule,  which,  in turn, is equal to  approximately  100% of FHA
prepayment  experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the  individual  classes
of bonds in the order of their  stated  maturities.  Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal  payments received on the collateral pool in excess of FHLMC's minimum
sinking fund  requirement,  the rate at which  principal of the CMOs is actually
repaid is likely to be such that each  class of bonds will be retired in advance
of its scheduled maturity date.

         If  collection  of principal  (including  prepayments)  on the mortgage
loans during any  semiannual  payment  period is not  sufficient to meet FHLMC's
minimum  sinking fund  obligation on the next sinking fund payment  date,  FHLMC
agrees to make up the deficiency from its general funds.



                                       13
<PAGE>

         Criteria  for the  mortgage  loans  in the  pool  backing  the CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.

Other  Mortgage-Backed   Securities.  The  Adviser  expects  that  governmental,
government-related  or private entities may create mortgage loan pools and other
mortgage-related     securities     offering    mortgage     pass-through    and
mortgage-collateralized  investments in addition to those described  above.  The
mortgages   underlying  these  securities  may  include   alternative   mortgage
instruments,  that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from  customary  long-term  fixed
rate mortgages.

Borrowing.  As a matter of fundamental  policy,  the Fund will not borrow money,
except as  permitted  under the 1940 Act,  as  amended,  and as  interpreted  or
modified by regulatory authority having  jurisdiction,  from time to time. While
the  Directors  do not  currently  intend  to  borrow  for  investment  leverage
purposes,  if such a strategy were  implemented  in the future it would increase
the Fund's volatility and the risk of loss in a declining  market.  Borrowing by
the Fund will involve special risk considerations. Although the principal of the
Fund's  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.

Strategic  Transactions and  Derivatives.  The Fund may, but is not required to,
utilize various other investment  strategies as described below for a variety of
purposes,  such as hedging various market risks, managing the effective maturity
or duration of  fixed-income  securities in the Fund's  portfolio,  or enhancing
potential gain.  These  strategies may be executed through the use of derivative
contracts.

         In the course of pursuing  these  investment  strategies,  the Fund may
purchase and sell  exchange-listed and  over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments,  purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors,  collars,  currency forward contracts,  currency futures
contracts,  currency  swaps or options on  currencies,  or currency  futures and
various  other  currency  transactions  (collectively,  all the above are called
"Strategic Transactions").  In addition, strategic transactions may also include
new  techniques,  instruments  or  strategies  that are  permitted as regulatory
changes  occur.  Strategic  Transactions  may be used without limit  (subject to
certain  limitations  imposed by the 1940 Act) to  attempt  to  protect  against
possible  changes in the market value of  securities  held in or to be purchased
for the Fund's portfolio  resulting from securities markets or currency exchange
rate  fluctuations,  to protect the Fund's  unrealized gains in the value of its
portfolio  securities,  to facilitate the sale of such securities for investment
purposes,   to  manage  the  effective  maturity  or  duration  of  fixed-income
securities  in  the  Fund's  portfolio,  or  to  establish  a  position  in  the
derivatives  markets  as a  substitute  for  purchasing  or  selling  particular
securities.  Some Strategic  Transactions may also be used to enhance  potential
gain  although  no more  than 5% of the  Fund's  assets  will  be  committed  to
Strategic  Transactions  entered into for  non-hedging  purposes.  Any or all of
these investment techniques may be used at any time and in any combination,  and
there is no particular  strategy  that dictates the use of one technique  rather
than  another,  as use of any  Strategic  Transaction  is a function of numerous
variables including market conditions.  The ability of the Fund to utilize these
Strategic  Transactions  successfully  will depend on the  Adviser's  ability to
predict  pertinent  market  movements,  which  cannot be assured.  The Fund will
comply  with  applicable   regulatory   requirements  when  implementing   these
strategies, techniques and instruments.  Strategic Transactions will not be used
to alter fundamental  investment  purposes and  characteristics of the Fund, and
the Fund will segregate assets (or as provided by applicable regulations,  enter
into certain  offsetting  positions)  to cover its  obligations  under  options,
futures and swaps to limit leveraging of the Fund.

         Strategic  Transactions,  including  derivative  contracts,  have risks
associated  with them  including  possible  default  by the  other  party to the
transaction,  illiquidity  and, to the extent the  Adviser's  view as to certain
market  movements  is  incorrect,  the  risk  that  the  use of  such  Strategic
Transactions  could result in losses greater than if they had not been used. Use
of put and call  options  may  result in  losses to the Fund,  force the sale or
purchase of portfolio  securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market  values,  limit the amount of  appreciation  the Fund can  realize on its
investments  or cause the Fund to hold a security it might  otherwise  sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of  options  and  futures  transactions  entails  certain  other  risks.  In
particular,  the  variable  degree of  correlation  between  price  movements of
futures contracts and price movements in the related  portfolio  position of the
Fund  creates  the  possibility  that losses on the  hedging  instrument  may be
greater than gains in the value of the Fund's position. In addition, futures and
options   markets   may  not  be  liquid  in  all   circumstances   and  certain
over-the-counter  options may have no markets.  As a result, in certain markets,
the  Fund  might  not be able  to  close  out a  transaction  without  incurring
substantial  losses,  if at  all.  Although  the  use  of  futures  and  options
transactions  for  hedging  should  tend to  minimize  the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any  potential  gain  which  might  result  from an  increase  in  value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing


                                       14
<PAGE>

potential financial risk than would purchases of options,  where the exposure is
limited to the cost of the initial  premium.  Losses  resulting  from the use of
Strategic  Transactions  would reduce net asset value, and possibly income,  and
such  losses  can be greater  than if the  Strategic  Transactions  had not been
utilized.

General  Characteristics of Options. Put options and call options typically have
similar structural  characteristics and operational  mechanics regardless of the
underlying  instrument on which they are purchased or sold.  Thus, the following
general  discussion relates to each of the particular types of options discussed
in greater  detail below.  In addition,  many Strategic  Transactions  involving
options  require  segregation of Fund assets in special  accounts,  as described
below under "Use of Segregated and Other Special Accounts."

         A put option  gives the  purchaser  of the  option,  upon  payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security,  commodity, index, currency or other instrument at the exercise price.
For  instance,  the  Fund's  purchase  of a put  option on a  security  might be
designed  to protect  its  holdings in the  underlying  instrument  (or, in some
cases, a similar  instrument)  against a substantial decline in the market value
by giving  the Fund the right to sell such  instrument  at the  option  exercise
price.  A call  option,  upon payment of a premium,  gives the  purchaser of the
option the right to buy, and the seller the  obligation to sell,  the underlying
instrument  at the  exercise  price.  The Fund's  purchase of a call option on a
security,  financial  future,  index,  currency  or  other  instrument  might be
intended to protect the Fund against an increase in the price of the  underlying
instrument  that it  intends  to  purchase  in the future by fixing the price at
which it may purchase such instrument.  An American style put or call option may
be exercised at any time during the option period while a European  style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options").  Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the  performance  of the  obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

         With  certain  exceptions,  OCC  issued  and  exchange  listed  options
generally  settle by physical  delivery of the underlying  security or currency,
although in the future cash settlement may become  available.  Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is  "in-the-money"  (i.e.,  where the value of the underlying  instrument
exceeds,  in the case of a call  option,  or is less than,  in the case of a put
option,  the exercise  price of the option) at the time the option is exercised.
Frequently,  rather than taking or making delivery of the underlying  instrument
through  the process of  exercising  the  option,  listed  options are closed by
entering into  offsetting  purchase or sale  transactions  that do not result in
ownership of the new option.

         The Fund's  ability to close out its  position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent,  in part, upon the
liquidity of the option market.  Among the possible reasons for the absence of a
liquid option market on an exchange are: (i)  insufficient  trading  interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading  halts,  suspensions  or other  restrictions  imposed  with  respect  to
particular  classes  or series of  options or  underlying  securities  including
reaching daily price limits;  (iv)  interruption of the normal operations of the
OCC or an exchange;  (v)  inadequacy of the  facilities of an exchange or OCC to
handle current  trading  volume;  or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant  market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

         The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the  option  markets  close  before the  markets  for the  underlying  financial
instruments,  significant  price  and  rate  movements  can  take  place  in the
underlying markets that cannot be reflected in the option markets.

         OTC options are purchased from or sold to securities dealers, financial
institutions  or  other  parties  ("Counterparties")  through  direct  bilateral
agreement with the Counterparty.  In contrast to exchange listed options,  which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement,  term, exercise price,
premium,  guarantees and security,  are set by  negotiation of the parties.  The
Fund will only sell OTC  options  (other  than OTC  currency  options)  that are
subject to a buy-back provision  permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula  price within  seven days.  The
Fund  expects  generally  to enter into OTC  options  that have cash  settlement
provisions, although it is not required to do so.

         Unless the  parties  provide  for it,  there is no central  clearing or
guaranty function in an OTC option.  As a result,  if the Counterparty  fails to
make or take delivery of the security,  currency or other instrument  underlying
an OTC  option  it has  entered  into  with  the  Fund or  fails  to make a cash
settlement  payment due in  accordance  with the terms of that option,  the


                                       15
<PAGE>

Fund will lose any  premium  it paid for the  option as well as any  anticipated
benefit  of  the   transaction.   Accordingly,   the  Adviser  must  assess  the
creditworthiness   of  each  such   Counterparty  or  any  guarantor  or  credit
enhancement of the  Counterparty's  credit to determine the likelihood  that the
terms of the OTC option  will be  satisfied.  The Fund will engage in OTC option
transactions  only with U.S.  government  securities  dealers  recognized by the
Federal  Reserve  Bank  of New  York as  "primary  dealers"  or  broker/dealers,
domestic or foreign banks or other  financial  institutions  which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of A-1 from S&P or P-1 from  Moody's  or an  equivalent  rating  from any
nationally recognized  statistical rating organization ("NRSRO") or, in the case
of OTC currency transactions,  are determined to be of equivalent credit quality
by the  Adviser.  The staff of the SEC  currently  takes the  position  that OTC
options purchased by the Fund, and portfolio securities "covering" the amount of
the Fund's  obligation  pursuant  to an OTC  option  sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid, and are subject to
the  Fund's  limitation  on  investing  no more  than 15% of its net  assets  in
illiquid securities.

         If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option  premium,  against a decrease in
the value of the  underlying  securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

         The Fund may  purchase and sell call  options on  securities  including
U.S.  Treasury  and  agency  securities,   mortgage-backed  securities,  foreign
sovereign  debt,  corporate  debt  securities,   equity  securities   (including
convertible  securities) and Eurodollar  instruments that are traded on U.S. and
foreign  securities  exchanges  and  in  the  over-the-counter  markets,  and on
securities indices, currencies and futures contracts. All calls sold by the Fund
must be "covered"  (i.e.,  the Fund must own the securities or futures  contract
subject to the call) or must meet the asset segregation  requirements  described
below as long as the call is outstanding.  Even though the Fund will receive the
option  premium to help protect it against loss, a call sold by the Fund exposes
the Fund  during  the term of the  option to  possible  loss of  opportunity  to
realize  appreciation  in  the  market  price  of  the  underlying  security  or
instrument  and may require the Fund to hold a security or  instrument  which it
might otherwise have sold.

         The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities,  mortgage-backed  securities,  foreign sovereign
debt,  corporate  debt  securities,  equity  securities  (including  convertible
securities)  and  Eurodollar  instruments  (whether  or not it holds  the  above
securities in its portfolio), and on securities indices,  currencies and futures
contracts other than futures on individual  corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the  Fund's  total  assets  would be  required  to be  segregated  to cover  its
potential  obligations  under such put options  other than those with respect to
futures and options  thereon.  In selling put options,  there is a risk that the
Fund may be required to buy the underlying  security at a disadvantageous  price
above the market price.

General Characteristics of Futures. The Fund may enter into futures contracts or
purchase  or sell  put and  call  options  on such  futures  as a hedge  against
anticipated  interest rate, currency or equity market changes,  and for duration
management,  risk  management  and  return  enhancement  purposes.  Futures  are
generally  bought and sold on the  commodities  exchanges  where they are listed
with payment of initial and variation  margin as described  below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial  instrument  called for in the contract
at a specific  future  time for a  specified  price (or,  with  respect to index
futures and  Eurodollar  instruments,  the net cash amount).  Options on futures
contracts  are  similar  to  options on  securities  except  that 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 and obligates the seller to deliver such
position.

         The Fund's  use of futures  and  options  thereon  will in all cases be
consistent with applicable  regulatory  requirements and in particular the rules
and regulations of the Commodity Futures Trading  Commission and will be entered
into for bona fide hedging,  risk management  (including duration management) or
other  portfolio  and  return  enhancement   management   purposes.   Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial  intermediary as security for its obligations an amount
of cash or other specified  assets (initial margin) which initially is typically
1% to 10% of the  face  amount  of the  contract  (but  may be  higher  in  some
circumstances).  Additional cash or assets (variation margin) may be required to
be  deposited  thereafter  on a daily  basis as the mark to market  value of the
contract  fluctuates.  The purchase of an option on financial  futures  involves
payment of a premium for the option  without any further  obligation on the part
of the Fund.  If the Fund  exercises an option on a futures  contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the  resulting  futures  position  just as it would  for any  position.  Futures
contracts  and  options  thereon  are  generally  settled  by  entering  into an
offsetting  transaction  but there can be no assurance  that the position can be
offset prior to  settlement  at an  advantageous  price,  nor that delivery will
occur.

         The Fund  will not enter  into a futures  contract  or  related  option
(except for closing  transactions) if,  immediately  thereafter,  the sum of the
amount of its initial margin and premiums on open futures  contracts and options
thereon  would


                                       16
<PAGE>

exceed 5% of the Fund's total assets (taken at current value);  however,  in the
case of an  option  that  is  in-the-money  at the  time  of the  purchase,  the
in-the-money  amount may be  excluded  in  calculating  the 5%  limitation.  The
segregation  requirements  with respect to futures contracts and options thereon
are described below.

Options on Securities  Indices and Other  Financial  Indices.  The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through  the sale or  purchase  of options  on  individual  securities  or other
instruments.  Options on  securities  indices  and other  financial  indices are
similar to options on a security or other  instrument  except that,  rather than
settling by physical delivery of the underlying instrument,  they settle by cash
settlement,  i.e.,  an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds,  in the case of a call, or is less than,
in the case of a put, the exercise  price of the option  (except if, in the case
of an OTC option, physical delivery is specified).  This amount of cash is equal
to the excess of the closing  price of the index over the exercise  price of the
option,  which  also may be  multiplied  by a formula  value.  The seller of the
option is  obligated,  in return for the premium  received,  to make delivery of
this  amount.  The  gain or loss on an  option  on an  index  depends  on  price
movements in the instruments making up the market,  market segment,  industry or
other  composite  on which the  underlying  index is based,  rather  than  price
movements in  individual  securities,  as is the case with respect to options on
securities.

Currency  Transactions.  The Fund  may  engage  in  currency  transactions  with
Counterparties  primarily in order to hedge,  or manage the risk of the value of
portfolio holdings denominated in particular  currencies against fluctuations in
relative  value.  Currency  transactions  include  forward  currency  contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately  negotiated
obligation  to purchase or sell (with  delivery  generally  required) 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.  A currency  swap is an agreement to exchange  cash flows based on the
notional  difference  among two or more currencies and operates  similarly to an
interest rate swap,  which is described  below. The Fund may enter into currency
transactions with  Counterparties  which have received (or the guarantors of the
obligations  which  have  received)  a  credit  rating  of  A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency  options) are determined to be of equivalent  credit quality by
the Adviser.

         The Fund's  dealings in forward  currency  contracts and other currency
transactions  such as futures,  options,  options on futures and swaps generally
will be limited to hedging  involving either specific  transactions or portfolio
positions  except as described  below.  Transaction  hedging is entering  into a
currency transaction with respect to specific assets or liabilities of the Fund,
which  will  generally  arise in  connection  with the  purchase  or sale of its
portfolio  securities or the receipt of income  therefrom.  Position  hedging is
entering  into  a  currency  transaction  with  respect  to  portfolio  security
positions denominated or generally quoted in that currency.

         The Fund  generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions,  than the aggregate market value (at the
time of entering into the  transaction)  of the securities held in its portfolio
that are denominated or generally  quoted in or currently  convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

         The Fund may also cross-hedge  currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other  currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

         To reduce the effect of currency  fluctuations on the value of existing
or  anticipated  holdings of portfolio  securities,  the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging  entails  entering into a commitment or option to sell a currency  whose
changes in value are  generally  considered  to be  correlated  to a currency or
currencies in which some or all of the Fund's  portfolio  securities  are or are
expected to be  denominated,  in exchange  for U.S.  dollars.  The amount of the
commitment  or  option  would not  exceed  the  value of the  Fund's  securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German  deutschemark (the "D-mark"),
the Fund holds  securities  denominated in schillings  and the Adviser  believes
that the value of schillings will decline against the U.S.  dollar,  the Adviser
may enter into a commitment or option to sell D-marks and buy dollars.  Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency  being hedged  fluctuates in value to a degree or in a direction
that  is  not  anticipated.  Further,  there  is the  risk  that  the  perceived
correlation  between various currencies may not be present or may not be present
during the particular  time that the Fund is engaging in proxy  hedging.  If the
Fund enters into a currency hedging  transaction,  the Fund will comply with the
asset segregation requirements described below.



                                       17
<PAGE>

Risks of  Currency  Transactions.  Currency  transactions  are  subject to risks
different from those of other portfolio  transactions.  Because currency control
is of great  importance  to the  issuing  governments  and  influences  economic
planning and policy, purchases and sales of currency and related instruments can
be  negatively  affected  by  government  exchange  controls,   blockages,   and
manipulations or exchange restrictions imposed by governments.  These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations  and could also cause hedges it has entered into to be
rendered  useless,  resulting  in full  currency  exposure as well as  incurring
transaction  costs.  Buyers and sellers of  currency  futures are subject to the
same risks that apply to the use of futures generally.  Further, settlement of a
currency  futures  contract for the purchase of most  currencies must occur at a
bank  based in the  issuing  nation.  Trading  options  on  currency  futures is
relatively  new,  and the ability to establish  and close out  positions on such
options is subject to the maintenance of a liquid market which may not always be
available.  Currency  exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Combined Transactions. The Fund may enter into multiple transactions,  including
multiple options transactions,  multiple futures transactions, multiple currency
transactions  (including forward currency  contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions   ("component"   transactions),   instead  of  a  single  Strategic
Transaction,  as part of a single or combined  strategy  when, in the opinion of
the  Adviser,  it is in the best  interests  of the  Fund to do so.  A  combined
transaction  will usually  contain  elements of risk that are present in each of
its component transactions.  Although combined transactions are normally entered
into based on the Adviser's  judgment that the combined  strategies  will reduce
risk or otherwise  more  effectively  achieve the desired  portfolio  management
goal, it is possible that the  combination  will instead  increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter  are  interest  rate,  currency,  index  and other  swaps and the
purchase or sale of related caps, floors and collars.  The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment  or  portion  of  its   portfolio,   to  protect   against   currency
fluctuations,  as a duration  management  technique  or to protect  against  any
increase in the price of securities the Fund  anticipates  purchasing at a later
date.  The Fund will not sell interest rate caps or floors where it does not own
securities  or other  instruments  providing  the income  stream the Fund may be
obligated  to pay.  Interest  rate swaps  involve the  exchange by the Fund with
another party of their respective commitments to pay or receive interest,  e.g.,
an exchange of floating  rate payments for fixed rate payments with respect to a
notional  amount of principal.  A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential  among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference  indices.  The
purchase  of a cap  entitles  the  purchaser  to receive  payments on a notional
principal  amount from the party selling such cap to the extent that a specified
index exceeds a predetermined  interest rate or amount.  The purchase of a floor
entitles the purchaser to receive  payments on a notional  principal amount from
the party selling such floor to the extent that a specified  index falls below a
predetermined  interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a  predetermined  range of interest
rates or values.
The Fund will  usually  enter into swaps on a net basis,  i.e.,  the two payment
streams  are  netted  out in a cash  settlement  on the  payment  date or  dates
specified in the instrument,  with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter  into  offsetting  positions)  to cover its  obligations  under
swaps,  the Adviser and the Fund  believe  such  obligations  do not  constitute
senior  securities under the 1940 Act and,  accordingly,  will not treat them as
being  subject to its borrowing  restrictions.  The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements,  is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent  credit  quality by the
Adviser.  If  there  is a  default  by  the  Counterparty,  the  Fund  may  have
contractual remedies pursuant to the agreements related to the transaction.  The
swap market has grown substantially in recent years with a large number of banks
and investment  banking firms acting both as principals and as agents  utilizing
standardized  swap  documentation.  As a  result,  the swap  market  has  become
relatively  liquid.  Caps,  floors and collars are more recent  innovations  for
which  standardized   documentation  has  not  yet  been  fully  developed  and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S.  dollar-denominated futures contracts or options
thereon  which are  linked  to the  London  Interbank  Offered  Rate  ("LIBOR"),
although  foreign  currency-denominated  instruments  are available from time to
time.  Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use  Eurodollar  futures  contracts  and options  thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

Risks of Strategic  Transactions  Outside the U.S.  When  conducted  outside the
U.S., Strategic  Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees,  and are subject to
the


                                       18
<PAGE>

risk of  governmental  actions  affecting  trading in, or the prices of, foreign
securities,  currencies and other instruments.  The value of such positions also
could be adversely affected by: (i) other complex foreign  political,  legal and
economic factors,  (ii) lesser availability than in the U.S. of data on which to
make trading decisions,  (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during  non-business hours in the U.S., (iv)
the  imposition of different  exercise and  settlement  terms and procedures and
margin  requirements  than  in the  U.S.,  and  (v)  lower  trading  volume  and
liquidity.

Use of Segregated and Other Special Accounts.  Many Strategic  Transactions,  in
addition to other  requirements,  require that the Fund segregate cash or liquid
assets with its  custodian  to the extent  Fund  obligations  are not  otherwise
"covered" through ownership of the underlying security,  financial instrument or
currency.  In general,  either the full amount of any  obligation by the Fund to
pay or  deliver  securities  or  assets  must be  covered  at all  times  by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory  restrictions,  an amount of cash or liquid  assets at least equal to
the current amount of the obligation must be segregated with the custodian.  The
segregated  assets cannot be sold or transferred  unless  equivalent  assets are
substituted in their place or it is no longer  necessary to segregate  them. For
example,  a call  option  written by the Fund will  require the Fund to hold the
securities  subject  to the  call (or  securities  convertible  into the  needed
securities  without  additional  consideration)  or to segregate  cash or liquid
assets  sufficient  to  purchase  and  deliver  the  securities  if the  call is
exercised.  A call option sold by the Fund on an index will  require the Fund to
own portfolio  securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise  price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

         Except when the Fund enters into a forward contract for the purchase or
sale of a security  denominated  in a  particular  currency,  which  requires no
segregation,  a  currency  contract  which  obligates  the  Fund  to buy or sell
currency will  generally  require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.

         OTC options  entered into by the Fund,  including  those on securities,
currency,  financial  instruments or indices and OCC issued and exchange  listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these  instruments it will only segregate an amount of cash or liquid
assets  equal to its accrued net  obligations,  as there is no  requirement  for
payment or delivery of amounts in excess of the net amount.  These  amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money  amount
plus any sell-back  formula amount in the case of a cash-settled put or call. In
addition,  when  the Fund  sells a call  option  on an index at a time  when the
in-the-money  amount exceeds the exercise price, the Fund will segregate,  until
the option expires or is closed out, cash or cash equivalents  equal in value to
such excess.  OCC issued and exchange listed options sold by the Fund other than
those above  generally  settle with  physical  delivery,  or with an election of
either  physical  delivery or cash  settlement  and the Fund will  segregate  an
amount of cash or  liquid  assets  equal to the full  value of the  option.  OTC
options settling with physical delivery,  or with an election of either physical
delivery or cash settlement  will be treated the same as other options  settling
with physical delivery.

         In the case of a futures  contract or an option thereon,  the Fund must
deposit  initial  margin and  possible  daily  variation  margin in  addition to
segregating cash or liquid assets  sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.

         With  respect  to swaps,  the Fund will  accrue  the net  amount of the
excess,  if any, of its obligations over its  entitlements  with respect to each
swap on a daily  basis and will  segregate  an  amount of cash or liquid  assets
having a value equal to the accrued  excess.  Caps,  floors and collars  require
segregation of assets with a value equal to the Fund's net obligation, if any.

         Strategic  Transactions  may be covered by other means when  consistent
with  applicable  regulatory  policies.  The Fund may also enter into offsetting
transactions so that its combined position,  coupled with any segregated assets,
equals  its  net  outstanding   obligation  in  related  options  and  Strategic
Transactions.  For example,  the Fund could  purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover,  instead of segregating cash or liquid assets if the
Fund held a futures or forward  contract,  it could purchase a put option on the
same futures or forward  contract with a strike price as high or higher than the
price of the contract held.  Other Strategic  Transactions may also be offset in
combinations.  If the offsetting  transaction terminates at the time of or after
the primary  transaction no segregation is required,  but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.



                                       19
<PAGE>

Investment  Company  Securities.  The  Fund  may  acquire  securities  of  other
investment  companies to the extent consistent with its investment objective and
subject to the  limitations of the 1940 Act. The Fund will  indirectly  bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.

For example, the Fund may invest in a variety of investment companies which seek
to track the  composition  and  performance  of  specific  indexes or a specific
portion of an index.  These  index-based  investments hold  substantially all of
their assets in securities representing their specific index.  Accordingly,  the
main risk of investing in index-based  investments is the same as investing in a
portfolio  of equity  securities  comprising  the index.  The  market  prices of
index-based  investments  will fluctuate in accordance  with both changes in the
market  value of their  underlying  portfolio  securities  and due to supply and
demand for the  instruments on the exchanges on which they are traded (which may
result in their  trading at a discount  or premium to their  NAVs).  Index-based
investments  may not replicate  exactly the performance of their specified index
because of  transaction  costs and because of the  temporary  unavailability  of
certain component securities of the index.

Examples of index-based investments include:

SPDRs(R):  SPDRs,  an acronym for "Standard & Poor's  Depositary  Receipts," are
based on the S&P 500  Composite  Stock Price Index.  They are issued by the SPDR
Trust,  a unit  investment  trust that  holds  shares of  substantially  all the
companies  in the S&P 500 in  substantially  the  same  weighting  and  seeks to
closely track the price performance and dividend yield of the Index.

MidCap  SPDRs(R):  MidCap SPDRs are based on the S&P MidCap 400 Index.  They are
issued by the MidCap SPDR Trust, a unit investment  trust that holds a portfolio
of securities  consisting of  substantially  all of the common stocks in the S&P
MidCap 400 Index in substantially  the same weighting and seeks to closely track
the price performance and dividend yield of the Index.

Select Sector SPDRs(R):  Select Sector SPDRs are based on a particular sector or
group of  industries  that are  represented  by a specified  Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end  management  investment  company with nine
portfolios  that each seeks to closely track the price  performance and dividend
yield of a particular Select Sector Index.

         DIAMONDS(SM):   DIAMONDS   are  based  on  the  Dow  Jones   Industrial
         Average(SM).  They are issued by the DIAMONDS  Trust, a unit investment
         trust that holds a portfolio of all the component  common stocks of the
         Dow  Jones  Industrial  Average  and seeks to  closely  track the price
         performance and dividend yield of the Dow.

Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100  Trust, a unit investment  trust that holds a portfolio
consisting of substantially  all of the securities,  in  substantially  the same
weighting,  as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.

WEBs(SM):  WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific  Morgan Stanley Capital International  Indexes. They are issued
by the WEBs Index Fund,  Inc., an open-end  management  investment  company that
seeks to generally  correspond to the price and yield  performance of a specific
Morgan Stanley Capital International Index.

Investment Restrictions

         Unless specified to the contrary,  the following  fundamental  policies
may not be changed without the approval of a majority of the outstanding  voting
securities of the Fund which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the  voting  securities  of the Fund  present  at such  meeting,  if the
holders of more than 50% of the  outstanding  voting  securities of the Fund are
present or represented by proxy, or (2) more than 50% of the outstanding  voting
securities of the Fund.

         If a percentage  restriction  on investment or utilization of assets as
set forth under "Investment  Restrictions" and "Other Investment Policies" above
is adhered to at the time an  investment  is made, a later change in  percentage
resulting  from changes in the value or the total cost of the Fund's assets will
not be considered a violation of the restriction.

         The Fund has elected to be  classified  as a  diversified  series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund may not:


                                       20
<PAGE>

         1.       borrow money, except as permitted under the Investment Company
                  Act of 1940,  as amended,  and as  interpreted  or modified by
                  regulatory authority having jurisdiction, from time to time;


         2.       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;

         3.       purchase  physical   commodities  or  contracts   relating  to
                  physical commodities;

         4.       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;

         5.       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;

         6.       purchase  or sell real  estate,  which  term does not  include
                  securities or companies which deal in 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; or

         7.       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.


         Nonfundamental  policies  may  be  changed  by  the  Directors  of  the
Corporation  and without  shareholder  approval.  As a matter of  nonfundamental
policy, the Fund does not currently intend to:


         1.       borrow money in an amount greater than 5% of its total assets,
                  except (i) for  temporary  or  emergency  purposes and (ii) by
                  engaging in reverse  repurchase  agreements,  dollar rolls, or
                  other  investments  or  transactions  described  in the Fund's
                  registration statement which may be deemed to be borrowings;

         2.       enter into either of reverse  repurchase  agreements or dollar
                  rolls in an amount greater than 5% of its total assets;

         3.       purchase  securities on margin or make short sales, except (i)
                  short sales against the box, (ii) in connection with arbitrage
                  transactions,  (iii) for margin  deposits in  connection  with
                  futures  contracts,  options or other  permitted  investments,
                  (iv) that  transactions in futures contracts and options shall
                  not be deemed to constitute  selling securities short, and (v)
                  that the Fund may  obtain  such  short-term  credits as may be
                  necessary for the clearance of securities transactions;

         4.       purchase  options,  unless the aggregate  premiums paid on all
                  such options held by the Fund at any time do not exceed 20% of
                  its total  assets;  or sell put options,  if as a result,  the
                  aggregate value of the obligations underlying such put options
                  would exceed 50% of its total assets;

         5.       enter into  futures  contracts  or  purchase  options  thereon
                  unless  immediately  after  the  purchase,  the  value  of the
                  aggregate   initial   margin  with  respect  to  such  futures
                  contracts  entered into on behalf of the Fund and the premiums
                  paid for such options on futures  contracts does not exceed 5%
                  of the fair market value of the Fund's total assets;  provided
                  that in the case of an option that is in-the-money at the time
                  of  purchase,  the  in-the-money  amount  may be  excluded  in
                  computing the 5% limit;

         6.       purchase  warrants if as a result,  such securities,  taken at
                  the lower of cost or market value,  would  represent more than
                  5% of the value of the Fund's total assets (for this  purpose,
                  warrants  acquired in units or attached to securities  will be
                  deemed to have no value); and

         7.       lend portfolio  securities in an amount greater than 5% of its
                  total assets.


         If a percentage  restriction  on investment or utilization of assets as
set forth  under  "Investment  Restrictions"  above is adhered to at the time an
investment is made, a later change in percentage  resulting  from changes in the
value or the total cost of the Fund's  assets will not be considered a violation
of the restriction.


                                       21
<PAGE>

--------------------------------------------------------------------------------

                                    PURCHASES
                                    ---------

--------------------------------------------------------------------------------



      Additional Information About Opening An Account


         All new investors in Class AARP of the Funds are required to provide an
AARP membership number on their account application.

         In  addition,  Class  S  shares  of the  Funds  will  generally  not be
available to new investors.

         The  following  investors  may  continue to purchase  Class S shares of
Scudder Funds:

1.       Existing  shareholders  of Class S  shares  of any  Scudder  Fund as of
         December 29, 2000, and household members residing at the same address.

2.       Investors  may purchase  Class S shares of any Scudder Fund through any
         broker-dealer  or service agent account until June 30, 2001. After June
         30, 2001,  only  investors who owned Class S shares as of June 30, 2001
         and  household  members  residing  at the  same  address  may  open new
         accounts in Class S of any Scudder Fund.

3.       Any retirement, employee stock, bonus pension or profit-sharing plans.

4.       Any  participant who owns Class S shares of any Scudder Fund through an
         employee sponsored retirement, employee stock, bonus, pension or profit
         sharing plan as of December  29, 2000 may, at a later date,  open a new
         individual account in Class S of any Scudder Fund.

5.       Any  participant  who owns Class S shares of any Scudder Fund through a
         retirement,  employee stock, bonus,  pension or profit sharing plan may
         complete a direct  rollover  to an IRA  account  that will hold Class S
         shares.  This applies for individuals  who begin their  retirement plan
         investments  with a Scudder Fund at any time,  including after December
         29, 2000.

6.       Officers,  Fund Trustees and  Directors,  and  full-time  employees and
         their family members, of Zurich Financial Services and its affiliates.

7.       Class S shares are available to any accounts  managed by Scudder Kemper
         Investments,  Inc.,  any advisory  products  offered by Scudder  Kemper
         Investments,  Inc.  or  Scudder  Investor  Services,  Inc.,  and to the
         Portfolios of Scudder Pathway Series.

8.       Registered  investment advisers ("RIAs") may continue to purchase Class
         S shares of Scudder  Funds for all clients  until June 30, 2001.  After
         June 30, 2001, RIAs may purchase Class S shares for any client that has
         an existing  position in Class S shares of any Scudder Funds as of June
         30, 2001.

9.       Broker-dealers and RIAs who have clients participating in comprehensive
         fee programs may continue to purchase  Class S shares of Scudder  Funds
         until June 30, 2001.  After June 30, 2001,  broker dealers and RIAs may
         purchase  Class S shares in  comprehensive  fee programs for any client
         that has an existing position in Class S shares of a Scudder Fund as of
         June 30, 2001.

10.      Scudder  Investors  Services,  Inc.  may,  at its  discretion,  require
         appropriate  documentation  that  shows  an  investor  is  eligible  to
         purchase Class S shares.

Clients  having a regular  investment  counsel  account  with the Adviser or its
affiliates and members of their  immediate  families,  officers and employees of
the Adviser or of any  affiliated  organization  and members of their  immediate
families,  members of the  National  Association  of  Securities  Dealers,  Inc.
("NASD") and banks may, if they prefer,  subscribe initially for at least $2,500
for Class S and $1,000 for Class AARP through Scudder Investor Services, Inc. by
letter, fax, or telephone.



                                       22
<PAGE>

Shareholders  of other Scudder funds who have  submitted an account  application
and have  certified  a tax  identification  number,  clients  having  a  regular
investment  counsel  account with the Adviser or its  affiliates  and members of
their  immediate  families,  officers  and  employees  of the  Adviser or of any
affiliated  organization and their immediate families,  members of the NASD, and
banks may open an account by wire.  Investors interested in investing in Class S
must call 1-800-225-5163 to get an account number.  During the call the investor
will be asked to indicate the Fund name, class name,  amount to be wired ($2,500
minimum for Class S and $1,000 for Class  AARP),  name of bank or trust  company
from which the wire will be sent, the exact registration of the new account, the
tax  identification  number or Social  Security  number,  address and  telephone
number.  The investor  must then call the bank to arrange a wire transfer to The
Scudder Funds,  Boston, MA 02101, ABA Number 011000028,  DDA Account  9903-5552.
The investor must give the Scudder fund name,  class name,  account name and the
new account  number.  Finally,  the  investor  must send a completed  and signed
application  to the Fund  promptly.  Investors  interested in investing in Class
AARP should call 1-800-253-2277 for further instructions.

The  minimum  initial  purchase  amount  is less than  $2,500  for Class S under
certain special plan accounts and is $1,000 for Class AARP.

                                MINIMUM BALANCES

Shareholders  should  maintain a share balance worth at least $2,500 for Class S
and $1,000 for Class AARP.  For fiduciary  accounts such as IRAs,  and custodial
accounts  such as Uniform  Gift to Minor  Act,  and  Uniform  Trust to Minor Act
accounts, the minimum balance is $1,000 for Class S and $500 for Class AARP. The
Fund's Board of Directors may change these  amounts.  A shareholder  may open an
account  with at least  $1,000 ($500 for  fiduciary/custodial  accounts),  if an
automatic  investment  plan (AIP) of  $100/month  ($50/month  for Class AARP and
fiduciary/custodial accounts) is established. Scudder group retirement plans and
certain other accounts have similar or lower minimum share balance requirements.

The Funds  reserve the right,  following 60 days'  written  notice to applicable
shareholders, to:

         o        for Class S,  assess an annual $10 per Fund  charge  (with the
                  Fee    to    be     paid    to    the     Fund)     for    any
                  non-fiduciary/non-custodial   account   without  an  automatic
                  investment  plan  (AIP) in place  and a  balance  of less than
                  $2,500; and

         o        redeem  all  shares  in Fund  accounts  below  $1,000  where a
                  reduction in value has occurred due to a redemption,  exchange
                  or  transfer  out of the  account.  The  Fund  will  mail  the
                  proceeds of the redeemed account to the shareholder.

Reductions in value that result solely from market  activity will not trigger an
involuntary  redemption.  Shareholders with a combined household account balance
in any of the Scudder Funds of $100,000 or more, as well as group retirement and
certain other accounts will not be subject to a fee or automatic redemption.

Fiduciary  (e.g., IRA or Roth IRA) and custodial  accounts (e.g.,  UGMA or UTMA)
with balances below $100 are subject to automatic  redemption following 60 days'
written notice to applicable shareholders.


           ADDITIONAL INFORMATION ABOUT MAKING SUBSEQUENT INVESTMENTS

Subsequent  purchase  orders for  $10,000 or more and for an amount not  greater
than  four  times  the  value of the  shareholder's  account  may be  placed  by
telephone,  fax, etc. by established  shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD,  and banks.  Orders  placed in this  manner may be  directed to any
office of the Distributor listed in a Fund's  prospectus.  A confirmation of the
purchase  will be mailed  out  promptly  following  receipt of a request to buy.
Federal  regulations  require that payment be received within three (3) business
days.  If  payment is not  received  within  that time,  the order is subject to
cancellation.  In  the  event  of  such  cancellation  or  cancellation  at  the
purchaser's  request, the purchaser will be responsible for any loss incurred by
a Fund or the  principal  underwriter  by  reason of such  cancellation.  If the
purchaser is a  shareholder,  a Fund shall have the  authority,  as agent of the
shareholder, to redeem shares in the account in order to reimburse a Fund or the
principal  underwriter  for the loss incurred.  Net losses on such  transactions
which are not  recovered  from the  purchaser  will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to a
Fund.



                                       23
<PAGE>

Additional Information About Making Subsequent Investments by QuickBuy

Shareholders,  whose  predesignated  bank  account  of record is a member of the
Automated  Clearing  House Network (ACH) and who have elected to  participate in
the QuickBuy program,  may purchase shares of a Fund by telephone.  Through this
service  shareholders  may  purchase  up to  $250,000.  To  purchase  shares  by
QuickBuy,  shareholders  should call before the close of regular  trading on the
New York Stock Exchange,  Inc. (the  "Exchange"),  normally 4 p.m. eastern time.
Proceeds  in the  amount of your  purchase  will be  transferred  from your bank
checking  account two or three  business days  following your call. For requests
received  by the  close of  regular  trading  on the  Exchange,  shares  will be
purchased at the net asset value per share calculated at the close of trading on
the day of your  call.  QuickBuy  requests  received  after the close of regular
trading on the Exchange will begin their  processing and be purchased at the net
asset value  calculated  the following  business day. If you purchase  shares by
QuickBuy and redeem them within seven days of the purchase,  a Fund may hold the
redemption  proceeds for a period of up to seven  business days. If you purchase
shares and there are insufficient funds in your bank account,  the purchase will
be  canceled  and you will be  subject  to any  losses or fees  incurred  in the
transaction.  QuickBuy  transactions  are not available for most retirement plan
accounts. However, QuickBuy transactions are available for Scudder IRA accounts.

In order to request purchases by QuickBuy,  shareholders must have completed and
returned to the Transfer Agent the  application,  including the designation of a
bank  account from which the purchase  payment  will be debited.  New  investors
wishing to  establish  QuickBuy  may so  indicate on the  application.  Existing
shareholders who wish to add QuickBuy to their account may do so by completing a
QuickBuy  Enrollment  Form.  After  sending in an enrollment  form  shareholders
should allow 15 days for this service to be available.

The Fund employs  procedures,  including  recording  telephone calls,  testing a
caller's identity,  and sending written confirmation of telephone  transactions,
designed  to  give  reasonable  assurance  that  instructions   communicated  by
telephone are genuine and to discourage  fraud.  To the extent that the Funds do
not follow such procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.  The Funds will not be liable for acting upon
instructions  communicated  by  telephone  that they  reasonably  believe  to be
genuine.

Investors  interested in making  subsequent  investments in Class AARP of a Fund
should call 1-800-253-2277 for further information.

Checks

A certified  check is not  necessary,  but checks are only  accepted  subject to
collection  at full face  value in U.S.  funds  and must be drawn on or  payable
through, a U.S. bank.

If shares of a Fund are  purchased by a check which proves to be  uncollectible,
the Corporation reserves the right to cancel the purchase  immediately,  and the
purchaser will be  responsible  for any loss incurred by a Fund or the principal
underwriter by reason of such  cancellation.  If the purchaser is a shareholder,
the Corporation shall have the authority, as agent of the shareholder, to redeem
shares in the account in order to reimburse a Fund or the principal  underwriter
for the  loss  incurred.  Investors  whose  orders  have  been  canceled  may be
prohibited  from or  restricted  in placing  future orders in any of the Scudder
funds.

Wire Transfer of Federal Funds

To obtain the net asset value  determined as of the close of regular  trading on
the Exchange on a selected  day,  your bank must forward  federal  funds by wire
transfer and provide the required account information so as to be available to a
Fund prior to the  regular  close of trading on the  Exchange  (normally  4 p.m.
eastern time).

The bank  sending an  investor's  federal  funds by bank wire may charge for the
service.  Presently,  the Funds pay a fee for receipt by the Custodian of "wired
funds," but the right to charge investors for this service is reserved.

Boston banks are presently closed on certain holidays  although the Exchange may
be open.  These  holidays  are  Columbus  Day (the 2nd  Monday in  October)  and
Veterans' Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of a Fund.

                                   SHARE PRICE

Purchases  will be filled  without sales charge at the net asset value per share
next computed after receipt of the  application  in



                                       24
<PAGE>

good order.  Net asset value  normally will be computed for each class as of the
close of  regular  trading  on each day during  which the  Exchange  is open for
trading. Orders received after the close of regular trading on the Exchange will
be executed at the next  business  day's net asset value.  If the order has been
placed  by a  member  of  the  NASD,  other  than  the  Distributor,  it is  the
responsibility  of that  member  broker,  rather  than a Fund,  to  forward  the
purchase order to Kemper Service  Company (the "Transfer  Agent") in Kansas City
by the close of regular trading on the Exchange.


                               SHARE CERTIFICATES


Due to the  desire  of the  Fund's  management  to  afford  ease of  redemption,
certificates  will  not  be  issued  to  indicate  ownership  in a  Fund.  Share
certificates now in a shareholder's  possession may be sent to a Fund's Transfer
Agent for cancellation and credit to such  shareholder's  account.  Shareholders
who  prefer may hold the  certificates  in their  possession  until they wish to
exchange or redeem such shares.

All issued and  outstanding  shares of what were  formerly  AARP Funds that were
subsequently   reorganized  into  existing  Scudder  Funds  were  simultaneously
cancelled  on the  books  of the AARP  Funds.  Share  certificates  representing
interests in shares of the relevant AARP Fund will  represent a number of shares
of Class  AARP of the  relevant  Scudder  Fund  into  which  the  AARP  Fund was
reorganized.  Class  AARP  shares  of  the  fund  will  not  issue  certificates
representing shares in connection with the reorganization.

                                OTHER INFORMATION

The Fund has authorized  certain  members of the NASD other than the Distributor
to accept purchase and redemption orders for its shares.  Those brokers may also
designate  other parties to accept  purchase and  redemption  orders on a Fund's
behalf.  Orders for purchase or redemption  will be deemed to have been received
by a Fund when such  brokers or their  authorized  designees  accept the orders.
Subject to the terms of the contract  between a Fund and the broker,  ordinarily
orders will be priced at a class' net asset value next computed after acceptance
by such  brokers  or  their  authorized  designees.  Further,  if  purchases  or
redemptions  of a  Fund's  shares  are  arranged  and  settlement  is made at an
investor's  election through any other authorized NASD member,  that member may,
at its discretion, charge a fee for that service. The Board of Directors and the
Distributor,  also a Fund's principal  underwriter,  each has the right to limit
the amount of purchases  by, and to refuse to sell to, any person.  The Board of
Directors and the Distributor may suspend or terminate the offering of shares of
a Fund at any time for any reason.

The "Tax  Identification  Number" section of the  Application  must be completed
when opening an account.  Applications  and purchase  orders without a certified
tax  identification  number and certain other certified  information (e.g., from
exempt organizations a certification of exempt status),  will be returned to the
investor.  The Funds reserve the right, following 30 days' notice, to redeem all
shares  in  accounts  without  a  correct   certified  Social  Security  or  tax
identification  number.  A  shareholder  may  avoid  involuntary  redemption  by
providing  the Fund with a tax  identification  number  during the 30-day notice
period.

The  Corporation  may issue  shares at net asset  value in  connection  with any
merger or  consolidation  with, or  acquisition of the assets of, any investment
company or personal  holding  company,  subject to the  requirements of the 1940
Act.
--------------------------------------------------------------------------------
                            EXCHANGES AND REDEMPTIONS
--------------------------------------------------------------------------------

                                    EXCHANGES


Exchanges  are  comprised of a  redemption  from one Scudder fund and a purchase
into another  Scudder fund.  The purchase side of the exchange  either may be an
additional  investment  into an existing  account or may  involve  opening a new
account in the other fund.  When an  exchange  involves a new  account,  the new
account  will be  established  with the same  registration,  tax  identification
number,  address,  telephone redemption option,  "Scudder Automated  Information
Line"  (SAIL)  transaction  authorization  and  dividend  option as the existing
account.  Other features will not carry over  automatically  to the new account.
Exchanges  to a new fund account must be for a minimum of $2,500 for Class S and
$1,000 for Class AARP. When an exchange represents an additional investment into
an existing  account,  the account  receiving  the exchange  proceeds  must have
identical registration,  address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more for Class S.
If the  account  receiving  the  exchange  proceeds  is to be  different  in any
respect,  the  exchange  request must be in writing and must contain an original
signature guarantee.


                                       25
<PAGE>

Exchange  orders received before the close of regular trading on the Exchange on
any  business day  ordinarily  will be executed at  respective  net asset values
determined  on that day.  Exchange  orders  received  after the close of regular
trading on the Exchange will be executed on the following business day.

Investors may also request, at no extra charge, to have exchanges  automatically
executed  on a  predetermined  schedule  from one  Scudder  fund to an  existing
account in another Scudder fund, at current net asset value,  through  Scudder's
Automatic Exchange Program. Exchanges must be for a minimum of $50. Shareholders
may add this free feature over the telephone or in writing.  Automatic Exchanges
will continue until the shareholder  requests by telephone or in writing to have
the  feature  removed,  or  until  the  originating  account  is  depleted.  The
Corporation  and the  Transfer  Agent  each  reserves  the right to  suspend  or
terminate the privilege of the Automatic Exchange Program at any time.

There is no charge to the  shareholder  for any  exchange  described  above.  An
exchange  into another  Scudder fund is a redemption of shares and therefore may
result in tax consequences  (gain or loss) to the shareholder,  and the proceeds
of such an exchange may be subject to backup withholding. (See "TAXES.")

Investors  currently  receive  the  exchange  privilege,  including  exchange by
telephone,   automatically   without  having  to  elect  it.  The  Funds  employ
procedures,  including recording  telephone calls,  testing a caller's identity,
and sending  written  confirmation of telephone  transactions,  designed to give
reasonable assurance that instructions communicated by telephone are genuine and
to discourage  fraud. To the extent that a Fund does not follow such procedures,
it may  be  liable  for  losses  due to  unauthorized  or  fraudulent  telephone
instructions.   A  Fund  will  not  be  liable  for  acting  upon   instructions
communicated by telephone that it reasonably  believes to be genuine.  The Funds
and the  Transfer  Agent each  reserves  the right to suspend or  terminate  the
privilege of exchanging by telephone or fax at any time.

The Scudder  Funds into which  investors  may make an exchange  are listed under
"THE SCUDDER  FAMILY OF FUNDS" herein.  Before making an exchange,  shareholders
should obtain from Scudder Investor  Services,  Inc. a prospectus of the Scudder
fund into which the exchange is being  contemplated.  The exchange privilege may
not be available for certain Scudder Funds or classes of Scudder Funds. For more
information,  please call  1-800-225-5163  (Class S) and  1-800-253-2277  (Class
AARP).

Scudder retirement plans may have different exchange requirements.  Please refer
to appropriate plan literature.


                             REDEMPTION BY TELEPHONE


Shareholders currently receive the right automatically,  without having to elect
it, to redeem by telephone up to $100,000 and have the proceeds  mailed to their
address of  record.  Shareholders  may also  request  by  telephone  to have the
proceeds  mailed  or wired  to their  predesignated  bank  account.  In order to
request wire  redemptions  by telephone,  shareholders  must have  completed and
returned to the Transfer Agent the  application,  including the designation of a
bank account to which the redemption proceeds are to be sent.

         (a)      NEW INVESTORS  wishing to establish  the telephone  redemption
                  privilege  must  complete  the  appropriate   section  on  the
                  application.

         (b)      EXISTING  SHAREHOLDERS  (except  those  who are  Scudder  IRA,
                  Scudder pension and profit-sharing, Scudder 401(k) and Scudder
                  403(b) Planholders) who wish to establish telephone redemption
                  to a predesignated bank account or who want to change the bank
                  account previously  designated to receive redemption  proceeds
                  should  either  return  a  Telephone  Redemption  Option  Form
                  (available  upon request),  or send a letter  identifying  the
                  account and  specifying  the exact  information to be changed.
                  The letter must be signed exactly as the shareholder's name(s)
                  appears on the account.  An original signature and an original
                  signature guarantee are required for each person in whose name
                  the account is registered.

If a  request  for a  redemption  to a  shareholder's  bank  account  is made by
telephone  or fax,  payment  will be by  Federal  Reserve  bank wire to the bank
account  designated  on the  application,  unless  a  request  is made  that the
redemption  check be mailed to the designated  bank account.  There will be a $5
charge for all wire redemptions.

Note: Investors designating a savings bank to receive their telephone redemption
proceeds  are  advised  that if the  savings  bank is not a  participant  in the
Federal Reserve System,  redemption  proceeds must be wired through a commercial
bank which is a correspondent  of the savings bank. As this may delay receipt by
the  shareholder's  account,  it is suggested  that



                                       26
<PAGE>

investors  wishing to use a savings bank discuss wire procedures with their bank
and submit any special wire transfer  information with the telephone  redemption
authorization.  If  appropriate  wire  information  is not supplied,  redemption
proceeds will be mailed to the designated bank.

The Funds employ  procedures,  including  recording  telephone calls,  testing a
caller's identity,  and sending written confirmation of telephone  transactions,
designed  to  give  reasonable  assurance  that  instructions   communicated  by
telephone  are genuine and to discourage  fraud.  To the extent that a Fund does
not follow such  procedures,  it may be liable for losses due to unauthorized or
fraudulent  telephone  instructions.  A Fund will not be liable for acting  upon
instructions  communicated  by  telephone  that  it  reasonably  believes  to be
genuine.

Redemption requests by telephone (technically a repurchase agreement between the
Fund and the  shareholder)  of shares  purchased  by check will not be  accepted
until the purchase check has cleared which may take up to seven business days.


                             REDEMPTION BY QUICKSELL

Shareholders,  whose  predesignated  bank  account  of record is a member of the
Automated  Clearing  House Network (ACH) and have elected to  participate in the
QuickSell program,  may sell shares of a Fund by telephone.  Redemptions must be
for at least $250. Proceeds in the amount of your redemption will be transferred
to your bank checking account in two or three business days following your call.
For requests received by the close of regular trading on the Exchange,  normally
4 p.m.  eastern  time,  shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call.  QuickSell  requests
received  after the close of regular  trading on the  Exchange  will begin their
processing the following business day. QuickSell  transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.

In order to request  redemptions by QuickSell,  shareholders must have completed
and returned to the Transfer Agent the application, including the designation of
a bank account.  New investors wishing to establish QuickSell may so indicate on
the  application.  Existing  shareholders  who  wish to add  QuickSell  to their
account may do so by completing a QuickSell Enrollment Form. After sending in an
enrollment  form,  shareholders  should allow for 15 days for this service to be
available.

The Funds employ  procedures,  including  recording  telephone calls,  testing a
caller's identity,  and sending written confirmation of telephone  transactions,
designed  to  give  reasonable  assurance  that  instructions   communicated  by
telephone  are genuine and to discourage  fraud.  To the extent that a Fund does
not follow such  procedures,  it may be liable for losses due to unauthorized or
fraudulent  telephone  instructions.  A Fund will not be liable for acting  upon
instructions  communicated  by  telephone  that  it  reasonably  believes  to be
genuine.

Redemption by Mail or Fax

Any  existing  share  certificates   representing  shares  being  redeemed  must
accompany a request for  redemption  and be duly  endorsed or  accompanied  by a
proper stock assignment form with signature(s) guaranteed.

In order to ensure proper  authorization  before redeeming shares,  the Transfer
Agent may request  additional  documents  such as, but not  restricted to, stock
powers,  trust  instruments,  certificates  of death,  appointments as executor,
certificates of corporate  authority and waivers of tax (required in some states
when settling estates).

It is  suggested  that  shareholders  holding  shares  registered  in other than
individual  names contact the Transfer Agent prior to any  redemptions to ensure
that all necessary documents accompany the request.  When shares are held in the
name of a corporation,  trust,  fiduciary  agent,  attorney or partnership,  the
Transfer Agent requires,  in addition to the stock power,  certified evidence of
authority to sign.  These  procedures are for the protection of shareholders and
should be followed to ensure  prompt  payment.  Redemption  requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven (7) business days after receipt by the Transfer  Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven (7) days of payment for shares  tendered for repurchase or redemption
may result, but only until the purchase check has cleared.

The  requirements  for IRA  redemptions  are  different  from those for  regular
accounts. For more information call 1-800-225-5163.


                                       27
<PAGE>

                               REDEMPTION-IN-KIND


The Corporation reserves the right, if conditions exist which make cash payments
undesirable,  to honor any request for redemption or repurchase  order by making
payment in whole or in part in readily  marketable  securities  chosen by a Fund
and valued as they are for  purposes  of  computing  a Fund's net asset value (a
redemption-in-kind).  If payment is made in securities,  a shareholder may incur
transaction  expenses in converting  these securities into cash. The Corporation
has  elected,  however,  to be  governed  by Rule 18f-1  under the 1940 Act as a
result of which a Fund is  obligated to redeem  shares,  with respect to any one
shareholder  during  any  90-day  period,  solely  in cash up to the  lesser  of
$250,000  or 1% of the net  asset  value of that  Fund at the  beginning  of the
period.

Other Information

Clients,  officers or employees of the Adviser or of an affiliated organization,
and members of such clients',  officers' or employees' immediate families, banks
and members of the NASD may direct repurchase requests to a Fund through Scudder
Investor  Services,  Inc.  at Two  International  Place,  Boston,  Massachusetts
02110-4103 by letter,  fax, TWX, or telephone.  A two-part  confirmation will be
mailed out promptly after receipt of the repurchase  request.  A written request
in good order with a proper original  signature  guarantee,  as described in the
Shares' prospectus,  should be sent with a copy of the invoice to Scudder Funds,
c/o Scudder Confirmed Processing, Two International Place, Boston, Massachusetts
02110-4103.  Failure to deliver shares or required  documents (see above) by the
settlement date may result in cancellation of the trade and the shareholder will
be responsible  for any loss incurred by a Fund or the principal  underwriter by
reason  of such  cancellation.  Net  losses on such  transactions  which are not
recovered from the  shareholder  will be absorbed by the principal  underwriter.
Any net gains so resulting  will accrue to a Fund.  For this group,  repurchases
will be carried out at the net asset value next computed  after such  repurchase
requests have been received.  The  arrangements  described in this paragraph for
repurchasing shares are discretionary and may be discontinued at any time.

Shareholders who wish to redeem shares from Special Plan Accounts should contact
the employer, trustee or custodian of the Plan for the requirements.

If a  shareholder  redeems all shares in the account  after the record date of a
dividend,  the shareholder  receives in addition to the net asset value thereof,
all  declared  but unpaid  dividends  thereon.  The value of shares  redeemed or
repurchased may be more or less than the shareholder's cost depending on the net
asset value at the time of  redemption or  repurchase.  A Fund does not impose a
redemption or repurchase  charge,  although a wire charge may be applicable  for
redemption  proceeds wired to an investor's bank account.  Redemption of shares,
including  redemptions  undertaken  to effect an exchange  for shares of another
Scudder fund, may result in tax  consequences  (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding.  (See
"TAXES.")

The determination of net asset value and a shareholder's  right to redeem shares
and to receive payment  therefore may be suspended at times (a) during which the
Exchange is closed,  other than  customary  weekend and  holiday  closings,  (b)
during which  trading on the Exchange is restricted  for any reason,  (c) during
which an emergency  exists as a result of which disposal by a Fund of securities
owned by it is not reasonably  practicable  or it is not reasonably  practicable
for a Fund fairly to determine the value of its net assets,  or (d) during which
the Securities and Exchange  Commission (the  "Commission"),  by order permits a
suspension of the right of redemption or a  postponement  of the date of payment
or of  redemption;  provided  that  applicable  rules  and  regulations  of  the
Commission (or any succeeding governmental authority) shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist.

--------------------------------------------------------------------------------
                   FEATURES AND SERVICES OFFERED BY THE FUNDS
--------------------------------------------------------------------------------


Internet access

World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com.
The  address  for Class  AARP  shares is  aarp.scudder.com.  These  sites  offer
guidance on global  investing and  developing  strategies to help meet financial
goals and  provide  access to the  Scudder  investor  relations  department  via
e-mail.  The sites also  enable  users to access or view fund  prospectuses  and
profiles with links between summary information in Fund Summaries and details in
the  Prospectus.  Users  can fill out new  account  forms  on-line,  order  free
software, and request literature on funds.

Account  Access -- The Adviser is among the first mutual fund  families to allow
shareholders to manage their fund accounts


                                       28
<PAGE>

through the World Wide Web.  Scudder  Fund  shareholders  can view a snapshot of
current  holdings,  review account activity and move assets between Scudder Fund
accounts.

The  Adviser's  personal  portfolio  capabilities  --  known  as  SEAS  (Scudder
Electronic  Account  Services) -- are  accessible  only by current  Scudder Fund
shareholders  who have set up a Personal  Page on  Scudder's  Web site.  Using a
secure Web  browser,  shareholders  sign on to their  account  with their Social
Security  number and their SAIL  password.  As an additional  security  measure,
users can change their  current  password or disable  access to their  portfolio
through the World Wide Web.

An Account  Activity option reveals a financial  history of transactions  for an
account,  with trade  dates,  type and amount of  transaction,  share  price and
number of shares  traded.  For users who wish to trade  shares  between  Scudder
Funds,  the Fund Exchange option  provides a step-by-step  procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.




                                       29
<PAGE>




                                       30
<PAGE>




                                       31
<PAGE>




                                       32
<PAGE>



                                       33
<PAGE>



                                       34
<PAGE>



                                       35
<PAGE>



                DIVIDENDS AND CAPITAL GAINS DISTRIBUTION OPTIONS



Investors  have  freedom to choose  whether to receive  cash or to reinvest  any
dividends  from net investment  income or  distributions  from realized  capital
gains in additional Shares of a Fund. A change of instructions for the method of
payment may be given to the  Transfer  Agent in writing at least five days prior
to a dividend  record date.  Shareholders  may change their  dividend  option by
calling  1-800-225-5163  for Class S and  1-800-253-2277  for  Class  AARP or by
sending written  instructions to the Transfer Agent. Please include your account
number with your written request.

Reinvestment  is usually made at the closing net asset value  determined  on the
business  day   following  the  record  date.   Investors  may  leave   standing
instructions  with the  Transfer  Agent  designating  their  option  for  either
reinvestment  or cash  distribution  of any income  dividends  or capital  gains
distributions.  If no  election is made,  dividends  and  distributions  will be
invested in additional class shares of a Fund.

Investors may also have dividends and distributions  automatically  deposited to
their predesignated bank account through Scudder's Direct Distributions Program.
Shareholders who elect to participate in the Direct  Distributions  Program, and
whose  predesignated  checking  account  of  record  is  with a  member  bank of
Automated  Clearing  House  Network  (ACH)  can have  income  and  capital  gain
distributions  automatically  deposited to their  personal bank account  usually
within  three  business  days  after a Fund  pays  its  distribution.  A  Direct
Distributions request form can be obtained by calling 1-800-225-5163 for Class S
and  1-800-253-2277  for Class AARP.  Confirmation  Statements will be mailed to
shareholders as notification that distributions have been deposited.

Investors  choosing to participate in Scudder's  Automatic  Withdrawal Plan must
reinvest any dividends or capital gains. For most retirement plan accounts,  the
reinvestment of dividends and capital gains is also required.

Transaction Summaries

Annual  summaries  of all  transactions  in each Fund  account are  available to
shareholders. The summaries may be obtained by calling 1-800-SCUDDER for Class S
and 1-800-253-2277 for Class AARP.

For Scudder  International Fund, the following  information applies to all share
classes.

Reports to Shareholders

The  Corporation  issues to its  shareholders  unaudited  semiannual  and annual
financial  statements  audited by independent




                                       36
<PAGE>


accountants,  including a list of investments  held and statements of assets and
liabilities,  operations,  changes in net assets and financial highlights.  Each
distribution  will be  accompanied  by a brief  explanation of the source of the
distribution.

                           THE SCUDDER FAMILY OF FUNDS

MONEY MARKET

         Scudder U.S. Treasury Money Fund

         Scudder Cash Investment Trust

         Scudder Money Market Series+

TAX FREE MONEY MARKET

         Scudder Tax Free Money Fund

TAX FREE

         Scudder Medium Term Tax Free Fund

         Scudder Managed Municipal Bonds

         Scudder High Yield Tax Free Fund**

         Scudder California Tax Free Fund*

         Scudder Massachusetts Tax Free Fund*

         Scudder New York Tax Free Fund*

U.S. INCOME

         Scudder Short Term Bond Fund

         Scudder GNMA Fund

         Scudder Income Fund

         Scudder High Yield Bond Fund

GLOBAL INCOME

         Scudder Global Bond Fund

         Scudder Emerging Markets Income Fund

ASSET ALLOCATION

         Scudder Pathway Series: Conservative Portfolio

         Scudder Pathway Series: Moderate Portfolio

         Scudder Pathway Series: Growth Portfolio

U.S. GROWTH AND INCOME

         Scudder Balanced Fund

                                       37
<PAGE>

         Scudder Dividend & Growth Fund

         Scudder Growth and Income Fund

         Scudder Select 500 Fund

         Scudder S&P 500 Index Fund

U.S. GROWTH

     Value

         Scudder Large Company Value Fund

         Scudder Value Fund**

         Scudder Small Company Stock Fund

         Scudder Small Company Value Fund

     Growth

         Scudder Capital Growth Fund

         Scudder Classic Growth Fund**

         Scudder Large Company Growth Fund

         Scudder Select 1000 Growth Fund

         Scudder Development Fund

         Scudder 21st Century Growth Fund

GLOBAL EQUITY

     Worldwide

         Scudder Global Fund

         Scudder International Fund***

         Scudder Global Discovery Fund**

         Scudder Emerging Markets Growth Fund

         Scudder Gold Fund

     Regional

         Scudder Greater Europe Growth Fund

         Scudder Pacific Opportunities Fund

         Scudder Latin America Fund

         The Japan Fund, Inc.



                                       38
<PAGE>

INDUSTRY SECTOR FUNDS

     Choice Series

         Scudder Health Care Fund

         Scudder Technology Innovation Fund

+        The institutional  class of shares is not part of the Scudder Family of
         Funds.

**       Only the Scudder Shares are part of the Scudder Family of Funds.

***      Only Class S shares are part of the Scudder Family of Funds.

The net asset  values of most  Scudder  funds can be found  daily in the "Mutual
Funds" section of The Wall Street  Journal under  "Scudder  Funds," and in other
leading newspapers  throughout the country.  The latest seven-day yields for the
money-market  funds can be found every Monday and Thursday in the  "Money-Market
Funds" section of The Wall Street Journal. This information also may be obtained
by calling the Scudder Automated Information Line (SAIL) at 1-800-343-2890.

Certain  Scudder  funds or classes  thereof may not be available for purchase or
exchange. For more information, please call 1-800-225-5163.






                                       39
<PAGE>


---------------------

+        The institutional class of shares is not part of the Scudder  Family of
         Funds.

*        These funds are not available for sale in all states.  For information,
         contact Scudder Investor Services, Inc.

                                       40
<PAGE>




                                       41
<PAGE>




                                       42
<PAGE>



                              SPECIAL PLAN ACCOUNTS

         Detailed  information  on any Scudder  investment  plan,  including the
applicable  charges,   minimum  investment  requirements  and  disclosures  made
pursuant to Internal Revenue Service (the "IRS")  requirements,  may be obtained
by contacting Scudder Investor Services,  Inc., Two International Place, Boston,
Massachusetts   02110-4103  or  by  calling  toll  free,   1-800-225-2470.   The
discussions  of the plans below  describe  only  certain  aspects of the federal
income tax  treatment of the plan.  The state tax treatment may be different and
may vary from state to state.  It is advisable for an investor  considering  the
funding of the investment  plans  described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.

         Shares  of the Fund may also be a  permitted  investment  under  profit
sharing  and  pension  plans and IRAs  other  than  those  offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.

         None of the plans  assures a profit or  guarantees  protection  against
depreciation, especially in declining markets.

Scudder Retirement Plans:  Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals

         Shares of the Fund may be  purchased as the  investment  medium under a
plan in the form of a Scudder  Profit-Sharing  Plan  (including a version of the
Plan which  includes a  cash-or-deferred  feature) or a Scudder  Money  Purchase
Pension Plan (jointly referred to as the Scudder  Retirement Plans) adopted by a
corporation,  a self-employed individual or a group of self-employed individuals
(including  sole   proprietorships   and  partnerships),   or  other  qualifying
organization.  Each of these forms was approved by the IRS as a  prototype.  The
IRS's  approval  of an  employer's  plan under  Section  401(a) of the  Internal
Revenue Code will be greatly  facilitated if it is in such approved form.  Under
certain  circumstances,  the IRS will assume that a plan,  adopted in this form,
after special notice to any employees,  meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.

Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals

         Shares of the Fund may be  purchased as the  investment  medium under a
plan  in  the  form  of a  Scudder  401(k)  Plan  adopted  by a  corporation,  a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships),  or other qualifying organization.  This plan has
been approved as a prototype by the IRS.

Scudder IRA:  Individual Retirement Account

         Shares of the Fund may be purchased as the underlying investment for an
Individual  Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.

         A  single   individual   who  is  not  an  active   participant  in  an
employer-maintained  retirement  plan, a simplified  employee pension plan, or a
tax-deferred  annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active  participant  in a qualified  plan,  are eligible to make tax  deductible
contributions  of up to  $2,000  to an IRA  prior  to the year  such  individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified  plans (or who have spouses who are active  participants)  are also
eligible to make  tax-deductible  contributions to an IRA; the annual amount, if
any, of the  contribution  which such an  individual  will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the


                                       43
<PAGE>

adjusted gross income limitation  prohibits an individual from contributing what
would otherwise be the maximum tax-deductible contribution he or she could make,
the  individual  will be eligible to contribute  the difference to an IRA in the
form of nondeductible contributions.

         An eligible  individual  may  contribute as much as $2,000 of qualified
income (earned income or, under certain  circumstances,  alimony) to an IRA each
year (up to $2,000 per  individual  for married  couples even if only one spouse
has earned  income).  All income and capital gains derived from IRA  investments
are reinvested and compound  tax-deferred until  distributed.  Such tax-deferred
compounding can lead to substantial retirement savings.

^ Scudder Roth IRA:  Individual Retirement Account

         Shares of the Fund may be purchased as the underlying  investment for a
Roth Individual  Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.

         A single  individual  earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000.  Married  couples earning less than $150,000  combined,  and filing
jointly,  can  contribute a full $4,000 per year  ($2,000 per IRA).  The maximum
contribution  amount for married couples filing jointly phases out from $150,000
to $160,000.

         An eligible  individual can contribute money to a traditional IRA and a
Roth IRA as long as the total  contribution  to all IRAs does not exceed $2,000.
No tax deduction is allowed  under Section 219 of the Internal  Revenue Code for
contributions to a Roth IRA.  Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.

         All income and capital  gains  derived  from Roth IRA  investments  are
reinvested  and  compounded  tax-free.  Such  tax-free  compounding  can lead to
substantial  retirement savings. No distributions are required to be taken prior
to the death of the original account holder.  If a Roth IRA has been established
for a minimum of five years,  distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase  ($10,000  maximum,  one-time use) or
upon death or disability.  All other  distributions  of earnings from a Roth IRA
are  taxable  and  subject to a 10% tax  penalty  unless an  exception  applies.
Exceptions to the 10% penalty include: disability, certain medical expenses, the
purchase of health  insurance for an unemployed  individual and qualified higher
education expenses.

         An  individual  with an income of  $100,000 or less (who is not married
filing  separately)  can roll his or her existing IRA into a Roth IRA.  However,
the individual  must pay taxes on the taxable  amount in his or her  traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year  period.  After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.


The following paragraph applies to Class S shareholders only:


Scudder 403(b) Plan

         Shares of the Fund may also be purchased as the  underlying  investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal  Revenue  Code.  In  general,  employees  of  tax-exempt  organizations
described in Section  501(c)(3) of the Internal Revenue Code (such as hospitals,
churches,  religious,  scientific,  or literary  organizations  and  educational
institutions)  or a public school system are eligible to participate in a 403(b)
plan.

Automatic Withdrawal Plan

         Non-retirement plan shareholders may establish an Automatic  Withdrawal
Plan to receive  monthly,  quarterly  or  periodic  redemptions  from his or her
account for any  designated  amount of $50 or more.  Shareholders  may designate
which day they want the automatic withdrawal to be processed.  The check amounts
may be based on the  redemption  of a fixed dollar  amount,  fixed share amount,
percent of account  value or  declining  balance.  The Plan  provides for income
dividends  and  capital  gains  distributions,  if  any,  to  be  reinvested  in
additional  shares.  Shares are then  liquidated  as  necessary  to provide  for
withdrawal  payments.  Since the  withdrawals  are in  amounts  selected  by the
investor and have no relationship to yield or income,  payments  received cannot
be  considered  as  yield  or  income  on  the   investment  and  the  resulting
liquidations may deplete or possibly  extinguish the initial  investment and any
reinvested dividends and capital gains distributions.  Requests for increases in
withdrawal  amounts or to change the payee must be submitted in writing,  signed
exactly as the account is


                                       44
<PAGE>

registered,  and contain signature  guarantee(s) as described under "Transaction
information  --  Redeeming  shares  --  Signature   guarantees"  in  the  Fund's
prospectus.  Any such requests must be received by the Fund's transfer agent ten
days  prior  to the  date  of  the  first  automatic  withdrawal.  An  Automatic
Withdrawal  Plan  may  be  terminated  at  any  time  by  the  shareholder,  the
Corporation  or its agent on written  notice,  and will be  terminated  when all
shares of the Fund under the Plan have been  liquidated  or upon  receipt by the
Corporation of notice of death of the shareholder.

         An  Automatic  Withdrawal  Plan request form can be obtained by calling
1-800-225-5163.

Group or Salary Deduction Plan

         An  investor  may  join  a  Group  or  Salary   Deduction   Plan  where
satisfactory  arrangements have been made with Scudder Investor  Services,  Inc.
for forwarding regular  investments  through a single source. The minimum annual
investment  is $240  per  investor  which  may be made  in  monthly,  quarterly,
semiannual or annual payments.  The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain  retirement  plans, at present
there is no separate charge for  maintaining  group or salary  deduction  plans;
however,  the  Corporation  and its  agents  reserve  the right to  establish  a
maintenance  charge in the future  depending  on the  services  required  by the
investor.

         The Corporation  reserves the right, after notice has been given to the
shareholder,  to redeem and close a shareholder's  account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per  individual  or in the  event  of a  redemption  which  occurs  prior to the
accumulation  of that amount or which  reduces  the  account  value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after  notification.  An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.

Automatic Investment Plan

         Shareholders may arrange to make periodic investments through automatic
deductions  from  checking  accounts  by  completing  the  appropriate  form and
providing the necessary  documentation  to establish  this service.  The minimum
investment is $50.

         The Automatic  Investment  Plan involves an investment  strategy called
dollar cost averaging.  Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular  intervals.  By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more  shares  than when the share  price is  higher.  Over a period of time this
investment  approach may allow the  investor to reduce the average  price of the
shares purchased.  However, this investment approach does not assure a profit or
protect  against loss. This type of regular  investment  program may be suitable
for various  investment  goals such as, but not limited to, college  planning or
saving for a home.

Uniform Transfers/Gifts to Minors Act

         Grandparents, parents or other donors may set up custodian accounts for
minors.  The minimum  initial  investment  is $1,000  unless the donor agrees to
continue to make  regular  share  purchases  for the account  through  Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.

         The Corporation  reserves the right, after notice has been given to the
shareholder and custodian,  to redeem and close a  shareholder's  account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.

                    DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

         The Fund intends to follow the practice of  distributing  substantially
all of its  investment  company  taxable income which includes any excess of net
realized  short-term  capital gains over net realized  long-term capital losses.
The Fund may follow  the  practice  of  distributing  the  entire  excess of net
realized  long-term capital gains over net realized  short-term  capital losses.
However,  the Fund may retain all or part of such gain for  reinvestment,  after
paying the  related  federal  taxes for which  shareholders  may then be able to
claim a credit  against  their  federal  tax  liability.  If the  Fund  does not
distribute  the amount of capital  gain and/or  ordinary  income  required to be
distributed  by an excise tax provision of the Code,  the Fund may be subject to
that excise tax. In certain circumstances,  the Fund may determine that it is in
the interest of shareholders to distribute less than the required  amount.  (See
"TAXES.")



                                       45
<PAGE>

         The Fund intends to distribute  investment  company  taxable income and
any net realized  capital gains in December each year.  Any dividends or capital
gains distributions declared in October, November or December with a record date
in such a month  and paid  during  the  following  January  will be  treated  by
shareholders  for federal  income tax  purposes as if received on December 31 of
the calendar year declared. Additional distributions may be made if necessary.

         All distributions  will be made in shares of the Fund and confirmations
will be mailed to each  shareholder  unless a shareholder has elected to receive
cash,  in which case a check will be sent.  Distributions  are taxable,  whether
made in shares or cash. (See "TAXES.")

                             PERFORMANCE INFORMATION


         From  time  to  time,  quotations  of the  Shares'  performance  may be
included in  advertisements,  sales  literature  or reports to  shareholders  or
prospective investors. On April 16, 1998, Global Discovery Fund was divided into
four classes of shares. Shares of Global Discovery Fund outstanding on that date
were redesignated  Scudder Shares of the Fund. On March 1, 2001 a fifth class of
shares was added. The performance  information will be calculated separately for
each class of Global  Discovery  Fund's shares.  These  performance  figures are
calculated in the following manner:


Average Annual Total Return

         Average  Annual Total  Return is the average  annual  compound  rate of
return for, where applicable, the periods of one year, five years, ten years (or
such shorter  periods as may be applicable  dating from the  commencement of the
Fund's  operations),  all  ended on the last day of a recent  calendar  quarter.
Average  annual  total  return  quotations  reflect  changes in the price of the
Fund's  shares and assume that all  dividends  and capital  gains  distributions
during the  respective  periods were  reinvested in Fund shares.  Average annual
total  return is  calculated  by finding the average  annual  compound  rates of
return  of a  hypothetical  investment,  over  such  periods,  according  to the
following   formula  (average  annual  total  return  is  then  expressed  as  a
percentage):

                           T = (ERV/P)^1/n - 1

          Where:

                 P        =       a hypothetical initial investment of $1,000
                 T        =       Average Annual Total Return
                 N        =       number of years
                 ERV      =       ending  redeemable  value: ERV is the value,
                                  at the end of the  applicable  period,  of a
                                  hypothetical  $1,000  investment made at the
                                  beginning of the applicable period.


         Average Annual Total Return for periods ended October 31, 2000*


                                    One Year    Five Years   Life of the Fund(1)

Class S Global Discovery Fund
Class AARP Global Discovery Fund**


         (1)      For the period beginning September 10, 1991.

         *        On April 16, 1998,  Global  Discovery Fund adopted its present
                  name. Prior to that date, the Fund was known as Scudder Global
                  Discovery  Fund since it changed its name from Scudder  Global
                  Small Company Fund on March 6, 1996.  Performance  information
                  provided is for the Fund's Scudder Shares class.

         **       Since  Class  AARP  shares  is  a  new  class  of  shares,  no
                  performance  information  is  available.  However,  Class AARP
                  shares will have substantially  similar annual returns because
                  the shares are invested in the same  portfolio of  securities,
                  and the annual  returns  would  differ only to the extent that
                  expenses differ.



Cumulative Total Return

         Cumulative  Total  Return  is  the  cumulative  rate  of  return  on  a
hypothetical  initial  investment of $1,000 for a specified  period.  Cumulative
Total Return  quotations  reflect  changes in the price of the Fund's shares and
assume that all


                                       46
<PAGE>

dividends and capital gains  distributions  during the period were reinvested in
Fund shares.  Cumulative  Total Return is calculated  by finding the  cumulative
rates of a return of a hypothetical  investment over such periods,  according to
the  following  formula   (Cumulative  Total  Return  is  then  expressed  as  a
percentage):

                             C = (ERV/P) - 1

     Where:

             C        =       Cumulative Total Return
             P        =       a hypothetical initial investment of $1,000
             ERV      =       ending  redeemable  value: ERV is the value,
                              at the end of the  applicable  period,  of a
                              hypothetical  $1,000  investment made at the
                              beginning of the applicable period.


          Cumulative Total Return for periods ended October 31, 2000*

                                    One Year    Five Years   Life of the Fund(1)

Class S Global Discovery Fund
Class AARP Global Discovery Fund**


         (1)      For the period beginning September 10, 1991.

         *        On April 16, 1998,  Global  Discovery Fund adopted its present
                  name. Prior to that date, the Fund was known as Scudder Global
                  Discovery  Fund since it changed its name from Scudder  Global
                  Small Company Fund on March 6, 1996.  Performance  information
                  provided is for the Fund's Scudder Shares class.

         **       Since  Class  AARP  shares  is  a  new  class  of  shares,  no
                  performance  information  is  available.  However,  Class AARP
                  shares will have substantially  similar annual returns because
                  the shares are invested in the same  portfolio of  securities,
                  and the annual  returns  would  differ only to the extent that
                  expenses differ.


                                  TOTAL RETURN

Total Return is the rate of return on an  investment  for a specified  period of
time calculated in the same manner as Cumulative Total Return.

From  time  to  time,  in  advertisements,  sales  literature,  and  reports  to
shareholders  or prospective  investors,  figures  relating to the growth in the
total net assets of the Fund apart from capital  appreciation  will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital  appreciation  generally will be covered
by marketing literature as part of the Fund's and classes' performance data.

Quotations of a Fund's  performance are based on historical  earnings,  show the
performance  of a  hypothetical  investment,  and are not  intended  to indicate
future performance of that Fund. An investor's shares when redeemed may be worth
more or less than their original cost.  Performance of a Fund will vary based on
changes in market conditions and the level of that Fund's expenses.

               Comparison of Fund Performance

A  comparison  of  the  quoted  non-standard  performance  offered  for  various
investments is valid only if performance is calculated in the same manner. Since
there  are  different  methods  of  calculating  performance,  investors  should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection  with  communicating  their  performance to current or prospective
shareholders,  the Funds also may compare  these figures to the  performance  of
unmanaged  indices  which may assume  reinvestment  of dividends or interest but
generally do not reflect deductions for administrative and management costs.

Historical  information on the value of the dollar versus foreign currencies may
be used  from  time  to  time  in  advertisements  concerning  the  Funds.  Such
historical  information is not indicative of future fluctuations in the value of
the U.S. dollar


                                       47
<PAGE>

against these currencies. In addition,  marketing materials may cite country and
economic  statistics  and  historical  stock market  performance  for any of the
countries in which a Fund invests.

From time to time, in advertising and marketing literature, a Fund's performance
may be compared to the  performance of broad groups of mutual funds with similar
investment goals, as tracked by independent organizations.

From  time to time,  in  marketing  and other  Fund  literature,  Directors  and
officers  of a  Fund,  its  portfolio  manager,  or  members  of  the  portfolio
management  team may be  depicted  and quoted to give  prospective  and  current
shareholders  a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.

Marketing and other Fund  literature  may include a description of the potential
risks and rewards  associated  with an investment in a Fund. The description may
include a "risk/return spectrum" which compares the Funds to other Scudder funds
or broad  categories of funds,  such as money market,  bond or equity funds,  in
terms of  potential  risks and  returns.  Money  market  funds are  designed  to
maintain a constant $1.00 share price and have a fluctuating yield. Share price,
yield and total return of a bond fund will fluctuate. The share price and return
of an equity fund also will  fluctuate.  The  description  may also  compare the
Funds to bank products,  such as certificates  of deposit.  Unlike mutual funds,
certificates  of deposit are insured up to $100,000 by the U.S.  government  and
offer a fixed rate of return.

Because bank products  guarantee the principal  value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than  investments  in either bond or equity funds,  which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an  investment as prices  increase over a long time period.  The
risks/returns  associated with an investment in bond or equity funds depend upon
many factors.  For bond funds these factors  include,  but are not limited to, a
fund's overall  investment  objective,  the average portfolio  maturity,  credit
quality of the securities  held, and interest rate movements.  For equity funds,
factors  include  a fund's  overall  investment  objective,  the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns  associated  with an  investment in  international  bond or equity
funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential  for less return  than  longer-term  bond  funds.  The same is true of
domestic bond funds relative to  international  bond funds,  and bond funds that
purchase  higher quality  securities  relative to bond funds that purchase lower
quality securities.  Growth and income equity funds are generally  considered to
be less risky and offer the  potential  for less return than  growth  funds.  In
addition,  international  equity funds  usually are  considered  more risky than
domestic equity funds but generally offer the potential for greater return.

Evaluation of Fund performance or other relevant statistical information made by
independent  sources  may  also  be used in  advertisements  concerning  a Fund,
including reprints of, or selections from, editorials or articles about a Fund.




                                       48
<PAGE>


                            ORGANIZATION OF THE FUND


         The Fund is a separate  series of  Global/International  Fund,  Inc., a
Maryland corporation  organized on May 15, 1986. The name of the Corporation was
changed from Scudder Global Fund, Inc. on May 28, 1998. The name of the Fund was
changed,  effective April 16, 1998, from Scudder Global Discovery Fund to Global
Discovery Fund. The Corporation's shares are currently divided into five series:
Global  Discovery Fund,  Scudder Global Fund,  Scudder  Emerging  Markets Income
Fund,  Scudder Global Bond Fund and Scudder  International Bond Fund. The Fund's
shares are currently  divided into five classes:  Class S and Class AARP shares,
and Kemper Global Discovery Fund Class A, B and C shares.  Although shareholders
of  different  classes of a series  have an interest  in the same  portfolio  of
assets,  shareholders  of  different  classes  may bear  different  expenses  in
connection with different methods of distribution.


         The authorized capital stock of the Corporation consists of 800 million
shares with $.01 par value,  of which 100 million shares are allocated to Global
Discovery  Fund.  Each share of each series of the  Corporation has equal voting
rights  as to each  other  share of that  series  as to  voting  for  Directors,
redemption, dividends and liquidation. Shareholders have one vote for each share
held.  All shares  issued  and  outstanding  are fully paid and  non-assessable,
transferable,   and  redeemable  at  net  asset  value  at  the  option  of  the
shareholder. Shares have no pre-emptive or conversion rights.

         Shares of the Corporation  entitle their holders to one vote per share;
however,  separate  votes  are  taken by each  series on  matters  affecting  an
individual series. For example, a change in investment policy for a series would
be  voted  upon  only by  shareholders  of the  series  involved.  Additionally,
approval  of the  investment  advisory  agreement  is a matter to be  determined
separately  by each  series.  Approval  by the  shareholders  of one  series  is
effective as to that series  whether or not enough  votes are received  from the
shareholders  of the other  series to  approve  such  agreement  as to the other
series.



                                       49
<PAGE>

         The shares of the Corporation have non-cumulative  voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors  can elect 100% of the Directors if they choose to do so, and, in such
event,  the holders of the remaining  less than 50% of the shares voting for the
election  of  Directors  will not be able to elect any  person or persons to the
Board of Directors.

         Each share of each class of the Fund shall be  entitled to one vote (or
fraction  thereof in respect of a fractional  share) on matters that such shares
(or class of shares) shall be entitled to vote.  Shareholders  of the Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Directors has determined  that the matter affects only
the interest of  shareholders  of one or more classes of the Fund, in which case
only the  shareholders of such class or classes of the Fund shall be entitled to
vote  thereon.  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 Fund's Articles of Incorporation. 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  directors),  means the vote of the lesser of (i) 67% of the
Fund'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 Fund's  outstanding  shares.  The term  "majority",  when  referring  to the
approvals to be obtained from  shareholders in connection with matters affecting
a single 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.  Shareholders  are
entitled  to one  vote  for each  full  share  held  and  fractional  votes  for
fractional shares held.

         The  Directors,  in their  discretion,  may  authorize  the division of
shares of a series into different classes permitting shares of different classes
to be  distributed  by different  methods.  Although  shareholders  of different
classes of a series  would have an  interest  in the same  portfolio  of assets,
shareholders of any subsequently  created classes may bear different expenses in
connection with different methods of distribution of their classes.

         Maryland  corporate  law  provides  that a Director of the  Corporation
shall not be  liable  for  actions  taken in good  faith,  in a manner he or she
reasonably  believes to be in the best interests of the Corporation and with the
care  that an  ordinarily  prudent  person  in a like  position  would use under
similar  circumstances.  In so acting,  a Director  shall be fully  protected in
relying in good faith upon the records of the  Corporation and upon reports made
to the  Corporation  by  persons  selected  in good  faith by the  Directors  as
qualified to make such reports.

         The Articles of Amendment and Restatement provide that the Directors of
the Corporation, to the fullest extent permitted by Maryland General Corporation
Law and the 1940 Act shall not be liable to the Corporation or its  shareholders
for  damages.  As a result,  Directors  of the  Corporation  may be immune  from
liability in certain instances in which they could otherwise be held liable. The
Articles  and the  By-Laws  provide  that the  Corporation  will  indemnify  its
Directors,  officers,  employees  or agents  against  liabilities  and  expenses
incurred in connection with litigation in which they may be involved  because of
their offices with the Corporation to the fullest extent permitted by applicable
law.  Nothing in the Articles or the By-Laws protects or indemnifies a Director,
officer,  employee  or agent  against  any  liability  to which he or she  would
otherwise  be  subject  by reason  of  willful  misfeasance,  bad  faith,  gross
negligence or reckless  disregard of the duties  involved in the conduct of that
person's office.

         No series of the Corporation shall be liable for the obligations of any
other series.

                               INVESTMENT ADVISER

Investment Adviser


         Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is  Scudder,  Stevens  & Clark,  Inc.,  is one of the most  experienced
investment  counsel firms in the U. S. It was  established  as a partnership  in
1919 and  pioneered the practice of providing  investment  counsel to individual
clients on a fee basis.  In 1928 it introduced  the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing  internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership  to a  corporation  on June 28, 1985.  On December 31, 1997,  Zurich
Insurance Company  ("Zurich")  acquired a majority interest in the Adviser,  and
Zurich  Kemper  Investments,  Inc.,  a  Zurich  subsidiary,  became  part of the
Adviser.  The  Adviser's  name changed to Scudder  Kemper  Investments,  Inc. On
September 7, 1998, the businesses of 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


                                       50
<PAGE>

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. On October
17, 2000, the dual holding company structure of Zurich Financial Services Group,
comprised of Allied Zurich p.l.c.  in the United  Kingdom and Zurich Allied A.G.
in  Switzerland,  was  unified  into a  single  Swiss  holding  company,  Zurich
Financial Services.


         Founded  in  1872,  Zurich  is  a  multinational,   public  corporation
organized  under  the  laws of  Switzerland.  Its  home  office  is  located  at
Mythenquai 2, 8002 Zurich,  Switzerland.  Historically,  Zurich's  earnings have
resulted from its  operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance  products and
services  and have branch  offices and  subsidiaries  in more than 40  countries
throughout the world.

         The  principal  source of the  Adviser's  income is  professional  fees
received  from  providing  continuous  investment  advice.  Today,  it  provides
investment  counsel for many individuals and institutions,  including  insurance
companies,   colleges,  industrial  corporations,   and  financial  and  banking
organizations  as well as  providing  investment  advice  to over  280  open and
closed-end mutual funds.

         The  Adviser  maintains a large  research  department,  which  conducts
continuous   studies  of  the  factors  that  affect  the  position  of  various
industries,  companies and individual securities. The Adviser receives published
reports and statistical  compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an  adjunct  to  its  own  research  activities.   The  Adviser's  international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Fund may invest,  the  conclusions  and
investment  decisions  of the  Adviser  with  respect  to the  Funds  are  based
primarily on the analyses of its own research department.

         Certain  investments may be appropriate for the fund and also for other
clients  advised  by the  Adviser.  Investment  decisions  for a fund and  other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings,  availability
of cash for investment and the size of their investments generally.  Frequently,
a particular  security may be bought or sold for only one client or in different
amounts  and at  different  times for more  than one but less than all  clients.
Likewise,  a particular  security may be bought for one or more clients when one
or more other clients are selling the security. In addition,  purchases or sales
of the same  security  may be made for two or more  clients on the same day.  In
such event,  such  transactions  will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases,  this  procedure
could have an adverse effect on the price or amount of the securities  purchased
or sold by a fund.  Purchase  and sale  orders for a fund may be  combined  with
those of other  clients of the  Adviser in the  interest of  achieving  the most
favorable net results to that fund.

         In certain cases,  the investments for the fund are managed by the same
individuals  who manage one or more other mutual  funds  advised by the Adviser,
that have similar names,  objectives and investment  styles. You should be aware
that the Fund is likely to differ from these other  mutual  funds in size,  cash
flow pattern and tax matters.  Accordingly,  the holdings and performance of the
Fund can be expected to vary from those of these other mutual funds.


         TO BE  UPDATED:  The  present  investment  management  agreements  were
approved by the Directors on August 7, 1999 on and became effective on September
7, 1998. The Agreement will continue in effect until  September 30, 2000 only if
their  continuance  is  approved  annually  by the vote of a  majority  of those
Directors  who are not parties to such  Agreement or  interested  persons of the
Adviser or the  Corporation,  cast in person at a meeting called for the purpose
of voting on such approval, and either by a vote of the Corporation's  Directors
or of a majority of the outstanding voting securities of the Fund. The Agreement
may be  terminated  at any time  without  payment of penalty by either  party on
sixty  days'  written  notice and  automatically  terminate  in the event of its
assignment.


         The term Scudder  Investments is the designation  given to the services
provided by Scudder Kemper  Investments,  Inc. and its affiliates to the Scudder
Family of Funds.

         Under the  agreement,  the  Adviser  regularly  provides  the Fund with
continuing  investment  management for the Fund's portfolio  consistent with the
Fund's  investment  objective,  policies and  restrictions  and determines  what
securities  shall be  purchased,  held or sold,  and what  portion of the Fund's
assets  shall  be held  uninvested,  subject  always  to the  provisions  of the
Corporation's  Articles of  Incorporation  and By-Laws,  of the 1940 Act and the
Internal Revenue Code of 1986 and to the Fund's investment objectives,  policies
and restrictions, as each may be amended, and subject, further, to such policies
and instructions as the Board of Directors may from time to time establish.



                                       51
<PAGE>

         Under the agreement,  the Adviser  renders  significant  administrative
services  (not  otherwise  provided by third  parties)  necessary for the Fund's
operations  as an open-end  investment  company  including,  but not limited to,
preparing  reports and notices to the Directors and  shareholders;  supervising,
negotiating  contractual  arrangements with, and monitoring various  third-party
service  providers  to the Fund  (such as the  Fund's  transfer  agent,  pricing
agents,  custodian,  accountants and others);  preparing and making filings with
the SEC and other regulatory  agencies;  assisting in the preparation and filing
of the Fund's  federal,  state and local tax returns;  preparing  and filing the
Fund's federal excise tax returns;  assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value;  monitoring  the  registration  of  shares of the Fund  under  applicable
federal and state securities  laws;  maintaining the Fund's books and records to
the extent not otherwise maintained by a third party;  assisting in establishing
accounting  policies of the Fund;  assisting in the resolution of accounting and
legal  issues;   establishing  and  monitoring  the  Fund's  operating   budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging  for,  the  payment  of  distributions  and  dividends  and  otherwise
assisting the Fund in the conduct of its business,  subject to the direction and
control of the Directors.

         The  Adviser  pays the  compensation  and  expenses  except  those  for
attending  Board and committee  meetings  outside New York, New York and Boston,
Massachusetts  of  all  Directors,  officers  and  executive  employees  of  the
Corporation affiliated with the Adviser and makes available,  without expense to
the Funds, the services of such directors, officers and employees of the Adviser
as may duly be elected  officers,  subject to their individual  consent to serve
and to any limitations  imposed by law, and provides the Funds' office space and
facilities.

         For these  services,  Global  Discovery Fund pays the Adviser an annual
fee equal to 1.10% of the average daily net assets of such Fund.




         For the fiscal year ended October 31, 1998, the management fee amounted
to $3,960,160.

         For the fiscal year ended October 31, 1999, the management fee amounted
to ^ $4,401,513.

         For the fiscal year ended October 31, 2000, the management fee amounted
to $ , of which $ was unpaid at October 31, 2000.


         The fee is payable  monthly,  provided  the Fund will make such interim
payments as may be  requested  by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.  Under the  agreement,
the Fund is responsible  for all of its other expenses  including:  organization
expenses; fees and expenses incurred in connection with membership in investment
company  organizations;  broker's  commissions;  legal,  auditing and accounting
expenses;  the calculation of net asset value;  taxes and governmental fees; the
fees  and  expenses  of  the  Transfer  Agent;   the  cost  of  preparing  share
certificates and any other expenses, including expenses of issuance,  redemption
or  repurchase  of  shares;  the  expenses  of and the fees for  registering  or
qualifying securities for sale; the fees and expenses of the Directors, officers
and employees who are not affiliated with the Adviser;  the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians.  The Fund may arrange to have third parties assume all or part of
the expenses of sale,  underwriting  and distribution of shares of the Fund. The
Fund is also  responsible for expenses of  shareholders'  meetings,  the cost of
responding to shareholders'  inquiries, and expenses incurred in connection with
litigation,  proceedings  and  claims  and the legal  obligation  it may have to
indemnify its officers and Directors with respect thereto.

         The Agreement  identified the Adviser as the exclusive  licensee of the
rights to use and sublicense the names "Scudder,"  "Scudder Kemper  Investments,
Inc." and "Scudder  Stevens and Clark,  Inc." (together,  the "Scudder  Marks").
Under  this  license,  the  Corporation,  with  respect  to the  Funds,  has the
non-exclusive  right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Corporation's  investment products
and services.

         In reviewing  the terms of the agreement  and in  discussions  with the
Adviser  concerning  such  Agreement,  the  Directors  who are  not  "interested
persons" of the Corporation have been represented by independent  counsel at the
relevant Fund's expense.



                                       52
<PAGE>

         The  agreement  provides  that the Adviser  shall not be liable for any
error of  judgment  or  mistake of law or for any loss  suffered  by the Fund in
connection with matters to which the 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  duties or from  reckless  disregard  by the
Adviser of its obligations and duties under the Agreement.

         Officers  and  employees  of the  Adviser  from  time to time  may have
transactions with various banks,  including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not  influenced  by existing or potential  custodial or other Fund
relationships.

         None of the officers or Directors  may have  dealings  with the Fund as
principals  in  the  purchase  or  sale  of  securities,  except  as  individual
subscribers or holders of shares of the Fund.

         The term Scudder  Investments is the designation  given to the services
provided by Scudder Kemper  Investments,  Inc. and its affiliates to the Scudder
Family of Funds.

AMA InvestmentLink(SM) Program

         Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical  Association (the "AMA"),  dated May 9, 1997,
the Adviser has agreed,  subject to  applicable  state  regulations,  to pay AMA
Solutions,  Inc.  royalties  in an  amount  equal  to 5% of the  management  fee
received  by the  Adviser  with  respect to assets  invested  by AMA  members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833.  The AMA and AMA  Solutions,  Inc.  are not engaged in the  business of
providing  investment advice and neither is registered as an investment  adviser
or broker/dealer  under federal  securities laws. Any person who participates in
the AMA  InvestmentLink(SM)  Program  will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions,  Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.



Code of Ethics


The Fund,  the Adviser and  principal  underwriter  have each  adopted  codes of
ethics under rule 17j-1 of the Investment  Company Act. Board members,  officers
of the Fund and employees of the Adviser and principal underwriter are permitted
to make personal securities  transactions,  including transactions in securities
that  may be  purchased  or  held  by the  Fund,  subject  to  requirements  and
restrictions  set forth in the applicable Code of Ethics.  The Adviser's Code of
Ethics  contains  provisions and  requirements  designed to identify and address
certain  conflicts of interest  between personal  investment  activities and the
interests  of the  Fund.  Among  other  things,  the  Adviser's  Code of  Ethics
prohibits  certain types of  transactions  absent prior  approval,  imposes time
periods  during  which  personal   transactions  may  not  be  made  in  certain
securities,  and requires the submission of duplicate broker  confirmations  and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio  managers,  traders,  research  analysts  and others  involved  in the
investment  advisory  process.  Exceptions to these and other  provisions of the
Adviser's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.



                                       53
<PAGE>

                             DIRECTORS AND OFFICERS


<TABLE>
<CAPTION>
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------

<S>                                <C>                     <C>                                     <C>
Henry P. Becton, Jr. (56)          Director                President, WGBH Educational Foundation  None
WGBH
125 Western Avenue
Allston, MA 02134

Linda C. Coughlin (48)+*           Chairperson,            Managing Director of Scudder Kemper     Director and Senior
                                   President and Director  Investments, Inc.                       Vice President

Dawn-Marie Driscoll (53)           Director                 Executive Fellow, Center for           None
4909 SW 9th Place                                          Business Ethics, Bentley College;
Cape Coral, FL  33914                                      President, Driscoll Associates
                                                           (consulting firm)

Edgar R. Fiedler (70)              Director                Senior Fellow and Economic              None
50023 Brogden                                              Counsellor, The Conference Board,
Chapel Hill, NC                                            Inc.( Not-for-profit business
                                                           research organization)

Keith R. Fox (46)                  Director                 General Partner, Exeter Group of       None
10 East 53rd Street                                        Funds
New York, NY  10022

Joan E. Spero (55)                 Director                President, Doris Duke Charitable        None
Doris Duke Charitable Foundation                           Foundation; Department of State -
650 Fifth Avenue                                           Undersecretary of State for Economic,
New York, NY  10128                                        Business and Agricultural Affairs
                                                           (March 1993 to January 1997)

Jean Gleason Stromberg (56)        Director                Consultant; Director, Financial         None
3816 Military Road, NW                                     Institutions Issues, U.S. General
Washington, D.C.                                           Accounting Office (1996-1997);
                                                           Partner, Fulbright & Jaworski Law
                                                           Firm (1978-1996)

Jean C. Tempel (56)                Director                 Managing Director, First Light         None
One Boston Place                                           Capital, LLC. (venture capital firm)
23rd Floor
Boston, MA 02108

Steven Zaleznick (45)*             Director                 President and CEO, AARP Services,      None
601 E. Street, NW                                          Inc.
7th Floor
Washington, D.C. 20004

Kathryn L. Quirk  (47)#            Vice President and      Managing Director of Scudder Kemper     Director, Senior Vice
                                   Assistant Secretary     Investments, Inc.                       President, Chief Legal
                                                                                                   Officer and Assistant
                                                                                                   Clerk



                                       54
<PAGE>

                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------

Thomas V. Bruns (43) ***           Vice President           Managing Director of Scudder Kemper    None
                                                           Investments, Inc.

William F. Glavin (41)+            Vice President           Managing Director of Scudder Kemper    Vice President
                                                           Investments, Inc.

Susan E. Dahl (34) +               Vice President of       Managing Director of Scudder Kemper      None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

James E. Masur (40) +              Vice President          Senior Vice President of Scudder        None
                                                           Kemper Investments, Inc.

Howard Schneider (43) +            Vice President          Managing Director of Scudder Kemper     None
                                                           Investments, Inc.

James Eysenbach (  )

William F. Gadsen (  )

Valerie F. Malter (  )

Kathleen T. Millard (  )

Phillip G. Condon(  )

Frank J. Rachwalski, Jr. (  )

Robert S. Cessine (  )

John E. Dugenske (  )

Scott E. Dolan (  )

Richard L. Vandenberg (  )

Eleanor R. Brennan (  )

William E. Holzer (50) #           Vice President of       Managing Director of Scudder Kemper     None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

Gerald J. Moran (60)#              Vice President of       Managing Director of Scudder Kemper     None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

M. Isabel Saltzman (45)+           Vice President of       Managing Director of Scudder Kemper     None
                                   Global/International    Investments, Inc.
                                   Fund, Inc.

John R. Hebble (42)+               Treasurer               Senior Vice President of Scudder        Assistant Treasurer
                                                           Kemper Investments, Inc.



                                       55
<PAGE>

                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Scudder Investor
Name, Age, and Address             Position with Fund      Principal Occupation**                  Services, Inc.
----------------------             ------------------      ----------------------                  --------------

Caroline Pearson (38)+             Assistant Secretary     Senior Vice President of Scudder        Clerk
                                                           Kemper Investments, Inc.; Associate,
                                                           Dechert Price & Rhoads (law firm)
                                                           1989 - 1997

John Millette (37)+                Vice President and      Vice President of Scudder Kemper        None
                                   Secretary               Investments, Inc.

Brenda Lyons (37)+                 Assistant Treasurer     Senior Vice President of Scudder        None
                                                           Kemper Investments, Inc.

</TABLE>
*        Ms.  Coughlin and Mr.  Zaleznick are  considered by the Funds and their
         counsel to be persons who are "interested persons" of the Adviser or of
         the Corporation as defined in the 1940 Act.

**       Unless  otherwise   stated,   all  officers  and  directors  have  been
         associated  with their  respective  companies for more than five years,
         but not necessarily in the same capacity.

+        Address: Two International Place, Boston, Massachusetts 02110

#        Address: 345 Park Avenue, New York, New York 10154

***      Address: 222 South Riverside Plaza, Chicago, Illinois

The Directors and officers of the Corporation  also serve in similar  capacities
with respect to other Scudder Funds.

To the  best of the  Corporation's  knowledge,  as of  November  29,  2000,  all
Directors and officers of the Corporation,  as a group,  owned  beneficially (as
that term is  defined in Section  13 (d) under the  Securities  Exchange  Act of
1934)  less  than  1%  of  the  outstanding  shares  of  any  class  of  Scudder
International Fund and Scudder Global Fund.

         Certain accounts for which the Adviser acts as investment adviser owned
______________   shares  in  the   aggregate  of  Global   Discovery   Fund,  or
_____________  of the outstanding  shares on January ^ 31, 2001. The Adviser may
be deemed to be the beneficial  owner of such shares of Global  Discovery  Fund,
but disclaims any beneficial ownership therein.

         As  of  January  ^  31,  2001,  __________  shares  in  the  aggregate,
__________% of the outstanding shares of Scudder Global Discovery Fund were held
in the name of Charles Schwab & Co., 101 Montgomery  Street,  San Francisco,  CA
94104-4122,  who may be deemed to be the  beneficial  owner of  certain of these
shares, but disclaims any beneficial ownership therein.

         To the  knowledge of the Trust,  as of January ^ 31, 2001 all Directors
and  officers as a group owned  beneficially  (as the term is defined in Section
13(d)  under the  Securities  Exchange  Act of 1934)  ___________  shares,  or ^
_______% of the shares of Global Discovery Fund outstanding on such date.

         To the knowledge of the Trust,  except as stated above, as of January ^
31, 2001, no person owned  beneficially  more than 5% of the Fund's  outstanding
shares.


         The  Directors  and officers of the  Corporation  also serve in similar
capacities with respect to other Scudder Funds.

                                  REMUNERATION


Responsibilities of the Board -- Board and Committee Meetings

         The Board of Directors is responsible for the general  oversight of the
Fund's  business.  A majority of the Board's  members  are not  affiliated  with
Scudder Kemper  Investments,  Inc. These  "Independent  Directors"  have primary
responsibility  for assuring  that the Fund is managed in the best  interests of
its shareholders.



                                       56
<PAGE>

         The  Board  of  Directors  meets  at  least  quarterly  to  review  the
investment  performance  of the Fund and other  operational  matters,  including
policies and procedures  designed to ensure  compliance with various  regulatory
requirements.  At least annually, the Independent Directors review the fees paid
to the Adviser and its  affiliates for  investment  advisory  services and other
administrative and shareholder  services.  In this regard, they evaluate,  among
other things, the Fund's investment  performance,  the quality and efficiency of
the  various  other  services  provided,  costs  incurred by the Adviser and its
affiliates  and   comparative   information   regarding  fees  and  expenses  of
competitive  funds. They are assisted in this process by the Fund's  independent
public  accountants and by independent legal counsel selected by the Independent
Directors.

         All the  Independent  Directors  serve on the Committee on  Independent
Directors,  which  nominates  Independent  Directors and considers other related
matters,  and the Audit Committee,  which selects the Fund's  independent public
accountants  and  reviews  accounting   policies  and  controls.   In  addition,
Independent  Directors  from time to time have  established  and  served on task
forces and  subcommittees  focusing on  particular  matters such as  investment,
accounting and shareholder service issues.

Compensation of Officers and Directors


         TO  BE  UPDATED  The  Independent   Directors   receive  the  following
compensation from Global Discovery Fund of  Global/International  Fund, Inc.: an
annual  trustee's  fee of  $3,500;  a fee of $325 for  attendance  at each board
meeting,  audit  committee  meeting or other  meeting  held for the  purposes of
considering arrangements between the Trust on behalf of the Fund and the Adviser
or any  affiliate of the Adviser;  $100 for all other  committee  meetings;  and
reimbursement  of expenses  incurred for travel to and from Board  Meetings.  No
additional  compensation is paid to any Independent  Director for travel time to
meetings, attendance at directors' educational seminars or conferences,  service
on industry or association  committees,  participation as speakers at directors'
conferences  or  service  on  special  trustee  task  forces  or  subcommittees.
Independent  Directors do not receive any employee  benefits  such as pension or
retirement  benefits or health insurance.  Notwithstanding the schedule of fees,
the Independent Directors have in the past and may in the future waive a portion
of their compensation.

         The  Independent  Directors  also serve in the same  capacity for other
funds managed by the Adviser.  These funds differ broadly in type and complexity
and in some cases have  substantially  different  Director  fee  schedules.  The
following table shows the aggregate  compensation  received by each  Independent
Director during 2000 from the Corporation and from all of the Scudder funds as a
group.

<TABLE>
<CAPTION>


Name                          Global/International Fund, Inc.*     All Scudder Funds
----                          -------------------------------      -----------------


<S>                                      <C>                           <C>
Paul Bancroft III, Director                                            ( funds)


Sheryle J. Bolton, Director

William T. Burgin, Director

Keith R. Fox, Director

William H. Gleysteen, Jr.,
Honorary Director

William H. Luers, Director

Joan E. Spero

</TABLE>


*        Global/International  Fund, Inc. consists of five funds: Scudder Global
         Fund, Scudder International Bond Fund, Scudder Global Bond Fund, Global
         Discovery Fund and Scudder Emerging Markets Income Fund.



@        This amount does not reflect $_____ in retirement  benefits  accrued as
         part of Fund Complex expenses, and $3,000, in estimated annual benefits
         payable upon retirement.  Retirement  benefits accrued and proposed are
         to be paid to Mr.  Gleysteen as additional  compensation for serving on
         the Board of The Japan Fund, Inc.




                                       57
<PAGE>

         Members of the Board of Directors  who are  employees of the Adviser or
its affiliates  receive no direct  compensation  from the Corporation,  although
they are compensated as employees of the Adviser, or its affiliates, as a result
of which they may be deemed to participate in fees paid by each Fund.

--------------------------------------------------------------------------------

                                   DISTRIBUTOR

--------------------------------------------------------------------------------



TO BE UPDATED

The Corporation has an underwriting  agreement with Scudder  Investor  Services,
Inc.,  Two  International  Place,  Boston,  MA  02110  (the  "Distributor"),   a
Massachusetts  corporation,  which is a subsidiary  of the  Adviser,  a Delaware
corporation. The Corporation's underwriting agreement dated ________ will remain
in effect until _______ and from year to year thereafter only if its continuance
is approved  annually by a majority of the members of the Board of Directors who
are not parties to such  agreement or  interested  persons of any such party and
either by vote of a majority  of the Board of  Directors  or a  majority  of the
outstanding  voting  securities of the Funds. The  underwriting  agreements were
last approved by the Directors on _______.

Under the underwriting agreements, a Fund is responsible for: the payment of all
fees and  expenses  in  connection  with the  preparation  and  filing  with the
Commission of its  registration  statement and prospectus and any amendments and
supplements  thereto;  the registration and  qualification of shares for sale in
the  various  states,  including  registering  a Fund as a broker  or  dealer in
various  states as required;  the fees and expenses of  preparing,  printing and
mailing prospectuses  annually to existing  shareholders (see below for expenses
relating to prospectuses  paid by the Distributor);  notices,  proxy statements,
reports or other  communications to shareholders of a Fund; the cost of printing
and  mailing   confirmations   of  purchases  of  shares  and  any  prospectuses
accompanying such confirmations;  any issuance taxes and/or any initial transfer
taxes;  a portion of  shareholder  toll-free  telephone  charges and expenses of
shareholder  service  representatives;  the  cost  of  wiring  funds  for  share
purchases  and  redemptions  (unless paid by the  shareholder  who initiates the
transaction);  the cost of printing and postage of business reply envelopes; and
a  portion  of the  cost of  computer  terminals  used  by  both a Fund  and the
Distributor.

The Distributor will pay for printing and  distributing  prospectuses or reports
prepared for its use in  connection  with the offering of a Fund's shares to the
public and preparing,  printing and mailing any other  literature or advertising
in  connection  with  the  offering  of  shares  of a Fund  to the  public.  The
Distributor will pay all fees and expenses in connection with its  qualification
and  registration  as a broker or dealer under federal and state laws, a portion
of the cost of toll-free  telephone service and expenses of shareholder  service
representatives,  a portion of the cost of computer  terminals,  and expenses of
any activity which is primarily  intended to result in the sale of shares issued
by a Fund,  unless a Rule 12b-1  Plan is in effect  which  provides  that a Fund
shall bear some or all of such expenses.

As agent,  the Distributor  currently  offers shares of the Fund on a continuous
basis to investors in all states in which shares of a Fund may from time to time
be registered or where permitted by applicable law. The underwriting  agreements
provide that the Distributor  accepts orders for shares at net asset value as no
sales commission or load is charged to the investor. The Distributor has made no
firm commitment to acquire shares of a Fund.


                               ADMINISTRATIVE FEE


The Fund has entered  into an  administrative  services  agreement  with Scudder
Kemper (the "Administration Agreements"),  pursuant to which Scudder Kemper will
provide  or pay  others  to  provide  substantially  all  of the  administrative
services  required by a Fund (other than those  provided by Scudder Kemper under
its  investment  management  agreements  with the Fund,  as described  above) in
exchange  for the  payment by the Fund of an  administrative  services  fee (the
"Administrative  Fee") of _____5% of its average daily net assets. One effect of
these  arrangements is to make the Fund's future expense ratio more predictable.
The  Administrative  Fee became  effective  November  13,  2000.  For the period
_________, 2000 through ___________,  2000, the Administrative Agreement expense
charged to the Fund amounted to $_______, all of which was unpaid at October 31,
2000

Various third-party service providers (the "Service  Providers"),  some of which
are  affiliated  with  Scudder  Kemper,  provide  certain  services  to the Fund
pursuant  to  separate   agreements  with  the  Fund.  Scudder  Fund  Accounting
Corporation,  a subsidiary of Scudder  Kemper,  computes net asset value for the
Fund and maintains their  accounting  records.  Kemper Service  Company,  also a
subsidiary  of  Zurich  Scudder,  is the  transfer,  shareholder  servicing  and
dividend-paying  agent for the shares of the Fund.  Scudder  Trust  Company,  an
affiliate of Zurich Scudder,  provides  subaccounting and recordkeeping


                                       58
<PAGE>

services for shareholders in certain retirement and employee benefit plans.

As custodian,  Brown  Brothers  Harriman  holds the portfolio  securities of the
Fund, pursuant to a custodian agreement.

PricewaterhouseCoopers  LLP  audits  the  financial  statements  of the Fund and
provides other audit, tax, and related services.

Dechert acts as general counsel for the Fund.

Scudder  Kemper  will  pay the  Service  Providers  for the  provision  of their
services  to the Fund and will pay other  fund  expenses,  including  insurance,
registration,  printing and postage fees.  In return,  the Fund will pay Scudder
Kemper an Administrative Fee.

The  Administration  Agreement  has an initial term of three  years,  subject to
earlier  termination  by a Fund's  Board.  The fee  payable by a Fund to Scudder
Kemper pursuant to the Administration Agreements is reduced by the amount of any
credit received from the Fund's custodian for cash balances.

Certain  expenses  of the Fund  will not be borne by  Scudder  Kemper  under the
Administration Agreements, such as taxes, brokerage,  interest and extraordinary
expenses;  and the fees and expenses of the Independent Directors (including the
fees and expenses of their  independent  counsel).  In  addition,  the Fund will
continue to pay the fees required by its  investment  management  agreement with
Scudder Kemper.




                                       59
<PAGE>


                                      TAXES

         The Fund has  elected to be treated as a regulated  investment  company
under  Subchapter M of the Code, or a  predecessor  statute and has qualified as
such since its  inception.  Such  qualification  does not  involve  governmental
supervision or management of investment practices or policy.

         A regulated  investment  company  qualifying  under Subchapter M of the
Code  is  required  to  distribute  to  its  shareholders  at  least  90% of its
investment  company taxable income  (including net short-term  capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.  Global Discovery Fund intends to distribute
at least annually all of its respective  investment  company  taxable income and
net realized  capital  gains and  therefore do not expect to pay federal  income
tax, although in certain  circumstances the Fund may determine that it is in the
interest of shareholders to distribute less than that amount.

         The  Fund  is  subject  to a 4%  nondeductible  excise  tax on  amounts
required  to be but not  distributed  under a  prescribed  formula.  The formula
requires the Fund to distribute to shareholders during a calendar year an amount
equal to at least 98% of the Fund's  ordinary  income for the calendar  year, at
least 98% of the excess of its capital gains over capital  losses  (adjusted for
certain  ordinary  losses) realized during the one-year period ending October 31
during such year, and all ordinary income and capital gains for prior years that
were not previously distributed.

         Investment  company taxable income includes  dividends,  interest,  net
short-term  capital gains in excess of net long-term capital losses, and certain
foreign  currency  gains,  if any,  less expenses and certain  foreign  currency
losses,  if any.  Net realized  capital  gains for a fiscal year are computed by
taking into account any capital loss carryforward of the Fund.

         If any net realized  long-term  capital gains in excess of net realized
short-term  capital losses are retained by the Fund for reinvestment,  requiring
federal  income taxes to be paid thereon by the Fund,  the Fund intends to elect
to treat such capital gains as having been  distributed  to  shareholders.  As a
result,  each  shareholder  will report such capital gains as long-term  capital
gains  taxable  to  shareholders  at a maximum  20% or 28%  capital  gains  rate
(depending on the Fund's holding period for the assets giving rise to the gain),
will be able to claim a relative  share of federal income taxes paid by the Fund
on such gains as a credit against  personal  federal  income tax liability,  and
will be  entitled  to  increase  the  adjusted  tax basis on Fund  shares by the
difference  between a pro rata share of such gains owned and the  individual tax
credit.

         Distributions  of  investment  company  taxable  income are  taxable to
shareholders as ordinary income.

         Dividends  from  domestic  corporations  are expected to comprise  some
portion of the Fund's gross income. To the extent that such dividends constitute
any of the Fund's gross  income,  a portion of the income  distributions  of the
Fund will be eligible for the deduction for dividends  received by corporations.
Shareholders will be informed of the portion of dividends which so qualify.  The
dividends-received  deduction  is  reduced to the  extent  that  either the Fund
shares,  or the  underlying  shares of stock held by the Fund,  with  respect to
which dividends are received,  are treated as debt-financed under federal income
tax law and is  eliminated  if  either  those  shares  or shares of the Fund are
deemed to have been held by the Fund or the shareholder, as the case may be, for
less than 46 days during the 90-day  period  beginning 45 days before the shares
become ex-dividend.

         Properly  designated  distributions  of the  excess  of  net  long-term
capital gains over net short-term  capital losses are taxable to shareholders at
a maximum 20% or 28% capital gains rate  (depending on the Fund's holding period
for the assets  giving rise to the gain),  regardless  of the length of time the
shares  of the  Fund  have  been  held by  such  individual  shareholders.  Such
distributions are not eligible for the  dividends-received  deduction.  Any loss
realized upon the  redemption  of shares held at the time of redemption  for six
months or less from the date of their  purchase  will be treated as a  long-term
capital loss to the extent of any amounts treated as  distributions of long-term
capital gain during such six-month period.

         Distributions  of investment  company  taxable  income and net realized
capital gains will be taxable as described above,  whether received in shares or
in  cash.  Shareholders  electing  to  receive  distributions  in  the  form  of
additional shares will have a cost basis for federal income tax purposes in each
share so received  equal to the net asset  value of a share on the  reinvestment
date.



                                       60
<PAGE>

         All distributions of investment company taxable income and net realized
capital gain,  whether  received in shares or in cash,  must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions  declared  in  October,   November  or  December  and  payable  to
shareholders  of record in such a month will be deemed to have been  received by
shareholders  on  December  31 if paid  during  January of the  following  year.
Redemptions of shares,  including  exchanges for shares of another Scudder fund,
may result in tax  consequences  (gain or loss) to the  shareholder and are also
subject to these reporting requirements.


         A qualifying individual may make a deductible IRA contribution of up to
$2,000 for any taxable  year only if (i) neither the  individual  nor his or her
spouse  (unless  filing  separate  returns)  is  an  active  participant  in  an
employer's  retirement  plan, or (ii) the individual (and his or her spouse,  if
applicable)  has an adjusted gross income below a certain level in 2001 ($53,000
for married individuals filing a joint return, with a phase-out of the deduction
for adjusted  gross  income  between  $53,000 and $63,000;  $33,000 for a single
individual,  with a phase-out  for  adjusted  gross income  between  $33,000 and
$43,000). However, an individual not permitted to make a deductible contribution
to an  IRA  for  any  such  taxable  year  may  nonetheless  make  nondeductible
contributions  up to $2,000 to an IRA (up to $2,000 per  individual  for married
couples if only one spouse has earned  income) for that year.  There are special
rules for  determining  how  withdrawals are to be taxed if an IRA contains both
deductible and nondeductible amounts. In general, a proportionate amount of each
withdrawal will be deemed to be made from nondeductible  contributions;  amounts
treated as a return of nondeductible  contributions  will not be taxable.  Also,
annual  contributions  may be made to a  spousal  IRA  even  if the  spouse  has
earnings  in a given  year if the  spouse  elects  to be  treated  as  having no
earnings (for IRA contribution purposes) for the year.


         Distributions  by the Fund result in a reduction in the net asset value
of the Fund's shares.  Should a distribution  reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above,  even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount  of the  forthcoming  distribution.  Those  purchasing  just  prior  to a
distribution   will  then   receive  a  partial   return  of  capital  upon  the
distribution, which will nevertheless be taxable to them.

         Dividend and interest  income received by the Fund from sources outside
the U.S. may be subject to  withholding  and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes,  however,  and foreign countries  generally do
not  impose  taxes on  capital  gains  in  respect  of  investments  by  foreign
investors.

         The Fund may invest in shares of certain foreign corporations which may
be classified under the Code as passive foreign investment  companies ("PFICs").
If the Fund  receives a so-called  "excess  distribution"  with  respect to PFIC
stock,  the Fund  itself  may be  subject  to a tax on a portion  of the  excess
distribution.  Certain  distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess  distributions." In general, under the
PFIC rules, an excess  distribution  is treated as having been realized  ratably
over the period  during  which the Fund held the PFIC  shares.  The Fund will be
subject  to tax on the  portion,  if  any,  of an  excess  distribution  that is
allocated  to prior Fund taxable  years and an interest  factor will be added to
the tax,  as if the tax had been  payable in such prior  taxable  years.  Excess
distributions  allocated  to the  current  taxable  year  are  characterized  as
ordinary  income even  though,  absent  application  of the PFIC rules,  certain
excess distributions might have been classified as capital gain.

         The Fund may make an  election  to mark to market  its  shares of these
foreign  investment  companies in lieu of being subject to U.S.  federal  income
taxation.  At the end of each taxable year to which the  election  applies,  the
Fund would  report as ordinary  income the amount by which the fair market value
of the  foreign  company's  stock  exceeds  the Fund's  adjusted  basis in these
shares;  any mark to market  losses and any loss from an actual  disposition  of
shares  would be  deductible  as ordinary  loss to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess  distributions  and gain on  dispositions  as ordinary income
which is not subject to a fund level tax when  distributed to  shareholders as a
dividend.  Alternatively,  the Fund may elect to  include as income and gain its
share  of the  ordinary  earnings  and  net  capital  gain  of  certain  foreign
investment companies in lieu of being taxed in the manner described above.

         Equity options  (including options on stock and options on narrow-based
stock indices) written or purchased by the Fund and over-the-counter  options on
debt  securities  written or  purchased by the Fund will be subject to tax under
Section 1234 of the Code.  In general,  no loss is  recognized  by the Fund upon
payment of a premium in  connection  with the  purchase of a put or call option.
The character of any gain or loss  recognized  (i.e.,  long-term or  short-term)
will generally depend in the case of a lapse or sale of the option on the Fund's
holding  period for the option and in the case of an  exercise  of the option on
the Fund's holding period for the underlying stock. The purchase of a put option
may  constitute  a short  sale for


                                       61
<PAGE>

federal income tax purposes,  causing an adjustment in the holding period of the
underlying security or substantially identical security in the Fund's portfolio.
If the Fund writes a put or call option,  no gain is recognized upon its receipt
of a premium. If the option lapses or is closed out, any gain or loss is treated
as a short-term  capital gain or loss.  If a call option  written by the Fund is
exercised any resulting  gain or loss is a short-term or long-term  capital gain
or loss depending on the holding period of the underlying security. The exercise
of a put option written by the Fund is not a taxable transaction for the Fund.

         Many futures  contracts and certain foreign currency forward  contracts
entered into by the Fund and all listed non-equity  options written or purchased
by the Fund (including  options on futures  contracts and options on broad-based
stock  indices)  will be  governed  by  Section  1256 of the Code.  Absent a tax
election to the contrary,  gain or loss  attributable to the lapse,  exercise or
closing out of any such position  generally will be treated as 60% long-term and
40%  short-term  capital gain or loss, and on the last trading day of the Fund's
fiscal year,  all  outstanding  Section 1256  positions will be marked to market
(i.e.  treated as if such  positions  were closed out at their  closing price on
such day),  with any resulting gain or loss  recognized as 60% long-term and 40%
short-term.  Under Section 988 of the Code,  discussed  below,  foreign currency
gain or  loss  from  foreign  currency-related  forward  contracts  and  similar
financial  instruments  entered  into or acquired by the Fund will be treated as
ordinary income. Under certain  circumstances,  entry into a futures contract to
sell a security  may  constitute a short sale for federal  income tax  purposes,
causing an  adjustment  in the holding  period of the  underlying  security or a
substantially identical security in the Fund's portfolio.

         Positions of the Fund which  consist of at least one stock and at least
one stock  option or other  position  with respect to a related  security  which
substantially  diminishes  the  Fund's  risk of loss with  respect to such stock
could be treated as a "straddle"  which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses,  adjustments in the holding
periods of stock or securities and conversion of short-term  capital losses into
long-term  capital  losses.  An exception to these straddle rules exists for any
"qualified covered call options" on stock written by the Fund.

         Positions  of the Fund  which  consist  of at least  one  position  not
governed by Section 1256 and at least one futures  contract or forward  contract
or nonequity option governed by Section 1256 which substantially  diminishes the
Fund's  risk of loss with  respect to such other  position  will be treated as a
"mixed  straddle."  Mixed straddles are subject to the straddle rules of Section
1092 of the Code,  and may result in the  deferral of losses if the  non-Section
1256 position is in an unrealized gain at the end of a reporting period.

         Notwithstanding  any of the  foregoing,  recent  tax  law  changes  may
require the Fund to recognize  gain (but not loss) from a  constructive  sale of
certain "appreciated  financial positions" if the Fund enters into a short sale,
offsetting notional principal contract,  futures or forward contract transaction
with respect to the appreciated  position or substantially  identical  property.
Appreciated  financial positions subject to this constructive sale treatment are
interests (including options,  futures and forward contracts and short sales) in
stock,  partnership  interests,  certain  actively traded trust  instruments and
certain debt instruments.  Constructive sale treatment of appreciated  financial
positions  does not apply to certain  transactions  closed in the 90-day  period
ending with the 30th day after the close of the Fund's  taxable year, if certain
conditions are met.

         Similarly,  if the  Fund  enters  into a short  sale of  property  that
becomes substantially  worthless, the Fund will be required to recognize gain at
that time as though it had closed the short sale.  Future  regulations may apply
similar treatment to other strategic  transactions with respect to property that
becomes substantially worthless.

         Under  the  Code,  gains or  losses  attributable  to  fluctuations  in
exchange  rates which occur  between the time the Fund  accrues  receivables  or
liabilities  denominated  in a foreign  currency and the time the Fund  actually
collects such receivables,  or pays such  liabilities,  generally are treated as
ordinary income or ordinary loss.  Similarly,  on disposition of debt securities
denominated  in a  foreign  currency  and  on  disposition  of  certain  futures
contracts,  forward  contracts  and  options,  gains or losses  attributable  to
fluctuations in the value of foreign currency between the date of acquisition of
the  security  or  contract  and the date of  disposition  are also  treated  as
ordinary  gain or loss.  These  gains or losses,  referred  to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of the Fund's
investment  company  taxable  income to be distributed  to its  shareholders  as
ordinary income.

         A portion of the  difference  between  the issue  price of zero  coupon
securities and their face value  ("original issue discount") is considered to be
income  to the Fund each  year,  even  though  the Fund  will not  receive  cash
interest payments from these  securities.  This original issue discount (imputed
income) will comprise a part of the  investment  company  taxable  income of the
Fund  which  must be  distributed  to  shareholders  in  order to  maintain  the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the level of the Fund.  Shareholders will be subject to income tax
on such  original  issue  discount,  whether or not they elect to receive  their
distributions in cash.



                                       62
<PAGE>

         If the Fund  invests in stock of  certain  passive  foreign  investment
companies, that Fund may be subject to U.S. federal income taxation on a portion
of any "excess  distribution"  with respect to, or gain from the disposition of,
such stock. The tax would be determined by allocating such  distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so  allocated  to any taxable  year of the Fund,  other than the taxable
year of the excess  distribution or  disposition,  would be taxed to the Fund at
the highest  ordinary  income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign  company's  stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly,  would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

         The Fund may make an  election  to market its  shares of these  foreign
investment companies,  in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the  election  applies,  the Fund would
report as  ordinary  income  the  amount by which the fair  market  value of the
foreign  company's stock exceeds the Fund's adjusted basis in these shares;  any
mark-to-market  losses and any loss from an actual disposition of stock would be
deductible  as  ordinary  losses to the extent of any net  mark-to-market  gains
previously  included in income in prior years. The effect of this election would
be to treat excess  distributions  and gain on  dispositions  as ordinary income
which is not subject to the Fund-level tax when distributed to shareholders as a
dividend. Alternatively, the Funds may elect to include as income and gain their
share  of the  ordinary  earnings  and  net  capital  gain  of  certain  foreign
investment companies in lieu of being taxed in the manner described above.

         The Fund will be  required  to report to the IRS all  distributions  of
investment  company  taxable  income and capital gains as well as gross proceeds
from the  redemption  or exchange of Fund shares,  except in the case of certain
exempt shareholders.  Under the backup withholding provisions of Section 3406 of
the Code,  distributions of investment  company taxable income and capital gains
and  proceeds  from the  redemption  or  exchange  of the shares of a  regulated
investment  company may be subject to  withholding  of federal income tax at the
rate of 31% in the  case of  non-exempt  shareholders  who fail to  furnish  the
investment company with their taxpayer  identification numbers and with required
certifications  regarding  their  status  under  the  federal  income  tax  law.
Withholding  may also be required if the Fund is notified by the IRS or a broker
that  the  taxpayer  identification  number  furnished  by  the  shareholder  is
incorrect or that the  shareholder  has previously  failed to report interest or
dividend  income.  If  the  withholding  provisions  are  applicable,  any  such
distributions  and  proceeds,  whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

         Shareholders  of the Fund may be  subject  to state and local  taxes on
distributions  received from the Fund and on  redemptions  of the Fund's shares.
Each  distribution  is  accompanied  by a  brief  explanation  of the  form  and
character of the  distribution.  In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.

         Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Corporation issues to
each   shareholder  a  statement  of  the  federal  income  tax  status  of  all
distributions.

         The foregoing  discussion of U.S. federal income tax law relates solely
to the  application  of that  law to  U.S.  persons,  i.e.,  U.S.  citizens  and
residents  and  U.S.  corporations,   partnerships,  trusts  and  estates.  Each
shareholder  who is not a U.S.  person should  consider the U.S. and foreign tax
consequences of ownership of shares of the Fund,  including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable  income tax treaty) on amounts  constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.

         Dividend and interest  income received by the Fund from sources outside
the U.S. may be subject to  withholding  and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes,  however,  and foreign countries  generally do
not impose taxes on capital gains respecting investments by foreign investors.

         Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional  Information
in light of their particular tax situations.

                             PORTFOLIO TRANSACTIONS

Brokerage

         Allocation of brokerage is supervised by the Adviser.



                                       63
<PAGE>

         The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's  portfolio is to obtain the most favorable
net  results  taking  into  account  such  factors  as price,  commission  where
applicable,  size of order,  difficulty of execution  and skill  required of the
executing   broker/dealer.   The   Adviser   seeks  to   evaluate   the  overall
reasonableness of brokerage  commissions paid (to the extent applicable) through
familiarity with commissions charged on comparable  transactions,  as well as by
comparing  commissions paid by the Fund to reported  commissions paid by others.
The  Adviser  reviews  on  a  routine  basis  commission  rates,  execution  and
settlement services performed, making internal and external comparisons.

         The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary  market makers for these  securities on a net
basis,  without any brokerage  commission being paid by the Fund.  Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices.  Purchases of
underwritten  issues may be made, which will include an underwriting fee paid to
the underwriter.

         When it can be done  consistently with the policy of obtaining the most
favorable net results,  it is the  Adviser's  practice to place such orders with
broker/dealers  who supply research,  market and statistical  information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of  securities;  the  advisability  of investing in,  purchasing or
selling  securities;  the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing  portfolio  transactions  for the Fund to
pay a brokerage  commission in excess of that which another  broker might charge
for executing the same transaction on account of the receipt of research, market
or  statistical  information.  In  effecting  transactions  in  over-the-counter
securities,  orders are placed with the principal market makers for the security
being traded  unless,  after  exercising  care,  it appears that more  favorable
results are available elsewhere.

         In selecting  among firms  believed to meet the criteria for handling a
particular  transaction,  the Adviser may give consideration to those firms that
have  sold or are  selling  shares  of the Fund or other  funds  managed  by the
Adviser.

         To the maximum  extent  feasible,  it is expected that the Adviser will
place orders for portfolio transactions through Scudder Investor Services,  Inc.
("SIS"),  a corporation  registered as a  broker-dealer  and a subsidiary of the
Adviser. SIS will place orders on behalf of the Fund with issuers,  underwriters
or other brokers and dealers. SIS will not receive any commission,  fee or other
remuneration from the Fund for this service.

         Although  certain  research,  market and statistical  information  from
broker/dealers  may be useful to the Fund and to the Adviser,  it is the opinion
of the Adviser that such  information  only  supplements its own research effort
since the  information  must still be  analyzed,  weighed  and  reviewed  by the
Adviser's  staff.  Such  information  may be useful to the Adviser in  providing
services to clients other than the Fund and not all such  information is used by
the Adviser in connection with the Fund.  Conversely,  such information provided
to the  Adviser by  broker/dealers  through  whom other  clients of the  Adviser
effect  securities  transactions  may be  useful  to the  Adviser  in  providing
services to the Fund.

         The  Directors  of the  Fund  review  from  time  to time  whether  the
recapture  for  the  benefit  of the  Fund  of  some  portion  of the  brokerage
commissions  or  similar  fees  paid by the Fund on  portfolio  transactions  is
legally permissible and advisable.

         The Fund's average  portfolio  turnover rate is the ratio of the lesser
of sales or purchases to the monthly  average value of the portfolio  securities
owned during the year,  excluding all securities  with  maturities or expiration
dates at the time of  acquisition  of one year or less.  A higher rate  involves
greater  brokerage  transaction  expenses  to the  Fund  and may  result  in the
realization of net capital gains,  which would be taxable to  shareholders  when
distributed.  Purchases  and sales are made for the  Fund's  portfolio  whenever
necessary, in management's opinion, to meet the Fund's objective.


         For the fiscal years ended  October 31, 2000,  1999,  and 1998,  Global
Discovery Fund paid brokerage commissions of ^ $_______,  $509,685, and $526,742
, respectively.

         For the  fiscal  year  ended  October  31,  2000,  ^ $ ( % of the total
brokerage  commissions) resulted from orders placed,  consistent with the policy
of seeking to obtain the most  favorable  net results,  with brokers and dealers
who provided supplementary  research,  market and statistical information to the
Fund or the Adviser. The total amount of brokerage transactions  aggregated $ of
which $ ( % of all brokerage  transactions),  were  transactions  which included
research transactions.



                                       64
<PAGE>

         For the fiscal year ended  October 31, 1999, ^ $454,169  (89.11% of the
total brokerage  commissions)  resulted from orders placed,  consistent with the
policy of seeking to obtain the most  favorable  net  results,  with brokers and
dealers who provided supplementary research,  market and statistical information
to the  Fund  or  the  Adviser.  The  total  amount  of  brokerage  transactions
aggregated ^  $465,504,428,  of which ^  $390,035,622  (83.79% of all  brokerage
transactions), were transactions which included research transactions.



Portfolio Turnover

         The Fund's average annual  portfolio  turnover rate (defined by the SEC
as the ratio of the lesser of sales or purchases to the monthly average value of
such securities owned during the year,  excluding all securities with maturities
at the time of  acquisition  of one year or less).  Purchases and sales are made
for the Fund's portfolio whenever  necessary,  in management's  opinion, to meet
the Fund's objective.


         The Fund's portfolio  turnover rates for the fiscal years ended October
31, 2000, 1999, and 1998 were ^ _____%, 64.0%, and 40.6% respectively.


                                 NET ASSET VALUE

         The net asset  value of shares of the Fund is  computed as of the close
of regular  trading on the Exchange on each day the Exchange is open for trading
(the "Value  Time").  The Exchange is  scheduled  to be closed on the  following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday,  Memorial Day,  Independence Day, Labor Day, Thanksgiving and Christmas,
and on the  preceding  Friday or  subsequent  Monday when one of these  holidays
falls on a  Saturday  or  Sunday,  respectively.  Net  asset  value per share is
determined  by  dividing  the  value of the total  assets of the Fund,  less all
liabilities, by the total number of shares outstanding.

         An  exchange-traded  equity  security is valued at its most recent sale
price on the exchange it is traded as of the Value Time.  Lacking any sales, the
security is valued at the calculated  mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated  Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid  quotation on such  exchange as of the Value Time. An equity
security  which is traded on the  National  Association  of  Securities  Dealers
Automated  Quotation  ("Nasdaq")  system  will be valued at its most recent sale
price on such system as of the Value Time.  Lacking any sales, the security will
be valued at the most recent bid quotation as of the Value Time. The value of an
equity  security  not  quoted  on the  Nasdaq  system,  but  traded  in  another
over-the-counter market, is its most recent sale price if there are any sales of
such  security  on such  market as of the Value  Time.  Lacking  any sales,  the
security is valued at the Calculated  Mean quotation for such security as of the
Value Time.  Lacking a Calculated  Mean  quotation the security is valued at the
most recent bid quotation as of the Value Time.

         Debt  securities,  other than money market  instruments,  are valued at
prices  supplied by the Fund's  pricing  agent(s)  which  reflect  broker/dealer
supplied  valuations and electronic  data  processing  techniques.  Money market
instruments  with an  original  maturity  of sixty days or less  maturing at par
shall be valued at amortized cost, which the Board believes  approximates market
value.  If it is not possible to value a particular  debt  security  pursuant to
these  valuation  methods,  the value of such  security  is the most  recent bid
quotation supplied by a bona fide marketmaker.  If it is not possible to value a
particular  debt  security  pursuant  to the  above  methods,  the  Adviser  may
calculate the price of that debt security, subject to limitations established by
the Board.

         An exchange traded options contract on securities,  currencies, futures
and other financial  instruments is valued at its most recent sale price on such
exchange.  Lacking any sales,  the options  contract is valued at the Calculated
Mean.  Lacking any Calculated  Mean, the options  contract is valued at the most
recent bid quotation in the case of a purchased  options  contract,  or the most
recent asked  quotation in the case of a written  options  contract.  An options
contract  on  securities,  currencies  and other  financial  instruments  traded
over-the-counter  is valued at the most  recent bid  quotation  in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written  options  contract.  Futures  contracts  are valued at the most recent
settlement price.  Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.



                                       65
<PAGE>

         If a security is traded on more than one exchange,  or upon one or more
exchanges  and in the  over-the-counter  market,  quotations  are taken from the
market in which the security is traded most extensively.

         If, in the opinion of the Fund's  Valuation  Committee,  the value of a
portfolio  asset as  determined  in accordance  with these  procedures  does not
represent  the  fair  market  value of the  portfolio  asset,  the  value of the
portfolio  asset is taken to be an amount which, in the opinion of the Valuation
Committee,   represents  fair  market  value  on  the  basis  of  all  available
information.  The  value  of  other  portfolio  holdings  owned  by the  Fund is
determined in a manner which, in the discretion of the Valuation  Committee most
fairly reflects fair market value of the property on the valuation date.

         Following the  valuations of  securities or other  portfolio  assets in
terms of the currency in which the market  quotation  used is expressed  ("Local
Currency"),  the value of these  portfolio  assets in terms of U.S.  dollars  is
calculated by converting the Local Currency into U.S.  dollars at the prevailing
currency exchange rate on the valuation date.

                             ADDITIONAL INFORMATION

Experts

         The Financial Highlights of the Fund included in the prospectus and the
Financial  Statements  incorporated by reference in this Statement of Additional
Information  have been so included or  incorporated  by reference in reliance on
the  report of  PricewaterhouseCoopers  LLP,  One Post  Office  Square,  Boston,
Massachusetts 02109, independent accountants, and given on the authority of that
firm as experts  in  accounting  and  auditing.  PricewaterhouseCoopers,  LLP is
responsible  for  performing  annual  audits  of the  financial  statements  and
financial  highlights of the Fund in accordance with generally accepted auditing
standards, and the preparation of federal tax returns.

Other Information

         Many of the  investment  changes  in the  Fund  will be made at  prices
different  from those  prevailing at the time such changes may be reflected in a
regular report to  shareholders  of the Fund.  These  transactions  will reflect
investment  decisions made by the Adviser in light of the investment  objectives
and policies of the Fund, and such factors as its other  portfolio  holdings and
tax considerations should not be construed as recommendations for similar action
by other investors.


         The CUSIP  number of the  Class S shares of Global  Discovery  Fund is:
811150-40-8.

         The CUSIP number of the Class AARP shares of Global Discovery Fund is:

         The Fund's fiscal year end is October 31.

         The law firm of Dechert is counsel for the Fund.


         Brown Brothers Harriman & Co., 40 Water Street,  Boston,  Massachusetts
02109, is employed as custodian for the Fund. Brown Brothers  Harriman & Co. has
entered into agreements with foreign subcustodians  approved by the Directors of
the Corporation pursuant to Rule 17f-5 of the Investment Company Act.

         Scudder Fund Accounting  Corporation ("SFAC"), Two International Place,
Boston,  Massachusetts  02110-4103,  a subsidiary  of the Adviser,  computes net
asset  value for the Fund.  The Fund pays SFAC an annual  fee equal to 0.065% of
the first $150  million of average  daily net  assets,  0.040% of such assets in
excess of $150  million and 0.020% of such assets in excess of $1 billion,  plus
holding and transaction charges for this service.


          Scudder Fund Accounting  Corporation  charged Global Discovery Fund an
aggregate fee of $ ^ $416,308 (of which $77,999 was unpaid at October 31, 1999),
and  $302,281  for the  fiscal  years  ended  October  31,  2000,  1999 and 1998
respectively.


         Information  set forth below for  periods  prior to April 16, 1998 with
respect to Global  Discovery  Fund is provided at the Fund level since that Fund
consisted  of one class of shares  (which  class was  re-designated  as "Scudder
Global Discovery Shares") until April 16, 1998.


                                       66
<PAGE>

         Kemper  Service  Company,   P.O.  Box  219669,  Kansas  City,  Missouri
64121-9669,  a subsidiary  of the Advisor,  is the transfer and dividend  paying
agent for the Fund.  Kemper Service  Company also serves as shareholder  service
agent and provides  subaccounting  and  recordkeeping  services for  shareholder
accounts in certain  retirement and employee benefit plans. The Fund pays Kemper
Service Company an annual fee for each account maintained as a participant.




         The fee  incurred  by Global  Discovery  Fund on behalf of the  Scudder
Shares, for the year ended October 31, 1998, amounted to $734,090.


         The fee  incurred  by Global  Discovery  Fund on behalf of the  Scudder
Shares, for the year ended October 31, 1999, amounted to ^ $652,269,  of which ^
$102,077 was unpaid at October 31, 1999.

         The fee  incurred  by Global  Discovery  Fund on behalf of the  Scudder
Shares,  for the year ended  October 31, 2000  amounted  to  $_______,  of which
$_______ was unpaid at October 31, 2000.


         Scudder  Trust   Company,   an  affiliate  of  the  Adviser,   provides
subaccounting  and  recordkeeping  services for shareholder  accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Funds
to  Scudder  Trust  Company,  Two  International  Place,  Boston,  Massachusetts
02110-4103 for such accounts.  The Fund pays Scudder Trust company an annual fee
of $26.00 per shareholder account.




         The fee incurred by Global  Discovery  Fund for the year ended  October
31, 1998 amounted to $200,043, of which $17,404 was unpaid at October 31, 1998.


         The fee incurred by Global  Discovery  Fund for the year ended  October
31, 1999  amounted  to ^ $222,376,  of which ^ $58,347 was unpaid at October 31,
1999.

         The fee incurred by Global  Discovery  Fund for the year ended  October
31, 2000 amounted to $_____ of which $____ was unpaid at October 31, 2000.


         The Fund's prospectus and this Statement of Additional Information omit
certain   information   contained  in  the  Registration   Statement  which  the
Corporation  has filed with the SEC under the 1933 Act and  reference  is hereby
made to the Registration  Statement for further  information with respect to the
Fund and the securities offered hereby. This Registration Statement is available
for inspection by the public at the SEC in Washington, D.C.

                              FINANCIAL STATEMENTS
Global Discovery Fund


         The financial statements,  including the Investment Portfolio of Global
Discovery  Fund --  Scudder  Shares,  together  with the  Report of  Independent
Accountants,  and  Financial  Highlights,  are  incorporated  by  reference  and
attached  hereto in the Annual Report to  Shareholders of the Fund dated October
31,  2000,  and  are  deemed  to be a  part  of  this  Statement  of  Additional
Information.



                                       67
<PAGE>

                                    APPENDIX

         The following is a description  of the ratings given by Moody's and S&P
to corporate and municipal bonds.

Ratings of Municipal and Corporate Bonds

         S&P:

         Debt rated AAA has the  highest  rating  assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.  Debt rated AA
has a very strong  capacity to pay interest and repay principal and differs from
the  highest  rated  issues  only in  small  degree.  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.  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.

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

         Debt rated BB has less  near-term  vulnerability  to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,  financial,  or  economic  conditions  which  could  lead  to
inadequate  capacity to meet timely  interest  and  principal  payments.  The BB
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned  an  actual  or  implied  BBB-  rating.  Debt  rated  B has  a  greater
vulnerability  to  default  but  currently  has the  capacity  to meet  interest
payments and principal  repayments.  Adverse  business,  financial,  or economic
conditions  will likely impair capacity or willingness to pay interest and repay
principal.  The B rating  category is also used for debt  subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.

         Debt rated CCC has a currently  identifiable  vulnerability to default,
and is dependent upon favorable business,  financial, and economic conditions to
meet timely  payment of interest  and  repayment of  principal.  In the event of
adverse business,  financial,  or economic conditions,  it is not likely to have
the  capacity to pay interest and repay  principal.  The CCC rating  category is
also used for debt  subordinated  to senior  debt that is  assigned an actual or
implied B or B- rating.  The rating CC typically is applied to debt subordinated
to senior debt that is  assigned  an actual or implied CCC rating.  The rating C
typically  is applied to debt  subordinated  to senior debt which is assigned an
actual  or  implied  CCC-  debt  rating.  The C  rating  may be used to  cover a
situation where a bankruptcy  petition has been filed, but debt service payments
are  continued.  The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest  payments or principal  payments are not made on the date due even
if the  applicable  grace period had not expired,  unless S&P believes that such
payments will be made during such grace  period.  The D rating also will be used
upon  the  filing  of  a  bankruptcy  petition  if  debt  service  payments  are
jeopardized.

         Moody's:

         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.  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.  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.


<PAGE>

         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.  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 other good and bad times over
the future.  Uncertainty of position  characterizes  bonds in this class.  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.


         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.  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.  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.



<PAGE>

                       STATEMENT OF ADDITIONAL INFORMATION
                                  March 1, 2001

               Scudder Global Bond Fund (Class A, B and C Shares)
               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 Class A, Class B and Class C Shares (the
"Shares") of Scudder Global Bond Fund (the "Fund"), a diversified series of
Global/International Fund, Inc. (the "Corporation"), an open-end management
investment company. It should be read in conjunction with the prospectus of the
Shares dated March 1, 2001. The prospectus may be obtained without charge from
the Fund at the address or telephone number on this cover or the firm from which
this Statement of Additional Information was received.

      Scudder Global Bond Fund offers the following classes of shares: Class
AARP, Class S, Class A, Class B and Class C shares (the "Shares"). Only Class A,
Class B and Class C shares of Scudder Global Bond Fund are offered herein.

                                TABLE OF CONTENTS

Investment Restrictions................................................2

Investment Policies and Techniques.....................................3

Dividends, Distributions and Taxes....................................25

Performance...........................................................29

Investment Manager and Underwriter....................................32

Portfolio Transactions................................................37

Purchase, Repurchase and Redemption of Shares.........................39

Purchase of Shares....................................................40

Redemption or Repurchase of Shares....................................44

Special Features......................................................47

Officers and Directors................................................51

Shareholder Rights....................................................54

Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's investment
manager.

The financial statements appearing in the Fund's October 31, 2000 Annual Report
to Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.

<PAGE>

INVESTMENT RESTRICTIONS

      Unless specified to the contrary, the following fundamental policies may
not be changed without the approval of a majority of the outstanding voting
securities of the Fund which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the voting securities present at such meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of the Fund. The Fund is under no restriction as to the amount of portfolio
securities which may be bought or sold.

      If a percentage restriction on investment or utilization of assets as set
forth under "Investment Restrictions" and "Other Investment Policies" above is
adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of a Fund's assets will
not be considered a violation of the restriction.

      The Fund has elected to be classified as a non-diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund may not:

      (1)   borrow money, except as permitted under the Investment Company Act
            of 1940, as amended, and as interpreted or modified by regulatory
            authority having jurisdiction, from time to time;

      (2)   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;

      (3)   purchase physical commodities or contracts relating to physical
            commodities;

      (4)   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;

      (5)   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;

      (6)   purchase or sell real estate, which term does not include securities
            or companies which deal in 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;
            or

      (7)   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.

      The Directors of the Corporation have voluntarily adopted certain policies
and restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Directors based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice to or approval
of shareholders.

      As a matter of non-fundamental policy the Fund does not currently intend
to:

      (1)   borrow money in an amount greater than 5% of its total assets,
            except (i) for temporary or emergency purposes and (ii) by engaging
            in reverse repurchase agreements, dollar rolls, or other investments
            or transactions described in the Fund's registration statement which
            may be deemed to be borrowings;

      (2)   purchase securities on margin or make short sales, except (i) short
            sales against the box, (ii) in connection with arbitrage
            transactions, (iii) for margin deposits in connection with futures
            contracts, options or other permitted investments, (iv) that
            transactions in futures contracts and options shall not be deemed to
            constitute selling securities short, and (v) that the Fund may
            obtain such short-term credits as may be necessary for the clearance
            of securities transactions;

      (3)   purchase options, unless the aggregate premiums paid on all such
            options held by the Fund at any time do not exceed 20% of its total
            assets; or sell put options, if as a result, the aggregate value of
            the obligations underlying such put options would exceed 50% of its
            total assets;


                                       2
<PAGE>

      (4)   enter into futures contracts or purchase options thereon unless
            immediately after the purchase, the value of the aggregate initial
            margin with respect to such futures contracts entered into on behalf
            of the Fund and the premiums paid for such options on futures
            contracts do not exceed 5% of the fair market value of the Fund's
            total assets; provided that in the case of an option that is
            in-the-money at the time of purchase, the in-the-money amount may be
            excluded in computing the 5% limit;

      (5)   purchase warrants if as a result, such securities, taken at the
            lower of cost or market value, would represent more than 5% of the
            value of the Fund's total assets (for this purpose, warrants
            acquired in units or attached to securities will be deemed to have
            no value); and

      (6)   lend portfolio securities in an amount greater than 5% of its total
            assets.

Master/feeder Fund Structure. The Board of Directors has the discretion to
retain the current distribution arrangement for the Fund while investing in a
master fund in a master/feeder fund structure as described below.

      A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.

Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC that permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Advisor. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.

INVESTMENT POLICIES AND TECHNIQUES

      The Fund may provide investors with a convenient way to invest in a
managed portfolio of debt securities denominated in foreign currencies and the
U.S. dollar. The Fund's objective is to provide total return with an emphasis on
current income by investing primarily in high-grade bonds denominated in foreign
currencies and the U.S. dollar. As a secondary objective, the Fund will seek
capital appreciation.

      To achieve its objectives, the Fund will invest principally in a managed
portfolio of high-grade intermediate- and long-term bonds denominated in the
U.S. dollar and foreign currencies, including bonds denominated in the European
Currency Unit (ECU). (Intermediate-term bonds generally have maturities between
three and eight years and long-term bonds generally have maturities of greater
than eight years.) Portfolio investments will be selected on the basis of, among
other things, yields, credit quality, and the fundamental outlooks for currency
and interest rate trends in different parts of the globe, taking into account
the ability to hedge a degree of currency or local bond price risk.


                                       3
<PAGE>

      At least 65% of the Fund's total assets will consist of high-grade debt
securities, which are those rated in one of the three highest rating categories
of one of the major U.S. rating services or, if unrated, considered to be of
equivalent quality in local currency terms as determined by the Advisor. These
securities are rated AAA, AA or A by Standard & Poor's Ratings Service, a
division of The McGraw-Hill Companies, Inc. ("S&P") or Aaa, Aa, or A by Moody's
Investor Services, Inc. ("Moody's").

      The Fund may also invest up to 15% of its net assets in debt securities
rated BBB by S&P or Baa by Moody's and lower, or unrated securities considered
to be of equivalent quality by the Advisor. The Fund will not invest in any
securities rated B or lower. (See "Specialized Investment Techniques of the
Funds.")

      The Fund's investments may include:

      o     Debt securities issued or guaranteed by the U.S. government, its
            agencies or instrumentalities
      o     Debt securities issued or guaranteed by a foreign national
            government, its agencies, instrumentalities or political
            subdivisions
      o     Debt securities issued or guaranteed by supranational organizations
            (e.g., European Investment Bank, Inter-American Development Bank or
            the World Bank)
      o     Corporate debt securities
      o     Bank or bank holding company debt securities
      o     Other debt securities, including those convertible into common stock

      The Fund may invest in zero coupon securities, indexed securities,
mortgage and asset-backed securities and may engage in strategic transactions.
The Fund may purchase securities which are not publicly offered. If such
securities are purchased, they may be subject to restrictions which may make
them illiquid. See "Investment Restrictions."

      The Fund intends to select its investments from a number of country and
market sectors. It may invest substantially in the issuers of one or more
countries and will have investments in debt securities of issuers from a minimum
of three different countries.

      Under normal conditions, the Fund will invest at least 15% of its total
assets in U.S. dollar-denominated securities, issued domestically or abroad. For
temporary defensive or emergency purposes, however, the Fund may invest without
limit in U.S. debt securities, including short-term money market securities. It
is impossible to predict for how long such alternative strategies will be
utilized.

Special Investment Considerations

      The Fund is intended to provide individual and institutional investors
with an opportunity to invest a portion of their assets in globally and/or
internationally oriented portfolios, according to the Fund's respective
objectives and policies, and are designed for long-term investors who can accept
international investment risk. Management of the Fund believes that allocation
of assets on a global or international basis decreases the degree to which
events in any one country, including the U.S., will affect an investor's entire
investment holdings. In the period since World War II, many leading foreign
economies have grown more rapidly than the U.S. economy, thus providing
investment opportunities; although there can be no assurance that this will be
true in the future. As with any long-term investment, the value of the Fund's
shares when sold may be higher or lower than when purchased.

      Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Fund's performances. As foreign companies are not
generally subject to uniform standards, practices and requirements, with respect
to accounting, auditing and financial reporting, as are domestic companies,
there may be less publicly available information about a foreign company than
about a domestic company. Many foreign securities markets, while growing in
volume of trading activity, have substantially less volume than the U.S. market,
and securities of some foreign issuers are less liquid and more volatile than
securities of domestic issuers. Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times, volatility of price can be
greater than in the U.S. Further, foreign markets have different clearance and
settlement procedures and 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. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss


                                       4
<PAGE>

attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a 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. Fixed commissions on some foreign securities
exchanges and bid to asked spreads in foreign bond markets are generally higher
than negotiated commissions on U.S. exchanges and bid to asked spreads in the
U.S. bond market, although the Fund will endeavor to achieve the most favorable
net results on their portfolio transactions. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less governmental supervision and regulation
of business and industry practices, securities exchanges, brokers and listed
companies than in the U.S. It may be more difficult for the Fund's agents to
keep currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments, which could affect U.S. investments in those countries.
Investments in foreign securities may also entail certain risks, such as
possible currency blockages or transfer restrictions, and the difficulty of
enforcing rights in other countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of the Fund
seeks to mitigate the risks associated with the foregoing considerations through
continuous professional management.

      These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.

      Investments in foreign securities usually will involve currencies of
foreign countries. Because of the considerations discussed above, the value of
the assets of the Fund as 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. Although the Fund values their assets daily in terms of U.S.
dollars, they do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. The Fund will do so from time to time, and
investors should be aware of the costs of currency conversion. 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. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer. The Fund will
conduct their 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 entering into strategic transactions involving currencies (see
"Strategic Transactions and Derivatives").

      Because the Fund may be invested in both U.S. and foreign securities
markets, changes in the Fund's share price may have a low correlation with
movements in the U.S. markets. The Fund's share price will reflect the movements
of both the different stock and bond markets in which it is invested and of the
currencies in which the investments are denominated; the strength or weakness of
the U.S. dollar against foreign currencies may account for part of the Fund's
investment performance. Foreign securities such as those purchased by the Fund
may be subject to foreign governmental taxes which could reduce the yield on
such securities, although a shareholder of the Fund may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her proportionate share of such foreign taxes paid by
the Fund (see "TAXES"). U.S. and foreign securities markets do not always move
in step with each other, and the total returns from different markets may vary
significantly. The Fund invests in many securities markets around the world in
an attempt to take advantage of opportunities wherever they may arise.

      Because of the Fund's investment considerations discussed above and the
investment policies, investment in shares of the Fund is not intended to provide
a complete investment program for an investor.

      Neither Fund can guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market price of the Fund's investments, and there is no assurance that the
Fund's objectives will be achieved.

Investments and Investment Techniques

Foreign Securities. The Fund is designed for investors who can accept currency
and other forms of international investment risk. The Advisor believes that
allocation of the Fund's assets on a global basis decreases the degree to which
events in any one country, including the U.S., will affect an investor's entire
investment holdings. In the period since World


                                       5
<PAGE>

War II, many leading foreign economies have grown more rapidly than the U.S.
economy and from time to time have had interest rate levels that had a higher
real return than the U.S. bond market. Consequently, the securities of foreign
issuers have provided attractive returns relative to the returns provided by the
securities of U.S. issuers, although there can be no assurance that this will be
true in the future.

      Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may affect the
Fund's performance favorably or unfavorably. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than that of the
New York Stock Exchange, Inc. (the "Exchange"), and securities of some foreign
issuers are less liquid and more volatile than securities of domestic issuers.
Similarly, volume and liquidity in most foreign bond markets is less than that
in the U.S. market and at times, volatility of price can be greater than in the
U.S. Further, foreign markets have different clearance and settlement procedures
and 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. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems either
could result in losses to the Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Fixed commissions
on some foreign securities exchanges are generally higher than negotiated
commissions on U.S. exchanges, although the Advisor will endeavor to achieve the
most favorable net results on the Fund's portfolio transactions. Further, the
Fund may encounter difficulties or be unable to pursue legal remedies and obtain
judgment in foreign courts. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers and
listed companies than in the U.S. It may be more difficult for the Fund's agents
to keep currently informed about corporate actions such as stock dividends or
other matters that may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of confiscatory or withholding taxation,
political, social or economic instability, or diplomatic developments that could
affect U.S. investments in those countries. Investments in foreign securities
may also entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The Advisor seeks to mitigate the risks to each Fund
associated with the foregoing considerations through investment variation and
continuous professional management.

Eastern Europe. Investments in companies domiciled in Eastern European countries
may be subject to potentially greater risks than those of other foreign issuers.
These risks include (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries, or in
the countries of the former Soviet Union.

      Investments in such countries involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of East European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there may be no assurance
that such expropriation will not occur in the future. In the event of such
expropriation, a Fund could lose a substantial portion of any investments it has
made in the affected countries. Further, no accounting standards exist in East
European countries. Finally, even though certain East European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to the Fund's shareholders.

Foreign Currencies. Investments in foreign securities usually will involve
currencies of foreign countries. Moreover, the Fund may temporarily hold funds
in bank deposits in foreign currencies during the completion of investment
programs and may purchase forward foreign currency contracts, foreign currency
futures contracts and options on such contracts. Because of these factors, the
value of the assets of a Fund as 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


                                       6
<PAGE>

with conversions between various currencies. Although the Fund's custodian
values the Fund's assets daily in terms of U.S. dollars, none of the Funds
intends to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund will do so from time to time, and investors should be
aware of the costs of currency conversion. 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. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. 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
entering into forward or futures contracts to purchase or sell foreign
currencies.

      Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in the U.S. markets. The Fund's share price will reflect the
movements of both the different stock and bond markets in which it is invested
and of the currencies in which the investments are denominated; the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
the Fund's investment performance. U.S. and foreign securities markets do not
always move in step with each other, and the total returns from different
markets may vary significantly. The Fund invests in many securities markets
around the world in an attempt to take advantage of opportunities wherever they
may arise.

Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less government supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.

      Emerging markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of the Fund is
uninvested and no cash is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to 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. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.

      Foreign investment in certain emerging market debt obligations is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging markets debt
obligations and increase the costs and expenses of the Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
limit the amount of investment by foreign persons in a particular company, limit
the investment by foreign persons only to a specific class of securities of a
company that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on
foreign investors. Certain emerging markets may also restrict investment
opportunities in issuers in industries deemed important to national interest.

      Certain 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 or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.

      In the course of investment in emerging market debt obligations, the Fund
will be exposed to the direct or indirect consequences of political, social and
economic changes in one or more emerging markets. Political changes in emerging
market countries may affect the willingness of an emerging market country
governmental issuer to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
also affects its ability to honor its obligations. While the Fund manages its
assets in a manner that will seek to minimize the exposure to such risks, and
will further reduce risk by owning the bonds of many issuers, there can be no
assurance that adverse political, social or economic changes will not cause a
Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.

      The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available. The Corporation may suspend redemption of its shares
for any period during which an emergency exists, as determined by the Securities
and Exchange Commission (the "SEC"). Accordingly if the Fund believes that
appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period


                                       7
<PAGE>

commencing from the Fund's identification of such condition until the date of
the SEC action, the Fund's securities in the affected markets will be valued at
fair value determined in good faith by or under the direction of the
Corporation's Board of Directors.

      Volume and liquidity in most foreign bond markets are less than in the
U.S. and securities of many foreign companies are less liquid and more volatile
than securities of comparable U.S. companies. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of business and industry practices, securities
exchanges, brokers, dealers and listed companies than in the U.S. Mail service
between the U.S. and foreign countries may be slower or less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. In addition, with
respect to certain emerging markets, there is the possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments, which could affect the Fund's investments in those countries.
Moreover, individual emerging market economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, and resource self-sufficiency
and balance of payments position.

      The Fund may have limited legal recourse in the event of a default with
respect to certain debt obligations it holds. If the issuer of a fixed-income
security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. Debt obligations issued by emerging market country governments
differ from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements. With four exceptions, (Panama, Cuba, Costa Rica and Yugoslavia), no
sovereign emerging markets borrower has defaulted on an external bond issue
since World War II.

      Income from securities held by the Fund could be reduced by a withholding
tax on the source or other taxes imposed by the emerging market countries in
which the Fund makes its investments. The Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to the Fund
or to entities in which the Fund has invested. The Advisor will consider the
cost of any taxes in determining whether to acquire any particular investments,
but can provide no assurance that the taxes will not be subject to change.

      Many emerging markets have experienced substantial, and in some periods
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.

      Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.

      Governments of many emerging market countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in a Fund's
portfolio. Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments have occurred
frequently over the history of certain emerging markets and could adversely
affect the Fund's assets should these conditions recur.

      The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To


                                       8
<PAGE>

the extent that emerging markets receive payment for its exports in currencies
other than dollars or non-emerging market currencies, its ability to make debt
payments denominated in dollars or non-emerging market currencies could be
affected.

      To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.

      Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.

Investing in Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.

      The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.

      The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

      The Fund may invest a portion of its assets in securities denominated in
currencies of Latin American countries. Accordingly, changes in the value of
these currencies against the U.S. dollar may result in corresponding changes in
the U.S. dollar value of the Fund's assets denominated in those currencies.

      Some Latin American countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.

      The economies of individual Latin American countries may differ favorably
or unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to a Fund
at a higher rate than those imposed by other foreign countries. This may reduce
a Fund's investment income available for distribution to shareholders.

      Certain Latin American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign governments.
At times, certain Latin American countries have declared moratoria on the
payment of principal and/or interest on outstanding debt.

      Latin America is a region rich in natural resources such as oil, copper,
tin, silver, iron ore, forestry, fishing, livestock and agriculture. The region
has a large population (roughly 300 million) representing a large domestic
market. Economic growth was strong in the 1960s and 1970s, but slowed
dramatically (and in some instances was negative) in the 1980s as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in

                                       9
<PAGE>

gross domestic product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly restructured. Political turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.

      Governments of many Latin American countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.

      Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four countries in the southernmost point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.

Investing in the Pacific Basin. Economies of individual Pacific Basin countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.

      With respect to the Peoples Republic of China and other markets in which
the Fund may participate, there is the possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments that could adversely
impact a Pacific Basin country or the Fund's investment in the debt of that
country.

      Foreign companies, including Pacific Basin companies, are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.

Investing in Europe. Most Eastern European nations, including Hungary, Poland,
Czech Republic, Slovak Republic, and Romania have had centrally planned,
socialist economies since shortly after World War II. A number of their
governments, including those of Hungary, the Czech Republic, and Poland are
currently implementing or considering reforms directed at political and economic
liberalization, including efforts to foster multi-party political systems,
decentralize economic planning, and move toward free market economies. At
present, no Eastern European country has a developed stock market, but Poland,
Hungary, and the Czech Republic have small securities markets in operation.
Ethnic and civil conflict currently rage through the former Yugoslavia. The
outcome is uncertain.

      Both the European Community (the "EC") and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.

      The conditions that have given rise to these developments are changeable,
and there is no assurance that reforms will continue or that their goals will be
achieved.

      Portugal is a genuinely emerging market which has experienced rapid growth
since the mid-1980s, except for a brief period of stagnation over 1990-91.
Portugal's government remains committed to privatization of the financial system
away


                                       10
<PAGE>

from one dependent upon the banking system to a more balanced structure
appropriate for the requirements of a modern economy. Inflation continues to be
about three times the EC average.

      Economic reforms launched in the 1980s continue to benefit Turkey in the
1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita Gross Domestic Product (the "GDP") increasing more than 6%
annually. Agriculture remains the most important economic sector, employing
approximately 55% of the labor force, and accounting for nearly 20% of GDP and
20% of exports. Inflation and interest rates remain high, and a large budget
deficit will continue to cause difficulties in Turkey's substantial
transformation to a dynamic free market economy.

      Like many other Western economies, Greece suffered severely from the
global oil price hikes of the 1970s, with annual GDP growth plunging from 8% to
2% in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of the
conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance. Once
Greece has sorted out its political situation, it will have to face the
challenges posed by the steadily increasing integration of the EC, including the
progressive lowering of trade and investment barriers. Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.

      Securities traded in certain emerging European securities markets may be
subject to risks due to the inexperience of financial intermediaries, the lack
of modern technology and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large amount of property, the
claims of which have not been entirely settled. There can be no assurance that
the Fund's investments in Eastern Europe would not also be expropriated,
nationalized or otherwise confiscated. Finally, any change in leadership or
policies of Eastern European countries, or countries that exercise a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities.

Investing in Africa. Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the percentage
of people who are over 15 years of age and who can read and write) are
relatively low, ranging from 20% to 60%. The primary industries include crude
oil, natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.

      Many of the countries are fraught with political instability. However,
there has been a trend over the past five years toward democratization. Many
countries are moving from a military style, Marxist, or single party government
to a multi-party system. Still, there remain many countries that do not have a
stable political process. Other countries have been enmeshed in civil wars and
border clashes.

      Economically, the Northern Rim countries (including Morocco, Egypt and
Algeria) and Nigeria, Zimbabwe and South Africa are the wealthier countries on
the continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.

      On the other end of the economic spectrum are countries, such as
Burkinafaso, Madagascar and Malawi, that are considered to be among the poorest
or least developed in the world. These countries are generally landlocked or
have poor natural resources. The economies of many African countries are heavily
dependent on international oil prices. Of all the African industries, oil has
been the most lucrative, accounting for 40% to 60% of many countries' GDP.

Debt Securities. The Fund may invest in debt securities if the Advisor
determines that the capital appreciation on debt securities is likely to exceed
that of common stocks. Portfolio debt investments will be selected on the basis
of capital appreciation potential, by evaluating, among other things, potential
yield, if any, credit quality, and the fundamental outlooks for currency and
interest rate trends in different parts of the world, taking into account the
ability to hedge a degree of currency or local bond price risk. The Fund may
purchase "investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by
Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged to be of equivalent
quality as determined by the Advisor. Bonds rated Baa or BBB may have
speculative elements as well as investment-grade characteristics. Below
investment-grade securities, are those rated below Baa by Moody's or below BBB
by S&P and in unrated securities of equivalent quality. The Fund may invest up
to 15% of its net assets in securities rated below BBB or below Baa, but may not
invest in securities rated B or lower by Moody's and S&P or in equivalent
unrated securities.

High Yield, High Risk Securities. Below investment grade securities (rated below
Baa by Moody's and below BBB by S&P and commonly referred to as "high yield" or
"junk" bonds) or unrated securities of equivalent quality in the Advisor's
judgment, carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities),


                                       11
<PAGE>

generally involve greater volatility of price and risk of principal and income,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. The lower the ratings of such debt securities, the
greater their risks render them like equity securities. The Fund may invest up
to 15% of its net assets. See the Appendix to this Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.

      An economic downturn could disrupt the high-yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which could adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high-yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high-yield securities may adversely affect the Fund's net asset
value. In addition, investments in high-yield zero coupon or pay-in-kind bonds,
rather than income-bearing high-yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.

      The trading market for high-yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Fund to accurately value high-yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high-yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.

      Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Advisor not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective by investment in such securities may be more dependent on
the Advisor's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Advisor will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.

      Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, recent legislation restricts the issuer's tax deduction for
interest payments on these securities. Such legislation may significantly
depress the prices of outstanding securities of this type. For more information
regarding tax issues related to high-yield securities (see "TAXES").

Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features. The Fund
each limits its purchases of convertible securities to debt securities
convertible into common stock.

      The convertible securities in which the Fund may invest are either fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

      As debt securities, convertible securities are investments which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Of course, like all
debt securities, there can be no assurance of income or principal payments
because the issuers of the convertible securities may


                                       12
<PAGE>

default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.

      Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.

      Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"(TM)). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.

Illiquid Securities. The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. This investment
practice, therefore, could have the effect of increasing the level of
illiquidity of the Fund. It is the Fund's policy that illiquid securities
(including repurchase agreements of more than seven days duration, certain
restricted securities, and other securities which are not readily marketable)
may not constitute, at the time of purchase, more than 15% of the value of the
Fund's net assets. The Corporation's Board of Directors has approved guidelines
for use by the Advisor in determining whether a security is illiquid.

      Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.

Dollar Rolls. The Fund may enter into "dollar roll" transactions, which consist
of the sale by the Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase similar, but not identical, securities at a future date, at the same
price. The counterparty receives all principal and interest payments, including
prepayments, made on the security while the counterparty is the holder. The Fund
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of several
months with a different repurchase price and a cash settlement made at each
renewal without physical delivery of securities. Moreover, the transaction may
be preceded by a firm commitment agreement pursuant to which the Fund agrees to
buy a security on a future date.

      The Fund will not use such transactions for leveraging purposes and,
accordingly, will segregate cash or liquid assets in an amount sufficient to
meet its purchase obligations under the transactions. The Fund will also
maintain asset coverage of at least 300% for all outstanding firm commitments,
dollar rolls and other borrowings. Notwithstanding such safeguards, the Fund's
overall investment exposure may be increased by such transactions to the extent
that the Fund bears a risk of loss on the securities it is committed to
purchase, as well as on the segregated assets.

      Dollar rolls are treated for purposes of the 1940 Act as borrowings of the
Fund because they involve the sale of a security coupled with an agreement to
repurchase. Like all borrowings, a dollar roll involves costs to the Fund. For
example, while the Fund receives a fee as consideration for agreeing to
repurchase the security, the Fund forgoes the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed


                                       13
<PAGE>

the fee received by the Fund, thereby effectively charging the Fund interest on
its borrowing. Further, although the Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the actual
amount of prepayment could increase or decrease the cost of the Fund's
borrowing.

      The entry into dollar rolls involves potential risks of loss which are
different from those of the securities underlying the transactions. For example,
if the counterparty becomes insolvent, the Fund's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before the Fund is able to purchase them. Similarly, the Fund
may be required to purchase securities in connection with a dollar roll at a
higher price than may otherwise be available on the open market. Since, as noted
above, the counterparty is required to deliver a similar, but not identical
security to the Fund, the security which the Fund is required to buy under the
dollar roll may be worth less than an identical security. Finally, there can be
no assurance that the Fund's use of the cash that it receives from a dollar roll
will provide a return that exceeds borrowing costs.

      The Directors of the Corporation on behalf of the Fund have adopted
guidelines to ensure that those securities received are substantially identical
to those sold. To reduce the risk of default, the Fund will engage in such
transactions only with banks and broker-dealers selected pursuant to such
guidelines.

Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign broker/dealer which is recognized as a reporting government securities
dealer, if the creditworthiness of the bank or broker/dealer has been determined
by the Advisor to be at least as high as that of other obligations the Fund may
purchase. In addition, the Fund may enter into repurchase agreements with any
foreign bank or with any domestic or foreign broker/dealer which is recognized
as a reporting government securities dealer, if the creditworthiness of the bank
or broker/dealer has been determined by the Advisor to be at least as high as
that of other obligations the Fund may purchase.

      A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., a Fund) acquires a debt security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities is kept at least equal to the
repurchase price on a daily basis. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Obligation itself.
Obligations will be physically held by the Fund's custodian or in the Federal
Reserve Book Entry system.

      For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restrictions
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or the entire principal and income involved
in the transaction. As with any unsecured debt instrument purchased for the
Fund, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities. A repurchase agreement
with foreign banks may be available with respect to government securities of the
particular foreign jurisdiction, and such repurchase agreements involve risks
similar to repurchase agreements with U.S. entities.

Repurchase Commitments. The Fund may enter into repurchase commitments with any
party deemed creditworthy by the Advisor, including foreign banks and
broker/dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
securities which a Fund may purchase. Such transactions may not provide a Fund
with collateral marked-to-market during the term of the commitment.


                                       14
<PAGE>

Indexed Securities. The Fund may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.

      Indexed securities differ from other types of debt securities in which the
Fund may invest in several respects. First, the interest rate or, unlike other
debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference instruments, such
as an interest rate compared with a fixed interest rate or the currency exchange
rates between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).

      Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

When-Issued Securities. The Fund may from time to time purchase securities on a
"when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by a Fund
to the issuer and no interest accrues to the Fund. To the extent that assets of
a Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income; however, it is the Fund's intention to be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued or forward delivery securities may be sold prior to the
settlement date, a Fund intends to purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time a Fund makes the commitment to purchase a security on a when-issued
or forward delivery basis, it will record the transaction and reflect the value
of the security in determining its net asset value. At the time of settlement,
the market value of the when-issued or forward delivery securities may be more
or less than the purchase price. Each Fund does not believe that its net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis.

Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

      Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the SEC no longer considers such privately stripped obligations to
be U.S. Government securities, as defined in the 1940 Act.


                                       15
<PAGE>

      The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.

      When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").

Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. 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 will be made only to firms deemed by the Advisor to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Funds'
total assets at the time any loan is made.

Mortgage-Backed Securities and Mortgage Pass-Through Securities. The Fund may
also invest in mortgage-backed securities, which are interests in pools of
mortgage loans, including mortgage loans made by savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage loans are
assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
Fund may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations"), and in other types of mortgage-related securities.

      A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities.

      When interest rates rise, mortgage prepayment rates tend to decline, thus
lengthening the life of mortgage-related securities and increasing their
volatility, affecting the price volatility of the Fund's shares.

      Interests in pools of mortgage-backed securities differ from other forms
of debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying property, refinancing or foreclosure, net of fees or
costs which may be incurred. Because principal may be prepaid at any time,
mortgage-backed securities may involve significantly greater price and yield
volatility than traditional debt securities. Some mortgage-related securities
(such as securities issued by the Government National Mortgage Association) are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.

      The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages. These guarantees, however, do not apply to the market value or yield
of mortgage-backed securities or to the value of Fund shares. Also, GNMA
securities often are purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.


                                       16
<PAGE>

      Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.

      FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.

      Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the Advisor determines that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.

Collateralized Mortgage Obligations ("CMO"s). The Fund may invest in CMOs. A CMO
is a hybrid between a mortgage-backed bond and a mortgage pass-through security.
Similar to a bond, interest and prepaid principal are paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA, and their income streams.

      CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments. The prices of certain CMOs,
depending on their structure and the rate of prepayments, can be volatile. Some
CMOs may not be as liquid as other securities.

      In a typical CMO transaction, a corporation issues multiple series, (e.g.,
A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party director as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.

FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations of
FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semiannually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess


                                       17
<PAGE>

of the amount of FHLMC's minimum sinking fund obligation for any payment date
are paid to the holders of the CMOs as additional sinking fund payments. Because
of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.

      If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.

      Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the event
of delinquencies and/or defaults.

Other Mortgage-Backed Securities. The Advisor expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. The Fund will not purchase mortgage-backed securities or any
other assets which, in the opinion of the Advisor, are illiquid, in accordance
with the nonfundamental investment restriction on securities which are not
readily marketable discussed below. As new types of mortgage-related securities
are developed and offered to investors, the Advisor will, consistent with the
Fund's investment objective, policies and quality standards, consider making
investments in such new types of mortgage-related securities.

Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure. Consistent with the Fund's investment objectives and policies, the
Fund may invest in these and other types of asset-backed securities that may be
developed in the future. In general, the collateral supporting these securities
is of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.

      Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile Receivables(SM) ("CARS(SM)").
CARS(SM) represent undivided fractional interests in a trust whose assets
consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS(SM) are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the directors or
originator of the Corporation. An investor's return on CARS(SM) may be affected
by early prepayment of principal on the underlying vehicle sales contracts. If
the letter of credit is exhausted, the Corporation may be prevented from
realizing the full amount due on a sales contract because of state law
requirements and restrictions relating to foreclosure sales of vehicles and the
obtaining of deficiency judgments following such sales or because of
depreciation, damage or loss of a vehicle, the application of federal and state
bankruptcy and insolvency laws, or other factors. As a result, certificate
holders may experience delays in payments or losses if the letter of credit is
exhausted.

      Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

      Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. This
protection may be provided through insurance policies or letters of credit
obtained by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
Fund will not pay any additional or separate fees for credit support. The degree
of credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the


                                       18
<PAGE>

underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in such
a security.

      The Fund may also invest in residual interests in asset-backed securities.
In the case of asset-backed securities issued in a pass-through structure, the
cash flow generated by the underlying assets is applied to make required
payments on the securities and to pay related administrative expenses. The
residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the 1933 Act may be subject to certain restrictions on
transferability. In addition, there may be no liquid market for such securities.

      The availability of asset-backed securities may be affected by legislative
or regulatory developments. It is possible that such developments may require
the Fund to dispose of any then existing holdings of such securities.

 .Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Directors do not currently intend to borrow for investment leverage
purposes, if such a strategy were implemented in the future it would increase
the Fund's volatility and the risk of loss in a declining market. Borrowing by
the Fund will involve special risk considerations. Although the principal of the
Fund's 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.

Strategic Transactions and Derivatives. The Fund may, but are not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of the fixed-income securities in the Fund's portfolio or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.

      In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limits imposed by the 1940 Act) to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a substitute for
purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of the Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination, and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
Advisor's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions will not be used to alter fundamental investment purposes and
characteristics of the Fund, and the Fund will segregate assets (or as provided
by applicable regulations, enter into certain offsetting positions) to cover its
obligations under options, futures and swaps to limit leveraging of the Fund.

      Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Advisor's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation a Fund can realize on its
investments or cause a Fund to hold a security it might otherwise sell. The use
of currency transactions can result in a Fund incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility


                                       19
<PAGE>

that losses on the hedging instrument may be greater than gains in the value of
a Fund's position. In addition, futures and options markets may not be liquid in
all circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, a Fund might not be able to close out a transaction
without incurring substantial losses, if at all. Although the use of futures and
options transactions for hedging should tend to minimize the risk of loss due to
a decline in the value of the hedged position, at the same time they tend to
limit any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

      A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

      With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

      A Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

      The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

      OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which


                                       20
<PAGE>

generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting a Fund to require the Counterparty to
sell the option back to a Fund at a formula price within seven days. The Fund
expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

      Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Advisor. The staff of the
Securities and Exchange Commission (the "SEC") currently takes the position that
OTC options purchased by a Fund, and portfolio securities "covering" the amount
of a Fund's obligation pursuant to an OTC option sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid, and are subject to
the Fund's limitation on investing no more than 15% of its net assets in
illiquid securities.

      If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase a Fund's income. The sale of put options can also provide income.

      The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. The Fund will not purchase call
options unless the aggregate premiums paid on all options held by the Fund at
any time do not exceed 20% of its total assets. All calls sold by the Fund must
be "covered" (i.e., a Fund must own the securities or futures contract subject
to the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though a Fund will receive the option
premium to help protect it against loss, a call sold by a Fund exposes that Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require that Fund to hold a security or instrument which it might otherwise
have sold.

      The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not purchase put options unless the aggregate premiums
paid on all options held by the Fund at any time do not exceed 20% of its total
assets. The Fund will not sell put options if, as a result, more than 50% of its
total assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that a Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management, and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed,
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by a Fund, as seller, to deliver to
the buyer the specific type of instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that 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 and obligates the seller to deliver such
position.


                                       21
<PAGE>

      The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of a Fund. If a Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.

      The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) 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. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Advisor.

      The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of a Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.

      The Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.


                                       22
<PAGE>

      The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

      To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Advisor believes that
the value of schillings will decline against the U.S. dollar, the Advisor may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.

Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.


                                       23
<PAGE>

      The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Advisor and the Funds believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Advisor. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed-income instruments
are linked.

Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent that obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.

      Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Fund to buy or sell currency
will generally require the Fund to hold an amount of that currency or liquid
assets denominated in that currency equal to the Fund's obligations or to
segregate liquid assets equal to the amount of the Fund's obligation.

      OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed


                                       24
<PAGE>

options sold by the Fund other than those above generally settle with physical
delivery, or with an election of either physical delivery or cash settlement and
the Fund will segregate an amount of cash or liquid assets equal to the full
value of the option. OTC options settling with physical delivery, or with an
election of either physical delivery or cash settlement will be treated the same
as other options settling with physical delivery.

      In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.

      With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.

      Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated cash or
liquid assets, equals its net outstanding obligation in related options and
Strategic Transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if the Fund
held a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.

Warrants. The Fund may invest in warrants up to 5% of the value of its total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.

DIVIDENDS, DISTRIBUTIONS AND TAXES

      The Fund intends to follow the practice of distributing substantially all
and in no event less than 90% of its investment company taxable income including
any excess of net realized short-term capital gains over net realized long-term
capital losses. A Fund may follow the practice of distributing the entire excess
of net realized long-term capital gains over net realized short-term capital
losses. However, a Fund may retain all or part of such gain for reinvestment,
after paying the related federal income taxes for which the shareholders may
then claim a credit against their federal income tax liability. If a Fund does
not distribute an amount of capital gains and/or ordinary income required to be
distributed by an excise tax provision of the Code, it may be subject to such
tax. In certain circumstances, a Fund may determine that it is in the interest
of shareholders to distribute less than such an amount. (See "TAXES.")

      The Fund intends to declare daily and distribute monthly substantially all
of its net investment income (excluding short-term capital gains) resulting from
Fund investment activity. Distributions, if any, of net realized capital gains
(short-term and long-term) will normally be made in December. Distributions of
certain realized gains or losses on the sale or retirement of securities
denominated in foreign currencies held by the Fund, to the extent attributable
to fluctuations in currency exchange rates, as well as certain other gains or
losses attributable to exchange rate fluctuations, are treated as ordinary
income or loss and will also normally be made in December.

      All distributions will be made in shares of the Fund and confirmations
will be mailed to each shareholder unless a shareholder has elected to receive
cash, in which case a check will be sent. Distributions are taxable, whether
made in shares or cash.
(See "TAXES.")


                                       25
<PAGE>

Taxes. The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.

      A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.

      If for any taxable year the Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders).

      The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of the Fund's ordinary income for the calendar year, at least 98% of
the excess of its capital gains over capital losses (adjusted for certain
ordinary losses) realized during the one-year period ending October 31 during
such year, and all ordinary income and capital gains for prior years that were
not previously distributed.

      Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund.

      At October 31, 2000, the Fund had a net tax basis capital loss
carryforward of approximately $__, which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
October 31, 2002, ($686,000), October 31, 2003 ($5,010,000), October 31, 2004
($737,000) and October 31, 2007 ($1,557,000), the respective expiration dates,
whichever occurs first.

      If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, that Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such reported gains and the
shareholder's tax credit. If the Fund makes such an election, it may not be
treated as having met the excise tax distribution requirement.

      Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

      Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of
that Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.

      Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

      Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.


                                       26
<PAGE>

      All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.

      A qualifying individual may make a deductible IRA contribution of up to
$2,000 for any taxable year only if (i) neither the individual nor his or her
spouse (unless filing separate returns) is an active participant in an
employer's retirement plan, or (ii) the individual (and his or her spouse, if
applicable) has an adjusted gross income below a certain level for 2001 ($53,000
for married individuals filing a joint return, with a phase-out of the deduction
for adjusted gross income between $53,000 and $63,000; $33,000 for a single
individual, with a phase-out for adjusted gross income between $33,000 and
$43,000). However, an individual not permitted to make a deductible contribution
to an IRA for any such taxable year may nonetheless make nondeductible
contributions up to $2,000 to an IRA (up to $2,000 per individual for married
couples if only one spouse has earned income) for that year. There are special
rules for determining how withdrawals are to be taxed if an IRA contains both
deductible and nondeductible amounts. In general, a proportionate amount of each
withdrawal will be deemed to be made from nondeductible contributions; amounts
treated as a return of nondeductible contributions will not be taxable. Also,
annual contributions may be made to a spousal IRA even if the spouse has
earnings in a given year if the spouse elects to be treated as having no
earnings (for IRA contribution purposes) for the year.

      Distributions by the Fund result in a reduction in the net asset value of
that Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

      The Fund intends to qualify for and may make the election permitted under
Section 853 of the Code so that shareholders may (subject to limitations) be
able to claim a credit or deduction on their federal income tax returns for, and
will be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code except in the case of certain
electing individual shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend. In addition, if the Fund fails to satisfy these
holding period requirements, it cannot elect under Section 853 to pass through
to shareholders the ability to claim a deduction for the related foreign taxes.

      The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark to market losses and any loss from an actual disposition of
shares would be deductible as ordinary loss to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to a fund level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain its
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.

      Equity options (including covered call options written on portfolio stock)
and over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing


                                       27
<PAGE>

an adjustment in the holding period of any property in the Fund's portfolio
similar to the property underlying the put option. If the Fund writes an option,
no gain is recognized upon its receipt of a premium. If the option lapses or is
closed out, any gain or loss is treated as short-term capital gain or loss. If a
call option is exercised, the character of the gain or loss depends on the
holding period of the underlying stock.

      Positions of the Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes that Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the relevant Fund.

      Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.

      If the Fund writes a covered call option on portfolio stock, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.

      Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes that
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. The Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.

      Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.

      Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.

      Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time that Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

      If the Fund holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to


                                       28
<PAGE>

the Fund each year, even though the Fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the investment company taxable income of the Fund which must
be distributed to shareholders in order to maintain the qualification of the
Fund as a regulated investment company and to avoid federal income tax at the
Fund level. In addition, if the Fund invests in certain high yield original
issue discount obligations issued by corporations, a portion of the original
issue discount accruing on the obligation may be eligible for the deduction for
dividends received by corporations. In such event, dividends of investment
company taxable income received from the Fund by its corporate shareholders, to
the extent attributable to such portion of accrued original issue discount, may
be eligible for this deduction for dividends received by corporations if so
designated by the Fund in a written notice to shareholders.

      In some cases, shareholders of the Fund will not be permitted to take all
or a portion of their sales loads into account for purposes of determining the
amount of gain or loss realized on the disposition of their shares. This
prohibition generally applies where (1) the shareholder incurs a sales load in
acquiring the shares of the Fund, (2) the shares are disposed of before the 91st
day after the date on which they were acquired, and (3) the shareholder
subsequently acquires shares in the Fund or another regulated investment company
and the otherwise applicable sales charge is reduced under a "reinvestment
right" received upon the initial purchase of Fund shares. The term "
reinvestment right" means any right to acquire shares of one or more regulated
investment companies without the payment of a sales load or with the payment of
a reduced sales charge. Sales charges affected by this rule are treated as if
they were incurred with respect to the shares acquired under the reinvestment
right. This provision may be applied to successive acquisitions of fund shares.

      The Fund will be required to report to the Internal Revenue Service all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if the Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

      Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.

      The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.

Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.

PERFORMANCE

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be computed separately for each class.
Class A, B and C shares are newly offered and therefore have no available
performance information. Returns for Class A, B and C shares are derived from
the historical performance of Class S Shares, adjusted to reflect the estimated
operating expenses applicable to Class A, B and C shares, which may be higher
than those of Class S shares.

Performance figures prior to March 1, 2001 for Class A, Class B and C shares are
derived from the historical performance of Class S shares, adjusted to reflect
the operating expenses applicable to Class A, B and C shares, which may be
higher or lower than those of Class S shares. The performance figures are also
adjusted to reflect the maximum sales charge of 5.75% for Class A shares and the
maximum current contingent deferred sales charge of 4% for Class B shares and 1%
for Class C shares.


                                       29
<PAGE>

The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures of Class S to reflect
adjusted Class A, B and C shares expense structure as described above; they do
not guarantee future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.

Average Annual Total Return

Average annual total return is the average annual compound rate of return for
the periods of one year, five years and ten years (or such shorter periods as
may be applicable dating from the commencement of the Fund's operations), all
ended on the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by
computing the average annual compound rates of return of a hypothetical
investment over such periods, according to the following formula (average annual
total return is then expressed as a percentage):

                               T = (ERV/P)^1/n - 1

Where:

            T      =     Average Annual Total Return

            P      =     a hypothetical initial investment of $1,000

            n      =     number of years

            ERV    =     ending redeemable value: ERV is the value, at the end
                         of the applicable period, of a hypothetical $1,000
                         investment made at the beginning of the applicable
                         period.

Average Annual Total Returns for the Period Ended October 31, 2000 (1)(2)(3)(4)

--------------------------------------------------------------------------------
                                     1 Year           5 Years    Life of Fund(5)
--------------------------------------------------------------------------------
Scudder Global Bond Fund -- Class A   ____%            ____%          ____%
--------------------------------------------------------------------------------
Scudder Global Bond Fund -- Class B   ____%            ____%          ____%
--------------------------------------------------------------------------------
Scudder Global Bond Fund -- Class C   ____%            ____%          ____%
--------------------------------------------------------------------------------

(1)   Because Class B and C shares were not introduced until March 1, 2001, the
      returns for Class A, B and C shares for the period prior to their
      introduction is based upon the performance of Class S shares.

(2)   As described above, average annual total return is based on historical
      earnings and is not intended to indicate future performance. Average
      annual total return for the Fund or class will vary based on changes in
      market conditions and the level of the Fund's and class' expenses.

(3)   On December 27, 1995, the Fund adopted its present name and objective.
      Prior to that date, the Fund was known as Scudder Short Term Global Income
      Fund and its objective was high current income. Since adopting its current
      objectives (November 1, 1995), the cumulative return is 11.2% for the
      four-year period ended October 31, 1999. Total returns for the periods
      ended October 31, 1995 should not be considered representative of the
      present Fund under its current objectives.

(4)   If the Advisor had not maintained expenses, the average annual returns for
      periods indicated would have been lower.

(5)   For the period beginning December 31, 1993.

In connection with communicating its average annual total return to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.

Cumulative Total Return

Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment over such periods, according to the
following formula (cumulative total return is then expressed as a percentage):


                                       30
<PAGE>

                                     C = (ERV/P) - 1

Where:


            C      =     Cumulative Total Return

            P      =     a hypothetical initial investment of $1,000

            ERV    =     ending redeemable value: ERV is the value, at the end
                         of the applicable period, of a hypothetical $1,000
                         investment made at the beginning of the applicable
                         period.

   Cumulative Total Returns for the Period Ended October 31, 2000 (1)(2)(3)(4)

--------------------------------------------------------------------------------
                                      1 Year         5 Years     Life of Fund(4)
--------------------------------------------------------------------------------
Scudder Global Bond Fund -- Class A   ____%          ____%             ____%
--------------------------------------------------------------------------------
Scudder Global Bond Fund -- Class B   ____%          ____%             ____%
--------------------------------------------------------------------------------
Scudder Global Bond Fund -- Class C   ____%          ____%             ____%
--------------------------------------------------------------------------------

(1)   Because Class B and C shares were not introduced until March 1, 2001, the
      returns for Class A, B and C shares for the period prior to their
      introduction is based upon the performance of Class S shares.

(2)   If the Advisor has not maintained expenses, the average annual return
      would have been lower.

(3)   On December 27, 1995, the Fund adopted its present name and objective.
      Prior to that date, the Fund was known as Scudder Short Term Global Income
      Fund and its objective was high current income. Since adopting its current
      objectives (November 1, 1995), the cumulative return is 11.2% for the
      four-year period ended October 31, 1999. Total returns for the periods
      ended October 31, 1995 should not be considered representative of the
      present Fund under its current objectives.

(4)   For the period beginning March 1, 1991.

Total Return

Total return is the rate of return on an investment for a specified period of
time calculated in the same manner as cumulative total return.

From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of the Fund apart from capital appreciation will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Fund's and classes' performance data.

Quotations of a Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of that Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of that Fund's expenses.

Yield

      Yield of the Fund is the net annualized SEC yield of the Fund based on a
specified 30-day (or one month) period assuming semiannual compounding of
income. Yield is calculated by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period, according to the following formula:

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

            Where:

                   a     =     dividends and interest earned during the period,
                               including amortization of market premium or
                               accretion of market discount

                   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


                                       31
<PAGE>

      The SEC yield of Global Bond Fund for the 30-day period ended October 31,
2000 was --%.

      Calculation of the Fund's yield does not take into account "Section 988
Transactions." (See "TAXES.")

      Quotations of each Fund's performance are historical, show the performance
of a hypothetical investment, and are not intended to indicate future
performance. An investor's shares when redeemed may be worth more or less than
their original cost. Performance of a Fund will vary based on changed in market
conditions and the level of the Fund's expenses.

Comparison of Fund Performance

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.

Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests.

From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.

From time to time, in marketing and other Fund literature, members of the Board
and officers of the Fund, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Advisor has under
management in various geographical areas may be quoted in advertising and
marketing materials.

Marketing and other Fund literature may include a description of the potential
risks and rewards associated with an investment in the Fund. The description may
include a "risk/return spectrum" which compares the Fund to other Scudder funds
or broad categories of funds, such as money market, bond or equity funds, in
terms of potential risks and returns. Money market funds are designed to
maintain a constant $1.00 share price and have a fluctuating yield. Share price,
yield and total return of a bond fund will fluctuate. The share price and return
of an equity fund also will fluctuate. The description may also compare the Fund
to bank products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S. government and
offer a fixed rate of return.

Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risks/returns associated with an investment in bond or equity funds depend upon
many factors. For bond funds these factors include, but are not limited to, a
fund's overall investment objective, the average portfolio maturity, credit
quality of the securities held, and interest rate movements. For equity funds,
factors include a fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns associated with an investment in international bond or equity
funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return than growth funds. In
addition, international equity funds usually are considered more risky than
domestic equity funds but generally offer the potential for greater return.

Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning the Fund,
including reprints of, or selections from, editorials or articles about the
Fund.

INVESTMENT MANAGER AND UNDERWRITER

Investment Manager. Zurich Scudder Investments, Inc. (the "Advisor"), Two
International Place, Boston, Massachusetts, an investment counsel firm, acts as
investment Advisor to the Fund. This organization, the predecessor of which is
Scudder, Stevens & Clark, Inc., ("Scudder") is one of the most experienced
investment counsel firms in the U. S. It was established as


                                       32
<PAGE>

a partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 the Advisor introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On June 26, 1997, Scudder entered into an agreement with Zurich Insurance
Company ("Zurich") pursuant to which Scudder and Zurich agreed to form an
alliance. On December 31, 1997, Zurich acquired a majority interest in Scudder,
and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of
Scudder. Scudder's name changed to Scudder Kemper Investments, Inc. (Scudder
Kemper). On September 7, 1998, the businesses of 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. On October 17, 2000, the dual holding
company structure of Zurich Financial Services Group, comprised of Allied Zurich
p.l.c. in the United Kingdom and Zurich Allied A.G. in Switzerland, was unified
into an single Swiss company, Zurich Financial Services. On [Month Day], [2000,
2001] Scudder Kemper Investments, Inc. changed its name to Zurich Scudder
Investments, Inc. The Advisor manages the Fund's daily investment and business
affairs subject to the policies established by the Corporation's Board of
Directors. The Directors have overall responsibility for the management of the
Fund under Massachusetts law.

      Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.

      Pursuant to an investment management agreement with the Fund, the Advisor
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 principal source of the Advisor's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today it provides investment counsel
for many individuals and institutions, including insurance companies, industrial
corporations, and financial and banking organizations, as well as providing
investment advice to over 280 open and closed-end mutual funds.

      The Advisor maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Advisor receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Advisor's clients. However, the Advisor regards this information and material as
an adjunct to its own research activities. The Advisor's international
investment management team travels the world researching hundreds of companies.
In selecting securities in which the Fund may invest, the conclusions and
investment decisions of the Advisor with respect to the Fund are based primarily
on the analyses of its own research department.

      Certain investments may be appropriate for the Fund and also for other
clients advised by the Advisor. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Advisor in the interest of achieving the most
favorable net results to the Fund.

      The present investment management agreement (the "Agreement") dated
September 7, 2000 was most recently approved by the Directors on October 10,
2000, will continue in effect until September 30, 2001. The Agreement will
continue in effect until from year to year thereafter only if its continuance is
approved annually by the vote of a majority of those Directors who are not
parties to such Agreement or interested persons of the Advisor or the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Corporation's Directors or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' written
notice and automatically terminates in the event of its assignment.

      Under the Agreement, the Advisor regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Corporation's


                                       33
<PAGE>

Articles of Incorporation and By-Laws, the 1940 Act, the Code and to the Fund's
investment objective, policies and restrictions, and subject, further, to such
policies and instructions as the Board of Directors of the Corporation may from
time to time establish. The Advisor also advises and assists the officers of the
Corporation in taking such steps as are necessary or appropriate to carry out
the decisions of its Directors and the appropriate committees of the Directors
regarding the conduct of the business of the Fund.

      Under the Agreement, the Advisor renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Directors and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, Custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends; and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Directors.

      The Advisor pays the compensation and expenses of all Directors, officers
and executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York; Boston, Massachusetts and Chicago,
Illinois) of the Fund affiliated with the Advisor and makes available, without
expense to the Corporation, the services of such Directors, officers and
employees of the Advisor as may duly be elected officers or Directors of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Fund's office space and facilities.

      The Fund pays the Advisor an annual fee equal to 0.75 of 1.00% of the
first $1 billion of average daily net assets of such Fund and 0.70 of 1.00% of
such net assets in excess of $1 billion. For the fiscal year ended October 31,
1998, the Advisor did not impose a portion of its management fee amounting to
$554,345, and the portion imposed amounted to $314,786. Until February 28, 1999,
expenses had been contractually maintained at 1.00%. For the fiscal year ended
October 31, 1999, the Advisor did not impose a portion of its management fee
amounting to $247,004, and the portion imposed amounted to $484,739. For the
fiscal year ended October 31, 2000, the Advisor did not impose a portion of its
management fee amounting to $__, and the portion imposed amounted to $__.

      Under the Agreement the Fund is responsible for all of its other expenses
including: organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; taxes and governmental fees; the fees and
expenses of the Transfer Agent; any other expenses of issue, sale, underwriting,
distribution, redemption or repurchase of shares; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Directors, officers and employees of the Fund who are not affiliated with the
Advisor; the cost of printing and distributing reports and notices to
stockholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses of shareholders' meetings, the cost of responding to shareholders'
inquiries, and its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Directors of the Fund with respect thereto.

      The Agreement identifies the Advisor as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Fund, has the
non-exclusive right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Corporation's investment products
and services.

      In reviewing the terms of the Agreement and in discussions with the
Advisor concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Advisor are represented by independent counsel at
the Fund's expense.

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

      Officers and employees of the Advisor from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Advisor's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.


                                       34
<PAGE>

      The Advisor may serve as Advisor to other funds with investment objectives
and policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.

      None of the officers or Directors of the Corporation may have dealings
with the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of Shares of the Fund.

      The term Scudder Investments is the designation given to the services
provided by Zurich Scudder Investments, Inc. and its affiliates to the Scudder
Family of Funds.

AMA InvestmentLink(SM) Program

      Pursuant to an Agreement between the Advisor and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Advisor has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Advisor with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Advisor
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment Advisor
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Advisor (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.

Code of Ethics

      The Fund, the Advisor and principal underwriter have each adopted codes of
ethics under rule 17j-1 of the Investment Company Act. Board members, officers
of the Corporation and employees of the The Advisor and principal underwriter
are permitted to make personal securities transactions, including transactions
in securities that may be purchased or held by the Fund, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The The Advisor's
Code of Ethics contains provisions and requirements designed to identify and
address certain conflicts of interest between personal investment activities and
the interests of the Fund. Among other things, the The Advisor's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the The
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.

Principal Underwriter. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the
Advisor, is the principal underwriter and distributor for the Class A, B and C
shares of the Fund and acts as agent of the Fund in the continuous offering of
its Shares. KDI bears all of 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 Directors of the Fund, including the Directors 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 Directors or a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the distribution agreement or a
"majority of the outstanding voting securities" of the class of the Fund, as
defined under the 1940 Act. The distribution 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 Directors in the manner described above with respect to the
continuation of the distribution agreement.

      Class B Shares and Class C Shares. The Fund has adopted a plan under Rule
12b-1 (the "Rule 12b-1 Plan") that provides for fees payable as an expense of
the Class B shares and Class C shares that are used by KDI to pay for
distribution and services for those classes. Because 12b-1 fees are paid out of
class assets on an ongoing basis they will, over time, increase the cost of an
investment and cost more than other types of sales charges.


                                       35
<PAGE>

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

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

      For its services under the distribution agreement, KDI receives a fee from
Class B shares net assets, 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. KDI currently compensates firms for sales of Class B
shares at a commission rate of 0.75%.

      For its services under the distribution agreement, KDI receives a fee from
Class C shares net assets, 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 a Fund. KDI also
receives any contingent deferred sales charges.

Administrative Fee. The Fund has entered into an administrative services
agreement with Zurich Scudder (the "Administration Agreement"), pursuant to
which Zurich Scudder will provide or pay others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Zurich Scudder under its investment management agreements with the Fund, as
described above) in exchange for the payment by the Fund of an administrative
services fee (the "Administrative Fee") of [0.XX]% for Class A, [0.XX]% for
Class B and [0.XX]% for Class C. One effect of this arrangement is to make the
Fund's future expense ratio more predictable.

Various third-party service providers (the "Service Providers"), some of which
are affiliated with Zurich Scudder, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Zurich Scudder, computes net asset value for the
Fund and maintains its accounting records. Kemper Service Company is the
transfer, shareholder servicing and dividend-paying agent for the shares of the
Fund. As custodian, Brown Brothers Harriman & Co. holds the portfolio securities
of the Fund, pursuant to a custodian agreement. PricewaterhouseCoopers LLP
audits the financial statements of the Fund and provides other audit, tax, and
related services. Dechert acts as general counsel for the Fund.

Zurich Scudder will pay the Service Providers for the provision of their
services to the Fund and will pay other fund expenses, including insurance,
registration, printing and postage fees. In return, the Fund will pay Zurich
Scudder an Administrative Fee.

The Administration Agreement has an initial term of three years, subject to
earlier termination by the Fund's Board. The fee payable by the Fund to Zurich
Scudder pursuant to the Administration Agreements is reduced by the amount of
any credit received from the Fund's custodian for cash balances.

Certain expenses of the Fund will not be borne by Zurich Scudder under the
Administration Agreements, such as taxes, brokerage, interest and extraordinary
expenses; and the fees and expenses of the Independent Directors (including the
fees and expenses of their independent counsel). In addition, the Fund will
continue to pay the fees required by its investment management agreement with
Zurich Scudder.

Administrative Services. Administrative services are provided to the Fund on
behalf of Class A, B and C shareholders 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. The Fund pays KDI an administrative
services 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.

      KDI enters 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 in the Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information


                                       36
<PAGE>

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,
payable quarterly, at an annual rate of up to 0.25% of the net assets in Fund
accounts that it maintains and services attributable to Class A Shares,
commencing with the month after investment. With respect to Class B and Class C
Shares, KDI currently advances to firms the first-year service fee at a rate of
up to 0.25% of the purchase price of such Shares. For periods after the first
year, KDI currently intends to pay firms a service fee at a rate of up to 0.25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C Shares maintained and serviced by the firm. After the first year,
a firm becomes eligible for the quarterly service fee and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid
include affiliates of KDI. 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 Fund.

      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, the
administrative services fee payable to KDI is payable at an annual rate of 0.25%
based upon Fund assets in accounts for which a firm provides administrative
services and at the annual rate of 0.15% based upon Fund assets in accounts for
which there is no firm of record (other than KDI) listed on the Fund's records.
The effective administrative services fee rate to be charged against all assets
of 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. The Board of Directors of the Fund, in its discretion,
may approve basing the fee to KDI at the annual rate of 0.25% on all Fund assets
in the future

      Certain Directors or officers of the Fund are also directors or officers
of the Advisor or KDI, as indicated under "Officers and Directors."

      Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts, a subsidiary of the Advisor,
computes net asset value for the Fund. SFAC is paid an annual fee equal to 0.08%
of the first $150 million of average net assets, 0.06% of such assets in excess
of $150 million and 0.04% of such assets in excess of $1 billion. For the fiscal
years ended October 31, 1998, 1999 and 2000, the Fund incurred fees of $105,220,
$89,318and $___, respectively, of which $__ was unpaid on October 31, 2000.

Custodian, Transfer Agent and Shareholder Service Agent. Brown Brothers Harriman
& Company, 40 Water Street, Boston, Massachusetts 02109, as custodian has
custody of all securities and cash of the Fund held outside the United States.
The Custodian attends 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"), 811 Main Street, Kansas City, Missouri 64105-2005, an
affiliate of the Advisor, is the Fund's transfer agent, dividend-paying agent
and shareholder service agent for the Fund's Class A, B and C shares. KSVC
receives as transfer agent, annual account fees of $5 per account, transaction
and maintenance charges, annual fees associated with the contingent deferred
sales charge (Class B shares only) and out-of-pocket expense reimbursement.

Independent Accountants and Reports to Shareholders. The financial highlights of
the Fund included in the Fund's prospectus and the Financial Statements
incorporated by reference in this Statement of Additional Information have been
so included or incorporated by reference in reliance on the report of
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. PricewaterhouseCoopers LLP audits the financial
statements of the Fund and provides other audit, tax and related services.
Shareholders will receive annual audited financial statements and semi-annual
unaudited financial statements.

PORTFOLIO TRANSACTIONS

Brokerage Commissions.  Allocation of brokerage may be placed by the Advisor.

      The primary objective of the Advisor in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results taking into account such factors as price, commission where
applicable, size of order, difficulty of execution and skill required of the
executing broker/dealer. The Advisor seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of Scudder Investor Services, Inc. ("SIS"), a corporation
registered as a broker-dealer and a subsidiary of the Advisor, with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Fund to reported commissions paid by others. The Advisor reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.


                                       37
<PAGE>

      The Fund's purchases and sales of fixed-income securities are generally
placed by the Advisor with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.

      When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Advisor's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Advisor is not authorized when placing portfolio transactions for the Fund
to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction solely on account of the receipt of
research, market or statistical information. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.

      In selecting among firms believed to meet the criteria for handling a
particular transaction, the Advisor may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Advisor.

      To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through SIS. SIS will place orders on behalf
of the Fund with issuers, underwriters or other brokers and dealers. SIS will
not receive any commission, fee or other remuneration from the Fund for this
service.

      Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Advisor, it is the opinion
of the Advisor that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Advisor's staff. Such information may be useful to the Advisor in providing
services to clients other than the Fund and not all such information is used by
the Advisor in connection with the Fund. Conversely, such information provided
to the Advisor by broker/dealers through whom other clients of the Advisor
effect securities transactions may be useful to the Advisor in providing
services to the Fund.

      The Directors of the Fund review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.

      The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.

[For the fiscal years ended October 31, 2000, 1999 and 1998, the Fund paid no
brokerage commissions.]

Portfolio Turnover

      Average annual portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less.

      The Fund's portfolio turnover rate for each of the fiscal years ended
October 31, 2000 and 1999 was __% and 148.5%, respectively.

      Recent economic and market conditions necessitated more active trading,
resulting in the higher portfolio turnover rates. A higher rate involves greater
transaction expenses to a Fund and may result in the realization of net capital
gains, which would be taxable to shareholders when distributed. Purchases and
sales are made for a Fund's portfolio whenever necessary, in management's
opinion, to meet the Fund's objectives.

Net Asset Value

      The net asset value of shares of the Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading
(the "Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a


                                       38
<PAGE>

Saturday or Sunday, respectively. Net asset value per share is determined
separately for each class of shares by dividing the value of the total assets of
the Fund attributable to the shares of that class, less all liabilities
attributable to that class, by the total 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 higher expenses borne by the Class B and Class C Shares.

      An exchange-traded equity security is valued at its most recent sale price
on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system will be valued at its most recent sale
price on such system as of the Value Time. Lacking any sales, the security will
be valued at the most recent bid quotation as of the Value Time. The value of an
equity security not quoted on the Nasdaq system, but traded in another
over-the-counter market, is its most recent sale price if there are any sales of
such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation the security is valued at the
most recent bid quotation as of the Value Time.

      Debt securities, other than money market instruments, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Advisor may calculate the price of
that debt security, subject to limitations established by the Board.

      An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

      If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

      If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.

      Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

PURCHASE, REPURCHASE AND REDEMPTION OF SHARES

      Fund Shares are sold at their public offering price, which is the net
asset value per such shares next determined after an order is received in proper
form plus, with respect to Class A Shares, an initial sales charge. The minimum
initial investment for Class A, B or C is $1,000 and the minimum subsequent
investment is $100 but such minimum amounts may be changed at any time. The Fund
may waive the minimum for purchases by trustees, directors, officers or
employees of the Fund or the Advisor and its affiliates. 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.


                                       39
<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. Each
class has distinct advantages and disadvantages for different investors, and
investors may choose the class that best suits their circumstances and
objectives.

                                       Annual 12b-1 Fees
                                      (as a % of average
         Sales Charge                  daily net assets)      Other Information
         ------------                  -----------------      -----------------

Class A  Maximum initial sales               0.25%(1)         Initial sales
         charge of                                            charge waived or
         5.75% of the public                                  reduced for
         offering price                                       certain purchases

Class B  Maximum contingent                  1.00%            Shares convert
         deferred sales charge of                             to Class A
         4% of redemption                                     shares six years
         proceeds; declines to                                after issuance
         zero after six years

Class C  Contingent deferred                 1.00%            No conversion
         sales charge of 1% of                                feature
         redemption proceeds for
         redemptions made during
         first year after purchase

(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 each of Class A, B and C of 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 Direct
Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent investment is $50. These minimum amounts may be changed
at any time in management's discretion.

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

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

<TABLE>
<CAPTION>
                                                                    Sales Charge
                                                                    ------------
                                                                                       Allowed to Dealers
                                            As a Percentage of    As a Percentage of   As a Percentage of
Amount of Purchase                            Offering Price       Net Asset Value*      Offering Price
------------------                            --------------       ----------------      --------------
<S>                                                <C>                   <C>                  <C>
Less than $50,000                                  5.75%                 6.10%                5.20%
$50,000 but less than $100,000                     4.50                  4.71                 4.00
$100,000 but less than $250,000                    3.50                  3.63                 3.00
$250,000 but less than $500,000                    2.60                  2.67                 2.25
$500,000 but less than $1 million                  2.00                  2.04                 1.75
$1 million and over                                 .00**                 .00**                  ***
</TABLE>

*     Rounded to the nearest one-hundredth percent.

**    Redemption of shares may be subject to a contingent deferred sales charge
      as discussed below.

***   Commission is payable by KDI as discussed below.

      The Fund receives the entire net asset value of all its 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 re-allow to


                                       40
<PAGE>

dealers up to the full applicable sales charge, as shown in the above table,
during periods and for transactions specified in such notice and such
re-allowances may be based upon attainment of minimum sales levels. During
periods when 90% or more of the sales charge is re-allowed, 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 by: (a) any
purchaser, provided that the amount invested in such Fund or other Zurich
Scudder Funds listed under "Special Features -- Class A Shares -- Combined
Purchases" totals at least $1,000,000 including purchases of Class A shares
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features described under "Special Features"; or (b) a
participant-directed qualified retirement plan described in Code Section 401(a),
a participant-directed non-qualified deferred compensation plan described in
Code Section 457 or a participant-directed qualified retirement plan described
in Code Section 403(b)(7) which is not sponsored by a K-12 school district,
provided in each case that such plan has not less than 200 eligible employees
(the "Large Order NAV Purchase Privilege"). Redemption within two years of the
purchase 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 at 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
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Zurich Scudder
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 [and including purchases of
Class R shares of certain Scudder Funds. 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.

      Class A shares of the Fund or of any other Zurich Scudder 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-transferable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 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 of a Fund may be purchased at net asset value by persons
who purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.

      Class A shares of the Fund may be purchased at net asset value in any
amount by certain professionals who assist in the promotion of [Scudder Kemper
Mutual Fund]s 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 a Fund may be purchased at net asset value by persons
who purchase shares of the Fund through KDI as part of an automated billing and
wage deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.

      Class A shares may be sold at net asset value in any amount to: (a)
officers, trustees, 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) any trust,
pension, profit-sharing or other benefit plan for only such persons; (d) persons
who


                                       41
<PAGE>

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; and (e) persons who purchase shares of the Fund
through KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to 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 shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase 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 Advisors registered under the 1940 Act and other financial services
firms acting solely as agent for their clients, 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 or
agency commission program under which such clients pay a fee to the investment
Advisor or other firm for portfolio management or agency brokerage 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 Fund. The Fund may
also issue Class A shares at net asset value in connection with the acquisition
of the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income and
capital gain dividends.

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

Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment 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 Fund six years after issuance on the basis of the relative net asset value
per share of the Class B shares. 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
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. In making
this decision, investors should review their particular circumstances carefully
with their financial representative. 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. KDI has established the following procedures
regarding the purchase of Class A, Class B and Class C shares. These


                                       42
<PAGE>

procedures do not reflect in any way the suitability of a particular class of
shares for a particular investor and should not be relied upon as such. That
determination must be made by investors with the assistance of their financial
representative. 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 (not including plans under Code Section 403
(b)(7) sponsored by a K-12 school district) using the subaccount record keeping
system made available through the Shareholder Service Agent ("KemFlex Plans")
will be invested instead in Class A shares at net asset value where the combined
subaccount value in a Fund or other [Scudder Kemper Mutual Fund]s listed under
"Special Features - Class A Shares - Combined Purchases" is in excess of $1
million for Class B shares or $5 million for Class C shares including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features described under "Special Features." KemFlex Plans that on May
1, 2000 have in excess of $1 million invested in Class B shares of Kemper Mutual
Funds, or have in excess of $850,000 invested in Class B shares of Kemper Mutual
Funds and are able to qualify for the purchase of Class A shares at net asset
value (e.g., pursuant to a Letter of Intent), will have future investments made
in Class A shares and will have the option to covert their holdings in Class B
shares to Class A shares free of any contingent deferred sales charge on May 1,
2002. 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 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 under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.

      In addition to the discounts or commissions described above, KDI will,
from time to tome, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, to firms that sell shares of the Fund. 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.

      Orders for the purchase of shares of the Fund will be confirmed at a price
based on the net asset value of the Fund next determined after receipt in good
order 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 in good order 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 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."

      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 for any reason. Also, from
time to time, the Fund may temporarily suspend the offering of any class of its


                                       43
<PAGE>

shares to new investors. During the period of such suspension, persons who are
already shareholders of such class of such Fund normally are permitted to
continue to purchase additional shares of such class and to have dividends
reinvested.

Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period.

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

REDEMPTION OR REPURCHASE OF SHARES

General. Any shareholder may require 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 such shares by sending a written request with
signatures guaranteed to [Scudder Kemper Mutual Fund]s, Attention: Redemption
Department, P.O. Box 219153, Kansas City, Missouri 64141-9153. When certificates
for shares have been issued, they must be mailed to or deposited with the
Shareholder Service Agent, along with a duly endorsed stock power and
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account holder with signatures guaranteed by a
commercial bank, trust company, savings and loan association, federal savings
bank, member firm of a national securities exchange or other eligible financial
institution. The redemption request and stock power must be signed exactly as
the account is registered including any special capacity of the registered
owner. Additional documentation may be requested, and a signature guarantee is
normally required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.

      The redemption price for shares of a class of the Fund will be the net
asset value per share of that class 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 have yet received good payment (i.e., purchases by
check, Quick-Buy or 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 any account with a balance below $800 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: Redemption by
Wire and Quick-Buy and Quick-Sell 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, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.

Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other


                                       44
<PAGE>

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 Quick-Buy
or 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
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.

Redemption by Wire. 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 per Share Fund effective on that day
and normally the proceeds will be sent to the designated account the following
business day. Delivery of the proceeds of a wire redemption of $250,000 or more
may be delayed by the Fund for up to seven days if the Fund or the Shareholder
Service Agent 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 is 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 Quick-Buy or Direct Deposit may not be redeemed by
wire transfer until such shares have been owned for at least 10 days. Account
holders may not use this privilege to redeem shares held in certificated form.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the expedited wire transfer redemption
privilege, although investors can still redeem by mail. 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 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer-sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Automatic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.

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


                                       45
<PAGE>

                  Year of Redemption         Contingent Deferred
                  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 an automatic withdrawal plan (see "Special Features
-- Automatic Withdrawal Plan" below), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions
to satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in 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 an s automatic withdrawal plan (limited to 10% of
the net asset value of the account during the first year, see "Special Features
-- Automatic 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
(g) redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to [Scudder Kemper Mutual Fund]s 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, and (g) redemption of shares purchased through a dealer-sponsored
asset allocation program maintained on an omnibus record-keeping system provided
the dealer of record had waived the advance of the first year administrative
services and distribution fees applicable to such shares and has agreed 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 of share appreciation to a
total of $12,000. If the investor were then to redeem the entire $12,000 in
share value, the contingent deferred sales charge would be payable only with
respect to $10,000 because neither the $1,000 of reinvested dividends nor the
$1,000 of share appreciation is subject to the charge. The charge would be at
the rate of 3% ($300) because it was in the second year after the purchase was
made.

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

Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other [Scudder Kemper Mutual Fund] listed under "Special Features --
Class A Shares -- Combined Purchases" (other than shares of the Kemper


                                       46
<PAGE>

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 [Scudder Kemper Mutual Fund]s. A
shareholder of the Fund or other [Scudder Kemper Mutual Fund]s 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 the same class of shares as the case may be, of the Fund or of
other [Scudder Kemper Mutual Fund]s. 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 schedule. 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 [Scudder Kemper
Mutual Fund]s 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 [Scudder Kemper Mutual Fund]s available for sale in the
shareholder's state of residence as listed under "Special Features -- Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of shares of the Fund, the reinvestment in
shares of 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.

Redemption in Kind. Although it is the Fund's present policy to redeem in cash,
if the Board of Directors determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the SEC, taking such securities at the same value used to
determine net asset value, and selecting the securities in such manner as the
Board of Directors may deem fair and equitable. If such a distribution occurred,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash. The Corporation has elected, however, to be governed by Rule
18f-1 under the 1940 Act, as a result of which the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of a Share at the
beginning of the period.

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 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 Strategic Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, 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 (available only upon exchange or conversion from Class A shares of
another [Scudder Kemper Mutual Fund]), Kemper U.S. Mortgage Fund, Kemper
Short-Intermediate Government Fund, Kemper Value Plus Growth Fund, Kemper
Horizon Fund, Kemper New Europe Fund, Inc., Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper Equity
Trust and Kemper Securities Trust, Scudder 21st Century Growth Fund, The Japan
Fund, Inc., Scudder High Yield Tax Free Fund, Scudder Pathway Series - Moderate
Portfolio, Scudder Pathway Series - Conservative Portfolio, Scudder Pathway
Series - Growth Portfolio, Scudder International Fund, Scudder Growth and Income
Fund, Scudder Large Company Growth Fund, Scudder Health Care Fund, Scudder
Technology Fund, Global Discovery Fund, Value Fund, and Classic Growth Fund
("[Scudder Kemper Mutual Fund]s"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"),
which are not considered a "[Scudder Kemper Mutual Fund]" 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 [Scudder 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 [Scudder Kemper Mutual Fund]s 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


                                       47
<PAGE>

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 [Scudder Kemper Mutual Fund]s held
of record as of the initial purchase date under the Letter as an "accumulation
credit" toward the completion of the Letter, but no price adjustment will be
made on such shares. Only investments in Class A shares are included 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 [Scudder Kemper Mutual Fund]s (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 [Scudder
Kemper Mutual Fund]s in accordance with the provisions below.

Class A Shares. Class A shares of the [Scudder Kemper Mutual Fund]s 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.

      Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another [Scudder 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 calculating the contingent deferred sales
charge.

Class B Shares. Class B shares of the Fund and Class B shares of any other
[Scudder Kemper Mutual Fund] listed under "Special Features -- Class A Shares --
Combined Purchases" may be exchanged for each other at their relative net asset
values. Class B shares may be exchanged without a contingent deferred sales
charge being imposed at the time of exchange. For purposes of calculating 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
[Scudder 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 purposes of 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 [Scudder Kemper Mutual Fund] with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange through
another [Scudder 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"). In addition, shares of a [Scudder Kemper Mutual Fund] with a value of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
another [Scudder Kemper Mutual Fund], or from a money market fund, may not be
exchanged thereafter until they have been owned for 15 days, if, in the
Advisor's judgment, the exchange activity may have an adverse effect on the
fund. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to the [Scudder Kemper Mutual Fund] and
therefore may be subject to the 15-Day Hold Policy.

      For purposes of determining whether the 15-Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, discretion or advice, including, without limitation, accounts
administered by a financial services firm


                                       48
<PAGE>

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 [Scudder Kemper Mutual Fund] into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis of such shares. Shareholders interested in exercising the exchange
privilege may obtain prospectuses of the other Funds from dealers, other firms
or KDI. Exchanges may be accomplished by a written request to Kemper Service
Company, Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Redemption or Repurchase of Shares -- General." Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Exchanges may
only be made for Funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Investors Municipal Cash Fund is available for sale
only in certain states. Except as otherwise permitted by applicable regulations,
60 days' prior written notice of any termination or material change will be
provided.

Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a [Scudder 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 [Scudder Kemper Mutual Fund]. If
selected, exchanges will be made automatically until the shareholder or the
[Scudder Kemper Mutual Fund] terminates the privilege. Exchanges are subject to
the terms and conditions described above under "Exchange Privilege," except that
the $1,000 minimum investment requirement for the [Scudder Kemper Mutual Fund]
acquired on exchange is not applicable. This privilege may not be used for the
exchange of shares held in certificated form.

Quick-Buy and Quick-Sell. Quick-Buy and Quick-Sell permits the transfer of money
via the Automated ClearingHouse 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 Quick-Buy or Direct Deposit may not be redeemed under this privilege
until such Shares have been owned for at least 10 days. By enrolling in
Quick-Buy and Quick-Sell, 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 Quick-Buy and Quick-Sell, a shareholder can initiate a transaction by calling
Kemper Shareholder Services toll free at 1-800-621-1048, Monday through Friday,
8:00 a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. Quick-Buy and Quick-Sell cannot be used with passbook savings accounts
or for tax-deferred plans such as Individual Retirement Accounts ("IRAs").

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

Automatic 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 to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The


                                       49
<PAGE>

$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 an automatic withdrawal plan is 10% of the net asset value of
the account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.

      The purchase of Class A shares while participating in an automatic
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 an automatic
withdrawal plan. The right is reserved to amend the automatic withdrawal plan on
30 days' notice. The plan may be terminated at any time by the investor or the
Fund.

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:

o     Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
      This includes Savings Incentive Match Plan for Employees of Small
      Employers ("SIMPLE"), Simplified Employee Pension Plan ("SEP") IRA
      accounts and prototype documents.

o     403(b)(7) Custodial Accounts. This type of plan is available to employees
      of most non-profit organizations.

o     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. Investors should consult with their own tax advisors before
establishing a retirement plan.

      The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the Exchange is closed other than
customary weekend and holiday closings or during any period in which trading on
the Exchange is restricted, (b) during any period when an emergency exists as a
result of which (i) disposal of the Fund's investments is not reasonably
practicable, or (ii) it is not reasonably practicable for the Fund to determine
the value of its net assets, or (c) for such other periods as the SEC may by
order permit for the protection of the Fund's shareholders.

      The net asset value per Share of the Fund is determined separately for
each class by dividing the value of the Fund's net assets attributable to that
class by the number of Shares of that class outstanding. The per share net asset
value of the Class B and Class C Shares of 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. The net asset value of Shares of the Fund is
computed as of the close of regular trading on the Exchange on each day the
Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.

      Although it is the Fund's present policy to redeem in cash, if the Board
of Directors determines that a material adverse effect would be experienced by
the remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Directors may
deem fair and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be so liquid as a redemption entirely in cash.

      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.


                                       50
<PAGE>

OFFICERS AND DIRECTORS

      The officers and Directors of the Corporation, their ages, their principal
occupations and their affiliations, if any, with the Advisor, and Kemper
Distributors, Inc., are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Kemper Distributors,
Name, Age, and Address             Position with Fund      Principal Occupation**                  Inc.
----------------------             ------------------      ----------------------                  ----
<S>                                <C>                     <C>                                     <C>
Henry P. Becton, Jr. (57)          Director                President, WGBH Educational Foundation            --
WGBH
125 Western Avenue
Allston, MA 02134
----------------------------------------------------------------------------------------------------------------------------
Linda C. Coughlin (49)+*           Director and President  Managing Director of Zurich Scudder     Director and Senior
                                                           Investments, Inc.                       Vice President
----------------------------------------------------------------------------------------------------------------------------
Dawn-Marie Driscoll (54)           Director                Executive Fellow, Center for Business             --
4909 SW 9th Place                                          Ethics, Bentley College; President,
Cape Coral, FL  33914                                      Driscoll Associates (consulting firm)
----------------------------------------------------------------------------------------------------------------------------
Edgar R. Fiedler (71)              Director                Senior Fellow and Economic Counselor,             --
50023 Brogden                                              The Conference Board,
Chapel Hill, NC                                            Inc.(not-for-profit business research
                                                           organization)
----------------------------------------------------------------------------------------------------------------------------
Keith R. Fox (46)                  Director                Private Equity Investor, General                  --
10 East 53rd Street                                        Partner, Exeter Group of Funds
New York, NY  10022
----------------------------------------------------------------------------------------------------------------------------
Joan E. Spero (56)                 Director                President, Doris Duke Charitable                  --
Doris Duke Charitable Foundation                           Foundation; Department of State -
650 Fifth Avenue                                           Undersecretary of State for Economic,
New York, NY  10128                                        Business and Agricultural Affairs
                                                           (March 1993 to January 1997)
----------------------------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg (57)        Director                Consultant; Director, Financial                   --
3816 Military Road, NW                                     Institutions Issues, U.S. General
Washington, D.C.                                           Accounting Office (1996-1997);
                                                           Partner, Fulbright & Jaworski Law
                                                           Firm (1978-1996)
----------------------------------------------------------------------------------------------------------------------------
Jean C. Tempel (57)                Director                Managing  Director, First Light                   --
One Boston Place                                           Capital, LLC (venture capital firm)
23rd Floor
Boston, MA 02108
----------------------------------------------------------------------------------------------------------------------------
Steven Zaleznick (46)*             Director                President and CEO, AARP Services, Inc.            --
601 E Street
Washington, D.C. 20004
----------------------------------------------------------------------------------------------------------------------------
Thomas V. Bruns (43)#              Vice President          Managing Director of Zurich Scudder               --
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
James M. Eysenbach (38)@           Vice President          Managing Director of Zurich Scudder               --
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       51
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Kemper Distributors,
Name, Age, and Address             Position with Fund      Principal Occupation**                  Inc.
----------------------             ------------------      ----------------------                  ----
<S>                                <C>                     <C>                                     <C>
William F. Glavin (42)#            Vice President          Managing Director of Zurich Scudder     Vice President
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
James E. Masur (40)+               Vice President          Senior Vice President of Zurich                   --
                                                           Scudder Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Ann M. McCreary (44) ++            Vice President          Managing Director of Zurich Scudder               --
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (48)+             Vice President and      Managing Director of Zurich Scudder     Director, Senior Vice
                                   Assistant Secretary     Investments, Inc.                       President, Chief Legal
                                                                                                   Officer and Assistant
                                                                                                   Clerk
----------------------------------------------------------------------------------------------------------------------------
Howard S. Schneider (43)#          Vice President          Managing Director of Zurich Scudder               --
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Susan Dahl(35)                     Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
William E. Holzer(51)              Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Gerald J. Moran(61)                Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
M. Isabel Saltzman(46)             Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
John R. Hebble (42)+               Treasurer               Senior Vice President of Zurich         Assistant Treasurer
                                                           Scudder Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Brenda Lyons (37)+                 Assistant Treasurer     Senior Vice President of Zurich
                                                           Scudder Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Caroline Pearson (38)+             Assistant Secretary     Senior Vice President of Zurich         Clerk
                                                           Scudder Investments, Inc.; Associate,
                                                           Dechert Price & Rhoads (law firm)
                                   1989 - 1997
----------------------------------------------------------------------------------------------------------------------------
John Millette (38)+                Vice President and      Vice President of Zurich Scudder                  --
                                   Secretary               Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      *     Ms. Coughlin and Mr. Zaleznick are considered by the Fund and its
            counsel to be persons who are "interested persons" of the Advisor or
            of the Corporation, within the meaning of the Investment Company Act
            of 1940, as amended.

      **    Unless otherwise stated, all of the Directors and officers have been
            associated with their respective companies for more than five years,
            but not necessarily in the same capacity.

      +     Address: Two International Place, Boston, Massachusetts

      ++    Address: 345 Park Avenue, New York, New York

      #     222 South Riverside Plaza, Chicago, Illinois

      @     101 California Street, San Francisco, California


                                       52
<PAGE>

      The Directors and Officers of the Corporations also serve in similar
capacities with other Scudder Funds.

      [TO BE UPDATED: INSERTION OF SHAREHOLDING INFORMATION as of January 31,
2001 for Class AARP & Class S]

Remuneration

Responsibilities of the Board--Board and Committee Meetings

      The Board of Directors of the Corporation is responsible for the general
oversight of the Fund's business. A majority of the Board's members are not
affiliated with Zurich Scudder Investments, Inc. These "Independent Directors"
have primary responsibility for assuring that the Fund is managed in the best
interests of its shareholders.

      The Board of Directors meets at least quarterly to review the investment
performance of the Fund of the Corporation and other operational matters,
including policies and procedures designated to assure compliance with various
regulatory requirements. At least annually, the Independent Directors review the
fees paid to Scudder and its affiliates for investment advisory services and
other administrative and shareholder services. In this regard, they evaluate,
among other things, the quality and efficiency of the various other services
provided, costs incurred by Scudder and its affiliates, and comparative
information regarding fees and expenses of competitive funds. They are assisted
in this process by the Fund's independent public accountants and by independent
legal counsel selected by the Independent Directors.

      All of the Independent Directors serve on the Committee of Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.

Compensation of Officers and Directors of the Fund

      Each Independent Director receives compensation for his or her services,
which includes an annual retainer and an attendance fee for each meeting
attended. The Independent Director who serves as lead Director receives
additional compensation for his or her service. No additional compensation is
paid to any Independent Director for travel time to meetings, attendance at
directors' educational seminars or conferences, service on industry or
association committees, participation as speakers at directors' conferences or
service on special trustee task forces or subcommittees. Independent Directors
do not receive any employee benefits such as pension or retirement benefits or
health insurance. Notwithstanding the schedule of fees, the Independent
Directors have in the past and may in the future waive a portion of their
compensation.

      The Independent Directors also serve in the same capacity for other funds
managed by the Advisor. These funds differ broadly in type and complexity and in
some cases have substantially different Director fee schedules. The following
table shows the aggregate compensation received by each Independent Director
during 2000 from each Corporation and from all of the Scudder funds as a group.

--------------------------------------------------------------------------------
                            GLOBAL/ INTERNATIONAL       ALL SCUDDER
         NAME                     FUND, INC.*              FUNDS
--------------------------------------------------------------------------------
Henry P. Becton, Jr.**                    $            $(30 funds)
--------------------------------------------------------------------------------
Dawn-Marie Driscoll**                                   (30 funds)
--------------------------------------------------------------------------------
Edgar R. Fiedler+                                       (29 funds)
--------------------------------------------------------------------------------
Keith R. Fox**                                          (23 funds)
--------------------------------------------------------------------------------
Joan E. Spero**                                         (23 funds)
--------------------------------------------------------------------------------
Jean Gleason Stromberg                                  (16 funds)
--------------------------------------------------------------------------------
Jean C. Tempel**                                        (30 funds)
--------------------------------------------------------------------------------

*     Global/International Fund, Inc. consists of four funds: Global Discovery
      Fund, Scudder Emerging Markets Income Fund, Scudder Global Fund and
      Scudder Global Bond Fund.

**    Newly elected Director. On July 13, 2000, shareholders of the Fund elected
      a new Board of Directors. See the "Directors and Officers" section for the
      newly-constituted Board of Directors.

+     Mr. Fiedler's total compensation includes the $9,900 accrued, but not
      received, through the deferred compensation program.


                                       53
<PAGE>

      Members of the Board of Directors who are employees of the Advisor or its
affiliates receive no direct compensation from the Corporation, although they
are compensated as employees of the Advisor, or its affiliates, as a result of
which they may be deemed to participate in fees paid by the Fund.

SHAREHOLDER RIGHTS

The Fund is a series of Global/International Fund, Inc., a Maryland corporation
organized on May 15, 1986. The name of this Corporation was changed, effective
May 29, 1998, from Scudder Global Fund, Inc. This Corporation currently consists
of four series: Scudder Global Fund, Scudder Global Bond Fund, Global Discovery
Fund and Scudder Emerging Markets Income Fund. Each Fund is further divided into
two classes of shares, Class AARP and Class S shares, except the Fund and Global
Discovery Fund whose shares are divided into five classes of shares, Class AARP,
Class S Class A, Class B and Class C shares.

The authorized capital stock of Global/International Fund, Inc. consists of
1,559,993,796 billion shares with $0.01 par value, 200 million shares of which
are allocated to Global Discovery Fund, 529,154,575 million shares of which are
allocated to Scudder Global Bond Fund, 320 million shares of which are allocated
to each of, Scudder Emerging Markets Income Fund and Scudder Global Fund. Each
share of each series of the Corporation (or class thereof) has equal rights as
to each other share of that series (or class) as to voting for Directors,
redemption, dividends and liquidation. The Directors have the authority to issue
additional series of shares and to designate the relative rights and preferences
as between the different series. All shares issued and outstanding are fully
paid and non-assessable, transferable and redeemable at net asset value at the
option of the shareholder. Shares have no pre-emptive or conversion rights.

Shares of the Corporation have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of Directors
can elect 100% of the Directors if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors. The assets of the Corporation 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 charged
with the liabilities in respect to such series and with a share of the general
liabilities of the Corporation. 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
Corporation, subject to the general supervision of the Directors, 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 Corporation 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.

The assets of the Corporation 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 such a share of the general
liabilities of the Corporation. 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
Corporation, subject to the general supervision of the Directors, 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 Corporation 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.

Shares of the Corporation entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and by class on matters affecting an individual class. For example, a
change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.


                                       54
<PAGE>

The Directors of the Corporation, in their discretion, may authorize the
additional division of shares of a series into different classes permitting
shares of different classes to be distributed by different methods. Although
shareholders of different classes of a series would have an interest in the same
portfolio of assets, shareholders of different classes may bear different
expenses in connection with different methods of distribution.

The Corporation adopted a plan on March 14, 2000 pursuant to Rule 18f-3 under
the 1940 Act (the "Plan") to permit the Corporation to establish a multiple
class distribution system for the Funds.

Under the Plan, shares of each class represent an equal pro rata interest in the
Fund and, generally, shall have identical voting, dividend, liquidation, and
other rights, preferences, powers, restrictions, limitations, qualifications and
terms and conditions, except that: (1) each class shall have a different
designation; (2) each class of shares shall bear its own "class expenses;" (3)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relates to its administrative services, shareholder services
or distribution arrangements; (4) each class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class; (5) each class may have separate
and distinct exchange privileges; (6) each class may have different conversion
features; and (7) each class may have separate account size requirements.
Expenses currently designated as "Class Expenses" by the Corporation's Board of
Directors under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.

Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.

      The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall not be liable for actions taken by them
in good faith, in a manner reasonably believed to be in the best interests of
the Corporation and with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In so acting, a Director shall
be fully protected in relying in good faith upon the records of the Corporation
and upon reports made to the Corporation by persons selected in good faith by
the Directors as qualified to make such reports. The Articles and the By-Laws of
the Corporation provide that the Corporation will indemnify its Directors,
officers, employees or agents against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Corporation consistent with applicable law.

Additional Information

Other Information

The CUSIP numbers of the classes are:

      Class A: [INSERT CUSIP NUMBER]

      Class B: [INSERT CUSIP NUMBER]

      Class C: [INSERT CUSIP NUMBER]

      The Fund has a fiscal year ending October 31.

      Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Advisor in light of the Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.

      The Corporation employs Brown Brothers Harriman & Company, 40 Water
Street, Boston, Massachusetts 02109 as custodian for the Fund. Brown Brothers
Harriman & Company has entered into agreements with foreign subcustodians
approved by the Directors of the Corporation pursuant to Rule 17f-5 of the 1940
Act.

      The law firm of Dechert is counsel to the Fund.

      The Fund's Shares prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Fund has filed with the SEC under the Securities Act of
1933 and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. The
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.


                                       55
<PAGE>

Financial Statements

      The financial statements, including the investment portfolio of the Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Fund dated October 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.

                                    APPENDIX

      The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds.

Ratings of Municipal and Corporate Bonds

      S&P:

      Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. 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. 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.

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

      Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.

      Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

      Moody's:

      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. 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. Bonds which are rated A possess many
favorable investment attributes and


                                       56
<PAGE>

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.

      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. 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 other good and bad times over
the future. Uncertainty of position characterizes bonds in this class. 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.

      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. Bonds, which are rated Ca, represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. 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.


                                       57

<PAGE>

                       STATEMENT OF ADDITIONAL INFORMATION
                                  March 1, 2001

         Scudder Emerging Markets Income Fund (Class A, B and C Shares)
               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 Class A, Class B and Class C Shares (the
"Shares") of Scudder Emerging Markets Income Fund (the "Fund"), a diversified
series of Global/International Fund, Inc. (the "Corporation"), an open-end
management investment company. It should be read in conjunction with the
prospectus of the Shares dated March 1, 2001. The prospectus may be obtained
without charge from the Fund at the address or telephone number on this cover or
the firm from which this Statement of Additional Information was received.

      Scudder Emerging Markets Income Fund offers the following classes of
shares: Class AARP, Class S, Class A, Class B and Class C shares (the "Shares").
Only Class A, Class B and Class C shares of Scudder Emerging Markets Income Fund
are offered herein.

                                TABLE OF CONTENTS

Investment Restrictions........................................................2

Investment Policies and Techniques.............................................3

Dividends, Distributions and Taxes............................................24

Performance...................................................................29

Investment Manager and Underwriter............................................32

Portfolio Transactions........................................................36

Purchase, Repurchase and Redemption of Shares.................................38

Purchase of Shares............................................................39

Redemption or Repurchase of Shares............................................43

Special Features..............................................................46

Officers and Directors........................................................50

Shareholder Rights............................................................53

Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's investment
manager.

The financial statements appearing in the Fund's October 31, 2000 Annual Report
to Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.
<PAGE>

INVESTMENT RESTRICTIONS

      Unless specified to the contrary, the following fundamental policies may
not be changed without the approval of a majority of the outstanding voting
securities of the Fund which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the voting securities present at such meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of the Fund. The Fund is under no restriction as to the amount of portfolio
securities which may be bought or sold.

      If a percentage restriction on investment or utilization of assets as set
forth under "Investment Restrictions" and "Other Investment Policies" above is
adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of a Fund's assets will
not be considered a violation of the restriction.

      The Fund has elected to be classified as a non-diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund may not:

      (1)   borrow money, except as permitted under the Investment Company Act
            of 1940, as amended, and as interpreted or modified by regulatory
            authority having jurisdiction, from time to time;

      (2)   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;

      (3)   purchase physical commodities or contracts relating to physical
            commodities;

      (4)   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;

      (5)   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;

      (6)   purchase or sell real estate, which term does not include securities
            or companies which deal in 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;
            or

      (7)   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.

      The Directors of the Corporation have voluntarily adopted certain policies
and restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Directors based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice to or approval
of shareholders.

      As a matter of non-fundamental policy the Fund does not currently intend
to:

      (1)   borrow money in an amount greater than 5% of its total assets,
            except (i) for temporary or emergency purposes and (ii) by engaging
            in reverse repurchase agreements, dollar rolls, or other investments
            or transactions described in the Fund's registration statement which
            may be deemed to be borrowings;

      (2)   purchase securities on margin or make short sales, except (i) short
            sales against the box, (ii) in connection with arbitrage
            transactions, (iii) for margin deposits in connection with futures
            contracts, options or other permitted investments, (iv) that
            transactions in futures contracts and options shall not be deemed to
            constitute selling securities short, and (v) that the Fund may
            obtain such short-term credits as may be necessary for the clearance
            of securities transactions;

      (3)   purchase options, unless the aggregate premiums paid on all such
            options held by the Fund at any time do not exceed 20% of its total
            assets; or sell put options, if as a result, the aggregate value of
            the obligations underlying such put options would exceed 50% of its
            total assets;


                                       2
<PAGE>

      (4)   enter into futures contracts or purchase options thereon unless
            immediately after the purchase, the value of the aggregate initial
            margin with respect to such futures contracts entered into on behalf
            of the Fund and the premiums paid for such options on futures
            contracts do not exceed 5% of the fair market value of the Fund's
            total assets; provided that in the case of an option that is
            in-the-money at the time of purchase, the in-the-money amount may be
            excluded in computing the 5% limit;

      (5)   purchase warrants if as a result, such securities, taken at the
            lower of cost or market value, would represent more than 5% of the
            value of the Fund's total assets (for this purpose, warrants
            acquired in units or attached to securities will be deemed to have
            no value); and

      (6)   lend portfolio securities in an amount greater than 5% of its total
            assets.

Master/feeder Fund Structure. The Board of Directors has the discretion to
retain the current distribution arrangement for the Fund while investing in a
master fund in a master/feeder fund structure as described below.

      A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.

Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC that permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Advisor. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.

INVESTMENT POLICIES AND TECHNIQUES

      The Fund's primary investment objective is to provide investors with high
current income. As a secondary objective, the Fund seeks long-term capital
appreciation. In pursuing these goals, the Fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets. Many nations in developing regions of the world have undertaken
sweeping political and economic changes that favor increased business activity
and demand for capital. In the opinion of the Advisor, these changes present
attractive investment opportunities, both in terms of income and appreciation
potential, for long-term investors.

      The Fund involves above-average bond fund risk and can invest entirely in
high yield/high risk bonds. It is designed as a long-term investment and not for
short-term trading purposes, and should not be considered a complete investment
program. While designed to provide a high level of current income, the Fund may
not be appropriate for all income investors. The Fund should not be viewed as a
substitute for a money market or short-term bond fund. The Fund invests in lower
quality securities of emerging market issuers, some of which have in the past
defaulted on certain of their financial obligations. Investments in emerging
markets can be volatile. The Fund's share price and yield can fluctuate daily in
response to political events, changes in the perceived creditworthiness of
emerging nations, fluctuations in interest rates


                                       3
<PAGE>

and, to a certain extent, movements in foreign currencies. The securities in
which the Fund may invest are further described below.

      In seeking high current income and, secondarily, long-term capital
appreciation, the Fund invests, under normal market conditions, at least 65% of
its total assets in debt securities issued by governments, government-related
entities and corporations in emerging markets, or the return on which is derived
primarily from emerging markets. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the following: the International Bank for Reconstruction and Development
(i.e., the World Bank), the International Finance Corporation or the United
Nations or its authorities.

      While the Fund takes a global approach to portfolio management, the
Advisor currently weights its investments toward countries in Latin America,
specifically Argentina, Brazil, Mexico and Venezuela. Latin America, and these
four countries in particular, offers the largest and most liquid debt markets of
the emerging nations around the globe in the past few years. In addition to
Latin America, the Advisor may pursue investment opportunities in Asia, Africa,
the Middle East and the developing countries of Europe, primarily in Eastern
Europe. The Fund deems an issuer to be located in an emerging market if (i) the
issuer is organized under the laws of an emerging market country; (ii) the
issuer's principal securities trading market is in an emerging market; or (iii)
at least 50% of the issuer's non-current assets, capitalization, gross revenue
or profit in any one of the two most recent fiscal years is derived from
(directly or indirectly from subsidiaries) assets or activities located in
emerging markets.

      Although the Fund may invest in a wide variety of high-yielding debt
obligations, under normal conditions it must invest at least 50% of its assets
in sovereign debt securities issued or guaranteed by governments,
government-related entities and central banks based in emerging markets
(including participations in and assignments of portions of loans between
governments and financial institutions); government owned, controlled or
sponsored entities located in emerging markets; entities organized and operated
for the purpose of restructuring investment characteristics of instruments
issued by government or government-related entities in emerging markets; and
debt obligations issued by supranational organizations such as the Asian
Development Bank and the Inter-American Development Bank, among others.

      The Fund may also consider for purchase any debt securities issued by
commercial banks and companies in emerging markets. The Fund may invest in both
fixed- and floating-rate issues. Debt instruments held by the Fund take the form
of bonds, notes, bills, debentures, convertible securities, warrants, bank
obligations, short-term paper, loan participations, loan assignments and trust
interests. The Fund may invest regularly in "Brady Bonds," which are debt
securities issued under the framework of the Brady Plan as a mechanism for
debtor countries to restructure their outstanding bank loans. Most "Brady Bonds"
have their principal collateralized by zero coupon U.S. Treasury bonds.

      To reduce currency risk, the Fund invests at least 65% of its assets in
U.S. dollar-denominated debt securities. Therefore, no more than 35% of the
Fund's total assets may be invested in debt securities denominated in foreign
currencies.

      The Fund is not restricted by limits on weighted average portfolio
maturity or the maturity of an individual issue. The weighted average maturity
of the Fund's portfolio is actively managed and may vary from period to period
based upon the Advisor's assessment of economic and market conditions, taking
into account the Fund's investment objectives.

      In addition to maturity, the Fund's investments are actively managed in
terms of geographic, industry and currency allocation. In managing the Fund's
portfolio, the Advisor takes into account such factors as the credit quality of
issuers, changes in and levels of interest rates, projected economic growth
rates, capital flows, debt levels, trends in inflation, anticipated movements in
foreign currencies, and government initiatives.

      While the Fund is not "diversified" for purposes of the Investment Company
Act of 1940 (the "1940 Act"), it intends to invest in a minimum of three
countries at any one time and will not commit more than 40% of its total assets
to issuers in a single country.

      By focusing on fixed-income instruments issued in emerging markets, the
Fund invests predominantly in debt securities that are rated below
investment-grade, or unrated but equivalent to those rated below
investment-grade by internationally recognized rating agencies such as S&P or
Moody's. Debt securities rated below BBB by S&P or below Baa by Moody's are
considered to be below investment-grade. These types of high yield/high risk
debt obligations (commonly referred to as "junk bonds") are predominantly
speculative with respect to the capacity to pay interest and repay principal in
accordance with their terms and generally involve a greater risk of default and
more volatility in price than securities in higher rating categories, such as
investment-grade U.S. bonds. On occasion, the Fund may invest up to 5% of its
net assets in non-performing securities whose quality is comparable to
securities rated as low as D by S&P or C by Moody's. A large portion of the
Fund's bond holdings may trade at substantial discounts from face value.


                                       4
<PAGE>

The Fund may invest up to 35% of its total assets in securities other than debt
obligations issued in emerging markets. These holdings include debt securities
and money market instruments issued by corporations and governments based in
developed markets including up to 20% of total assets in U.S. fixed-income
instruments. However, for temporary, defensive or emergency purposes, the Fund
may invest without limit in U.S. debt securities, including short-term money
market securities. It is impossible to predict for how long such alternative
strategies will be utilized. In addition, the Fund may engage in strategic
transactions for hedging purposes and to enhance potential gain. The Fund may
also acquire shares of closed-end investment companies that invest primarily in
emerging market debt securities. To the extent the Fund invests in such
closed-end investment companies, shareholders will incur certain duplicative
fees and expenses, including investment advisory fees.

Special Investment Considerations

      The Fund is intended to provide individual and institutional investors
with an opportunity to invest a portion of their assets in globally and/or
internationally oriented portfolios, according to the Fund's respective
objectives and policies, and are designed for long-term investors who can accept
international investment risk. Management of the Fund believes that allocation
of assets on a global or international basis decreases the degree to which
events in any one country, including the U.S., will affect an investor's entire
investment holdings. In the period since World War II, many leading foreign
economies have grown more rapidly than the U.S. economy, thus providing
investment opportunities; although there can be no assurance that this will be
true in the future. As with any long-term investment, the value of the Fund's
shares when sold may be higher or lower than when purchased.

      Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Fund's performances. As foreign companies are not
generally subject to uniform standards, practices and requirements, with respect
to accounting, auditing and financial reporting, as are domestic companies,
there may be less publicly available information about a foreign company than
about a domestic company. Many foreign securities markets, while growing in
volume of trading activity, have substantially less volume than the U.S. market,
and securities of some foreign issuers are less liquid and more volatile than
securities of domestic issuers. Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times, volatility of price can be
greater than in the U.S. Further, foreign markets have different clearance and
settlement procedures and 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. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a 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. Fixed commissions on some foreign securities
exchanges and bid to asked spreads in foreign bond markets are generally higher
than negotiated commissions on U.S. exchanges and bid to asked spreads in the
U.S. bond market, although the Fund will endeavor to achieve the most favorable
net results on their portfolio transactions. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less governmental supervision and regulation
of business and industry practices, securities exchanges, brokers and listed
companies than in the U.S. It may be more difficult for the Fund's agents to
keep currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments, which could affect U.S. investments in those countries.
Investments in foreign securities may also entail certain risks, such as
possible currency blockages or transfer restrictions, and the difficulty of
enforcing rights in other countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of the Fund
seeks to mitigate the risks associated with the foregoing considerations through
continuous professional management.

      These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.

      Investments in foreign securities usually will involve currencies of
foreign countries. Because of the considerations discussed above, the value of
the assets of the Fund as measured in U.S. dollars may be affected favorably or
unfavorably by


                                       5
<PAGE>

changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs in connection with conversions between various
currencies. Although the Fund values their assets daily in terms of U.S.
dollars, they do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. The Fund will do so from time to time, and
investors should be aware of the costs of currency conversion. 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. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer. The Fund will
conduct their 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 entering into strategic transactions involving currencies (see
"Strategic Transactions and Derivatives").

      Because the Fund may be invested in both U.S. and foreign securities
markets, changes in the Fund's share price may have a low correlation with
movements in the U.S. markets. The Fund's share price will reflect the movements
of both the different stock and bond markets in which it is invested and of the
currencies in which the investments are denominated; the strength or weakness of
the U.S. dollar against foreign currencies may account for part of the Fund's
investment performance. Foreign securities such as those purchased by the Fund
may be subject to foreign governmental taxes which could reduce the yield on
such securities, although a shareholder of the Fund may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her proportionate share of such foreign taxes paid by
the Fund (see "TAXES"). U.S. and foreign securities markets do not always move
in step with each other, and the total returns from different markets may vary
significantly. The Fund invests in many securities markets around the world in
an attempt to take advantage of opportunities wherever they may arise.

      Because of the Fund's investment considerations discussed above and the
investment policies, investment in shares of the Fund is not intended to provide
a complete investment program for an investor.

      Neither Fund can guarantee a gain or eliminate the risk of loss. The net
asset value of the Fund's shares will increase or decrease with changes in the
market price of the Fund's investments, and there is no assurance that the
Fund's objectives will be achieved.

Special Investment Considerations

Brady Bonds. The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Bulgaria, Brazil,
Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Morocco, Nigeria, the
Philippines, Poland, and Uruguay.

      Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.

      Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
bonds or floating-rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on many Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Brady Bonds are often viewed as having three or four
valuation components: the collateralized repayment of principal at final
maturity; the collateralized interest payments; the uncollateralized interest
payments; and any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and the history of defaults of countries issuing
Brady Bonds, with respect to commercial bank loans by public and private
entities, investments in Brady Bonds may be viewed as speculative.

Sovereign Debt. The Fund may invest in sovereign debt which can involve a high
degree of risk. The governmental entity that controls the repayment of sovereign
debt may not be able or willing to repay the principal and/or interest when due
in accordance with the terms of such debt. A governmental entity's willingness
or ability to repay principal and interest due in a timely manner may be
affected by, among other factors, its cash flow situation, the extent of its
foreign reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as a
whole, the governmental entity's policy towards the International Monetary Fund,
and the political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on


                                       6
<PAGE>

a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.

Loan Participations and Assignments. The Fund may invest in fixed- and
floating-rate loans ("Loans") arranged through private negotiations between an
issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Advisor
to be creditworthy.

      When the Fund purchases Assignments from Lenders, it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.

      The Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for these obligations typically exists, the Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on the Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for the Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.

Investments and Investment Techniques

Foreign Securities. The Fund is designed for investors who can accept currency
and other forms of international investment risk. The Advisor believes that
allocation of the Fund's assets on a global basis decreases the degree to which
events in any one country, including the U.S., will affect an investor's entire
investment holdings. In the period since World War II, many leading foreign
economies have grown more rapidly than the U.S. economy and from time to time
have had interest rate levels that had a higher real return than the U.S. bond
market. Consequently, the securities of foreign issuers have provided attractive
returns relative to the returns provided by the securities of U.S. issuers,
although there can be no assurance that this will be true in the future.

      Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may affect the
Fund's performance favorably or unfavorably. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than that of the
New York Stock Exchange, Inc. (the "Exchange"), and securities of some foreign
issuers are less liquid and more volatile than securities of domestic issuers.
Similarly, volume and liquidity in most foreign bond markets is less than that
in the U.S. market and at times, volatility of price can be greater than in the
U.S. Further, foreign markets have different clearance and settlement procedures
and 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. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems either
could result in losses to the Fund due to subsequent declines in value


                                       7
<PAGE>

of the portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Fixed commissions
on some foreign securities exchanges are generally higher than negotiated
commissions on U.S. exchanges, although the Advisor will endeavor to achieve the
most favorable net results on the Fund's portfolio transactions. Further, the
Fund may encounter difficulties or be unable to pursue legal remedies and obtain
judgment in foreign courts. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers and
listed companies than in the U.S. It may be more difficult for the Fund's agents
to keep currently informed about corporate actions such as stock dividends or
other matters that may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of confiscatory or withholding taxation,
political, social or economic instability, or diplomatic developments that could
affect U.S. investments in those countries. Investments in foreign securities
may also entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The Advisor seeks to mitigate the risks to each Fund
associated with the foregoing considerations through investment variation and
continuous professional management.

Eastern Europe. Investments in companies domiciled in Eastern European countries
may be subject to potentially greater risks than those of other foreign issuers.
These risks include (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries, or in
the countries of the former Soviet Union.

      Investments in such countries involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of East European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there may be no assurance
that such expropriation will not occur in the future. In the event of such
expropriation, a Fund could lose a substantial portion of any investments it has
made in the affected countries. Further, no accounting standards exist in East
European countries. Finally, even though certain East European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to the Fund's shareholders.

Foreign Currencies. Investments in foreign securities usually will involve
currencies of foreign countries. Moreover, the Fund may temporarily hold funds
in bank deposits in foreign currencies during the completion of investment
programs and may purchase forward foreign currency contracts, foreign currency
futures contracts and options on such contracts. Because of these factors, the
value of the assets of a Fund as 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. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, none of the Funds intends to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, and investors should be aware of the
costs of currency conversion. 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. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. 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 entering into
forward or futures contracts to purchase or sell foreign currencies.

      Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in the U.S. markets. The Fund's share price will reflect the
movements of both the different stock and bond markets in which it is invested
and of the currencies in which the investments are denominated; the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
the Fund's investment performance. U.S. and foreign securities markets do not
always move in step with each other, and the total returns from different
markets may vary significantly. The Fund invests in many securities markets
around the world in an attempt to take advantage of opportunities wherever they
may arise.

Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less government supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid


                                       8
<PAGE>

and more volatile than securities of comparable domestic issuers. In addition,
there is less regulation of securities exchanges, securities dealers, and listed
and unlisted companies in emerging markets than in the U.S.

      Emerging markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of the Fund is
uninvested and no cash is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to 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. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.

      Foreign investment in certain emerging market debt obligations is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging markets debt
obligations and increase the costs and expenses of the Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
limit the amount of investment by foreign persons in a particular company, limit
the investment by foreign persons only to a specific class of securities of a
company that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on
foreign investors. Certain emerging markets may also restrict investment
opportunities in issuers in industries deemed important to national interest.

      Certain 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 or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.

      In the course of investment in emerging market debt obligations, the Fund
will be exposed to the direct or indirect consequences of political, social and
economic changes in one or more emerging markets. Political changes in emerging
market countries may affect the willingness of an emerging market country
governmental issuer to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
also affects its ability to honor its obligations. While the Fund manages its
assets in a manner that will seek to minimize the exposure to such risks, and
will further reduce risk by owning the bonds of many issuers, there can be no
assurance that adverse political, social or economic changes will not cause a
Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.

      The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available. The Corporation may suspend redemption of its shares
for any period during which an emergency exists, as determined by the Securities
and Exchange Commission (the "SEC"). Accordingly if the Fund believes that
appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from
the Fund's identification of such condition until the date of the SEC action,
the Fund's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Corporation's Board of
Directors.

      Volume and liquidity in most foreign bond markets are less than in the
U.S. and securities of many foreign companies are less liquid and more volatile
than securities of comparable U.S. companies. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of business and industry practices, securities
exchanges, brokers, dealers and listed companies than in the U.S. Mail service
between the U.S. and foreign countries may be slower or less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. In addition, with
respect to certain emerging markets, there is the possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments, which could affect the Fund's investments in those countries.
Moreover, individual emerging market economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, and resource self-sufficiency
and balance of payments position.

      The Fund may have limited legal recourse in the event of a default with
respect to certain debt obligations it holds. If the issuer of a fixed-income
security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. Debt obligations issued by emerging market country governments
differ from debt obligations of private entities; remedies


                                       9
<PAGE>

from defaults on debt obligations issued by emerging market governments, unlike
those on private debt, must be pursued in the courts of the defaulting party
itself. The Fund's ability to enforce its rights against private issuers may be
limited. The ability to attach assets to enforce a judgment may be limited.
Legal recourse is therefore somewhat diminished. Bankruptcy, moratorium and
other similar laws applicable to private issuers of debt obligations may be
substantially different from those of other countries. The political context,
expressed as an emerging market governmental issuer's willingness to meet the
terms of the debt obligation, for example, is of considerable importance. In
addition, no assurance can be given that the holders of commercial bank debt may
not contest payments to the holders of debt obligations in the event of default
under commercial bank loan agreements. With four exceptions, (Panama, Cuba,
Costa Rica and Yugoslavia), no sovereign emerging markets borrower has defaulted
on an external bond issue since World War II.

      Income from securities held by the Fund could be reduced by a withholding
tax on the source or other taxes imposed by the emerging market countries in
which the Fund makes its investments. The Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to the Fund
or to entities in which the Fund has invested. The Advisor will consider the
cost of any taxes in determining whether to acquire any particular investments,
but can provide no assurance that the taxes will not be subject to change.

      Many emerging markets have experienced substantial, and in some periods
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.

      Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.

      Governments of many emerging market countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in a Fund's
portfolio. Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments have occurred
frequently over the history of certain emerging markets and could adversely
affect the Fund's assets should these conditions recur.

      The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.

      To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.

      Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.

Investing in Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of


                                       10
<PAGE>

expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.

      The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.

      The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

      The Fund may invest a portion of its assets in securities denominated in
currencies of Latin American countries. Accordingly, changes in the value of
these currencies against the U.S. dollar may result in corresponding changes in
the U.S. dollar value of the Fund's assets denominated in those currencies.

      Some Latin American countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.

      The economies of individual Latin American countries may differ favorably
or unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to a Fund
at a higher rate than those imposed by other foreign countries. This may reduce
a Fund's investment income available for distribution to shareholders.

      Certain Latin American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign governments.
At times, certain Latin American countries have declared moratoria on the
payment of principal and/or interest on outstanding debt.

      Latin America is a region rich in natural resources such as oil, copper,
tin, silver, iron ore, forestry, fishing, livestock and agriculture. The region
has a large population (roughly 300 million) representing a large domestic
market. Economic growth was strong in the 1960s and 1970s, but slowed
dramatically (and in some instances was negative) in the 1980s as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in gross domestic product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly restructured. Political turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.

      Governments of many Latin American countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.

      Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four countries in the southernmost point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.


                                       11
<PAGE>

Investing in the Pacific Basin. Economies of individual Pacific Basin countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.

      With respect to the Peoples Republic of China and other markets in which
the Fund may participate, there is the possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments that could adversely
impact a Pacific Basin country or the Fund's investment in the debt of that
country.

      Foreign companies, including Pacific Basin companies, are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.

Investing in Europe. Most Eastern European nations, including Hungary, Poland,
Czech Republic, Slovak Republic, and Romania have had centrally planned,
socialist economies since shortly after World War II. A number of their
governments, including those of Hungary, the Czech Republic, and Poland are
currently implementing or considering reforms directed at political and economic
liberalization, including efforts to foster multi-party political systems,
decentralize economic planning, and move toward free market economies. At
present, no Eastern European country has a developed stock market, but Poland,
Hungary, and the Czech Republic have small securities markets in operation.
Ethnic and civil conflict currently rage through the former Yugoslavia. The
outcome is uncertain.

      Both the European Community (the "EC") and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.

      The conditions that have given rise to these developments are changeable,
and there is no assurance that reforms will continue or that their goals will be
achieved.

      Portugal is a genuinely emerging market which has experienced rapid growth
since the mid-1980s, except for a brief period of stagnation over 1990-91.
Portugal's government remains committed to privatization of the financial system
away from one dependent upon the banking system to a more balanced structure
appropriate for the requirements of a modern economy. Inflation continues to be
about three times the EC average.

      Economic reforms launched in the 1980s continue to benefit Turkey in the
1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita Gross Domestic Product (the "GDP") increasing more than 6%
annually. Agriculture remains the most important economic sector, employing
approximately 55% of the labor force, and accounting for nearly 20% of GDP and
20% of exports. Inflation and interest rates remain high, and a large budget
deficit will continue to cause difficulties in Turkey's substantial
transformation to a dynamic free market economy.

      Like many other Western economies, Greece suffered severely from the
global oil price hikes of the 1970s, with annual GDP growth plunging from 8% to
2% in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of the
conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance. Once
Greece has sorted out its political situation, it will have to face the
challenges posed by the steadily increasing integration of the EC, including the
progressive lowering of trade and investment barriers. Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.

      Securities traded in certain emerging European securities markets may be
subject to risks due to the inexperience of financial intermediaries, the lack
of modern technology and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large


                                       12
<PAGE>

amount of property, the claims of which have not been entirely settled. There
can be no assurance that the Fund's investments in Eastern Europe would not also
be expropriated, nationalized or otherwise confiscated. Finally, any change in
leadership or policies of Eastern European countries, or countries that exercise
a significant influence over those countries, may halt the expansion of or
reverse the liberalization of foreign investment policies now occurring and
adversely affect existing investment opportunities.

Investing in Africa. Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the percentage
of people who are over 15 years of age and who can read and write) are
relatively low, ranging from 20% to 60%. The primary industries include crude
oil, natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.

      Many of the countries are fraught with political instability. However,
there has been a trend over the past five years toward democratization. Many
countries are moving from a military style, Marxist, or single party government
to a multi-party system. Still, there remain many countries that do not have a
stable political process. Other countries have been enmeshed in civil wars and
border clashes.

      Economically, the Northern Rim countries (including Morocco, Egypt and
Algeria) and Nigeria, Zimbabwe and South Africa are the wealthier countries on
the continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.

      On the other end of the economic spectrum are countries, such as
Burkinafaso, Madagascar and Malawi, that are considered to be among the poorest
or least developed in the world. These countries are generally landlocked or
have poor natural resources. The economies of many African countries are heavily
dependent on international oil prices. Of all the African industries, oil has
been the most lucrative, accounting for 40% to 60% of many countries' GDP.

Debt Securities. The Fund may invest in debt securities if the Advisor
determines that the capital appreciation on debt securities is likely to exceed
that of common stocks. Portfolio debt investments will be selected on the basis
of capital appreciation potential, by evaluating, among other things, potential
yield, if any, credit quality, and the fundamental outlooks for currency and
interest rate trends in different parts of the world, taking into account the
ability to hedge a degree of currency or local bond price risk. The Fund may
purchase "investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by
Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged to be of equivalent
quality as determined by the Advisor. Bonds rated Baa or BBB may have
speculative elements as well as investment-grade characteristics. Below
investment-grade securities, are those rated below Baa by Moody's or below BBB
by S&P and in unrated securities of equivalent quality.

High Yield, High Risk Securities. Below investment grade securities (rated below
Baa by Moody's and below BBB by S&P and commonly referred to as "high yield" or
"junk" bonds) or unrated securities of equivalent quality in the Advisor's
judgment, carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk of principal and income, and may be less liquid,
than securities in the higher rating categories and are considered speculative.
The lower the ratings of such debt securities, the greater their risks render
them like equity securities. The Fund may invest up to 100% of its net assets.
See the Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.

      An economic downturn could disrupt the high-yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which could adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high-yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high-yield securities may adversely affect the Fund's net asset
value. In addition, investments in high-yield zero coupon or pay-in-kind bonds,
rather than income-bearing high-yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.

      The trading market for high-yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Fund to accurately value high-yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high-yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.


                                       13
<PAGE>

      Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Advisor not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective by investment in such securities may be more dependent on
the Advisor's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Advisor will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.

      Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, recent legislation restricts the issuer's tax deduction for
interest payments on these securities. Such legislation may significantly
depress the prices of outstanding securities of this type. For more information
regarding tax issues related to high-yield securities (see "TAXES").

Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features. The Fund
each limits its purchases of convertible securities to debt securities
convertible into common stock.

      The convertible securities in which the Fund may invest are either fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

      As debt securities, convertible securities are investments which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Of course, like all
debt securities, there can be no assurance of income or principal payments
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.

      Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.

      Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"(TM)). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.

Illiquid Securities. The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration


                                       14
<PAGE>

under the Securities Act of 1933, as amended (the "1933 Act"), or the
availability of an exemption from registration (such as Rule 144A) or because
they are subject to other legal or contractual delays in or restrictions on
resale. This investment practice, therefore, could have the effect of increasing
the level of illiquidity of the Fund. It is the Fund's policy that illiquid
securities (including repurchase agreements of more than seven days duration,
certain restricted securities, and other securities which are not readily
marketable) may not constitute, at the time of purchase, more than 15% of the
value of the Fund's net assets. The Corporation's Board of Directors has
approved guidelines for use by the Advisor in determining whether a security is
illiquid.

      Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.

Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign broker/dealer which is recognized as a reporting government securities
dealer, if the creditworthiness of the bank or broker/dealer has been determined
by the Advisor to be at least as high as that of other obligations the Fund may
purchase. In addition, Global Bond Fund may enter into repurchase agreements
with any foreign bank or with any domestic or foreign broker/dealer which is
recognized as a reporting government securities dealer, if the creditworthiness
of the bank or broker/dealer has been determined by the Advisor to be at least
as high as that of other obligations the Fund may purchase.

      A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., a Fund) acquires a debt security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities is kept at least equal to the
repurchase price on a daily basis. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Obligation itself.
Obligations will be physically held by the Fund's custodian or in the Federal
Reserve Book Entry system.

      For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restrictions
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or the entire principal and income involved
in the transaction. As with any unsecured debt instrument purchased for the
Fund, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities. A repurchase agreement
with foreign banks may be available with respect to government securities of the
particular foreign jurisdiction, and such repurchase agreements involve risks
similar to repurchase agreements with U.S. entities.

Indexed Securities. The Fund may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.


                                       15
<PAGE>

      Indexed securities differ from other types of debt securities in which the
Fund may invest in several respects. First, the interest rate or, unlike other
debt securities, the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference instruments, such
as an interest rate compared with a fixed interest rate or the currency exchange
rates between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).

      Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.

Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.

      Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the SEC no longer considers such privately stripped obligations to
be U.S. Government securities, as defined in the 1940 Act.

      The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.

      When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").

Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value


                                       16
<PAGE>

and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. 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 will be made only to firms deemed by the Advisor to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Funds'
total assets at the time any loan is made.

FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations of
FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semiannually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.

      If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.

      Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the event
of delinquencies and/or defaults.

Other Mortgage-Backed Securities. The Advisor expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages.

Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure.

      Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile Receivables(SM) ("CARS(SM)").
CARS(SM) represent undivided fractional interests in a trust whose assets
consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS(SM) are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the directors or
originator of the Corporation. An investor's return on CARS(SM) may be affected
by early prepayment of principal on the underlying vehicle sales contracts. If
the letter of credit is exhausted, the Corporation may be prevented from
realizing the full amount due on a sales contract because of state law
requirements and restrictions relating to foreclosure sales of vehicles and the
obtaining of deficiency judgments following such sales or because of
depreciation, damage or loss of a vehicle, the application of federal and state
bankruptcy and insolvency laws, or other factors. As a result, certificate
holders may experience delays in payments or losses if the letter of credit is
exhausted.

      Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

      Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting


                                       17
<PAGE>

from ultimate default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pool of assets, to ensure that the receipt of payments on the
underlying pool occurs in a timely fashion. Protection against losses resulting
from default ensures ultimate payment of the obligations on at least a portion
of the assets in the pool. This protection may be provided through insurance
policies or letters of credit obtained by the issuer or sponsor from third
parties, through various means of structuring the transaction or through a
combination of such approaches. The degree of credit support provided for each
issue is generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquency or loss in excess
of that anticipated or failure of the credit support could adversely affect the
return on an investment in such a security.

      In the case of asset-backed securities issued in a pass-through structure,
the cash flow generated by the underlying assets is applied to make required
payments on the securities and to pay related administrative expenses. The
residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the 1933 Act may be subject to certain restrictions on
transferability. In addition, there may be no liquid market for such securities.

Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Advisor believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.

Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Directors do not currently intend to borrow for investment leverage
purposes, if such a strategy were implemented in the future it would increase
the Fund's volatility and the risk of loss in a declining market. Borrowing by
the Fund will involve special risk considerations. Although the principal of the
Fund's 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.

Synthetic Investments. In certain circumstances, the Fund may wish to obtain the
price performance of a security without actually purchasing the security in
circumstances where, for example, the security is illiquid, or is unavailable
for direct investment or available only on less attractive terms. In such
circumstances, the Fund may invest in synthetic or derivative alternative
investments ("Synthetic Investments") that are based upon or otherwise relate to
the economic performance of the underlying securities. Synthetic Investments may
include swap transactions, notes or units with variable redemption amounts, and
other similar instruments and contracts. Synthetic Investments typically do not
represent beneficial ownership of the underlying security, usually are not
collateralized or otherwise secured by the counterparty and may or may not have
any credit enhancements attached to them. Accordingly, Synthetic Investments
involve exposure not only to the creditworthiness of the issuer of the
underlying security, changes in exchange rates and future governmental actions
taken by the jurisdiction in which the underlying security is issued, but also
to the creditworthiness and legal standing of the counterparties involved. In
addition, Synthetic Investments typically are illiquid

Strategic Transactions and Derivatives. The Fund may, but are not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of the fixed-income securities in the Fund's portfolio or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.

      In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limits imposed by the 1940 Act) to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a substitute for
purchasing or selling particular securities. Some Strategic Transactions


                                       18
<PAGE>

may also be used to enhance potential gain although no more than 5% of the
Fund's assets will be committed to Strategic Transactions entered into for
non-hedging purposes. Any or all of these investment techniques may be used at
any time and in any combination, and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Advisor's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Strategic
Transactions will not be used to alter fundamental investment purposes and
characteristics of the Fund, and the Fund will segregate assets (or as provided
by applicable regulations, enter into certain offsetting positions) to cover its
obligations under options, futures and swaps to limit leveraging of the Fund.

      Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Advisor's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation a Fund can realize on its
investments or cause a Fund to hold a security it might otherwise sell. The use
of currency transactions can result in a Fund incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.

General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

      A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

      With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument


                                       19
<PAGE>

through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

      A Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

      The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

      OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting a Fund to require the Counterparty to
sell the option back to a Fund at a formula price within seven days. The Fund
expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

      Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Advisor. The staff of the
Securities and Exchange Commission (the "SEC") currently takes the position that
OTC options purchased by a Fund, and portfolio securities "covering" the amount
of a Fund's obligation pursuant to an OTC option sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid, and are subject to
the Fund's limitation on investing no more than 15% of its net assets in
illiquid securities.

      If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase a Fund's income. The sale of put options can also provide income.

      The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. The Fund will not purchase call
options unless the aggregate premiums paid on all options held by the Fund at
any time do not exceed 20% of its total assets. All calls sold by the Fund must
be "covered" (i.e., a Fund must own the securities or futures contract subject
to the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though a Fund will receive the option
premium to help protect it against loss, a call sold by a Fund exposes that Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require that Fund to hold a security or instrument which it might otherwise
have sold.


                                       20
<PAGE>

      The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not purchase put options unless the aggregate premiums
paid on all options held by the Fund at any time do not exceed 20% of its total
assets. The Fund will not sell put options if, as a result, more than 50% of its
total assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that a Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management, and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed,
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by a Fund, as seller, to deliver to
the buyer the specific type of instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that 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 and obligates the seller to deliver such
position.

      The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of a Fund. If a Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.

      The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of


                                       21
<PAGE>

the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Advisor.

      The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of a Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.

      The Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

      The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.

      To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Advisor believes that
the value of schillings will decline against the U.S. dollar, the Advisor may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.

Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it


                                       22
<PAGE>

is possible that the combination will instead increase such risks or hinder
achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

      The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Advisor and the Funds believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Advisor. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed-income instruments
are linked.

Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent that obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver


                                       23
<PAGE>

the securities if the call is exercised. A call option sold by the Fund on an
index will require the Fund to own portfolio securities which correlate with the
index or to segregate cash or liquid assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by the
Fund requires the Fund to segregate cash or liquid assets equal to the exercise
price.

      Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Fund to buy or sell currency
will generally require the Fund to hold an amount of that currency or liquid
assets denominated in that currency equal to the Fund's obligations or to
segregate liquid assets equal to the amount of the Fund's obligation.

      OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.

      In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.

      With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.

      Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated cash or
liquid assets, equals its net outstanding obligation in related options and
Strategic Transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if the Fund
held a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.

Warrants. The Fund may invest in warrants up to 5% of the value of its total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.

DIVIDENDS, DISTRIBUTIONS AND TAXES

      The Fund intends to follow the practice of distributing substantially all
and in no event less than 90% of its investment company taxable income including
any excess of net realized short-term capital gains over net realized long-term
capital losses. A Fund may follow the practice of distributing the entire excess
of net realized long-term capital gains over net


                                       24
<PAGE>

realized short-term capital losses. However, a Fund may retain all or part of
such gain for reinvestment, after paying the related federal income taxes for
which the shareholders may then claim a credit against their federal income tax
liability. If a Fund does not distribute an amount of capital gains and/or
ordinary income required to be distributed by an excise tax provision of the
Code, it may be subject to such tax. In certain circumstances, a Fund may
determine that it is in the interest of shareholders to distribute less than
such an amount. (See "TAXES.")

      The Fund intends to distribute investment company taxable income
(exclusive of net short-term capital gains in excess of net long-term capital
losses) quarterly in March, June, September and December each year.
Distributions, if any, of net realized capital gain during each fiscal year will
normally be made in December. Additional distributions may be made if necessary.

      All distributions will be made in shares of the Fund and confirmations
will be mailed to each shareholder unless a shareholder has elected to receive
cash, in which case a check will be sent. Distributions are taxable, whether
made in shares or cash. (See "TAXES.")

Taxes. The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.

      A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.

      If for any taxable year the Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders).

      The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of the Fund's ordinary income for the calendar year, at least 98% of
the excess of its capital gains over capital losses (adjusted for certain
ordinary losses) realized during the one-year period ending October 31 during
such year, and all ordinary income and capital gains for prior years that were
not previously distributed.

      Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund.

      To be updated At October 31, 2000, the Fund had a net tax basis capital
loss carryforward of approximately $__, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until October 31, 2006, ($60,953,000) or October 31, 2007 ($54,248,000), the
respective expiration dates.

      If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, that Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such reported gains and the
shareholder's tax credit. If the Fund makes such an election, it may not be
treated as having met the excise tax distribution requirement.

      Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

      Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of
that Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those


                                       25
<PAGE>

shares or shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.

      Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

      Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.

      All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.

      A qualifying individual may make a deductible IRA contribution of up to
$2,000 for any taxable year only if (i) neither the individual nor his or her
spouse (unless filing separate returns) is an active participant in an
employer's retirement plan, or (ii) the individual (and his or her spouse, if
applicable) has an adjusted gross income below a certain level in 2001 ($53,000
for married individuals filing a joint return, with a phase-out of the deduction
for adjusted gross income between $53,000 and $63,000; $33,000 for a single
individual, with a phase-out for adjusted gross income between $33,000 and
$43,000). However, an individual not permitted to make a deductible contribution
to an IRA for any such taxable year may nonetheless make nondeductible
contributions up to $2,000 to an IRA (up to $2,000 per individual for married
couples if only one spouse has earned income) for that year. There are special
rules for determining how withdrawals are to be taxed if an IRA contains both
deductible and nondeductible amounts. In general, a proportionate amount of each
withdrawal will be deemed to be made from nondeductible contributions; amounts
treated as a return of nondeductible contributions will not be taxable. Also,
annual contributions may be made to a spousal IRA even if the spouse has
earnings in a given year if the spouse elects to be treated as having no
earnings (for IRA contribution purposes) for the year.

      Distributions by the Fund result in a reduction in the net asset value of
that Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

      The Fund intends to qualify for and may make the election permitted under
Section 853 of the Code so that shareholders may (subject to limitations) be
able to claim a credit or deduction on their federal income tax returns for, and
will be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code except in the case of certain
electing individual shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend. In addition, if the Fund fails to satisfy these
holding period requirements, it cannot elect under Section 853 to pass through
to shareholders the ability to claim a deduction for the related foreign taxes.

      The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report


                                       26
<PAGE>

as ordinary income the amount by which the fair market value of the foreign
company's stock exceeds the Fund's adjusted basis in these shares; any mark to
market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.

      Equity options (including covered call options written on portfolio stock)
and over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any property
in the Fund's portfolio similar to the property underlying the put option. If
the Fund writes an option, no gain is recognized upon its receipt of a premium.
If the option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If a call option is exercised, the character of the gain
or loss depends on the holding period of the underlying stock.

      Positions of the Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes that Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the relevant Fund.

      Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.

      If the Fund writes a covered call option on portfolio stock, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.

      Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes that
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. The Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.

      Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.


                                       27
<PAGE>

      Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.

      Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time that Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

      If the Fund holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. In addition, if the Fund invests in certain high
yield original issue discount obligations issued by corporations, a portion of
the original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such event, dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations if so designated by the Fund in a written notice to shareholders.

      In some cases, shareholders of the Fund will not be permitted to take all
or a portion of their sales loads into account for purposes of determining the
amount of gain or loss realized on the disposition of their shares. This
prohibition generally applies where (1) the shareholder incurs a sales load in
acquiring the shares of the Fund, (2) the shares are disposed of before the 91st
day after the date on which they were acquired, and (3) the shareholder
subsequently acquires shares in the Fund or another regulated investment company
and the otherwise applicable sales charge is reduced under a "reinvestment
right" received upon the initial purchase of Fund shares. The term "
reinvestment right" means any right to acquire shares of one or more regulated
investment companies without the payment of a sales load or with the payment of
a reduced sales charge. Sales charges affected by this rule are treated as if
they were incurred with respect to the shares acquired under the reinvestment
right. This provision may be applied to successive acquisitions of fund shares.

      The Fund will be required to report to the Internal Revenue Service all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if the Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

      Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.

      The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.


                                       28
<PAGE>

      Shareholders should consult their tax Advisors about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.

PERFORMANCE

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be computed separately for each class.
Class A, B and C shares are newly offered and therefore have no available
performance information. Returns for Class A, B and C shares are derived from
the historical performance of Class S Shares, adjusted to reflect the estimated
operating expenses applicable to Class A, B and C shares, which may be higher
than those of Class S shares.

Performance figures prior to March 1, 2001 for Class A, Class B and C shares are
derived from the historical performance of Class S shares, adjusted to reflect
the operating expenses applicable to Class A, B and C shares, which may be
higher or lower than those of Class S shares. The performance figures are also
adjusted to reflect the maximum sales charge of 5.75% for Class A shares and the
maximum current contingent deferred sales charge of 4% for Class B shares and 1%
for Class C shares. The returns in the chart below assume reinvestment of
distributions at net asset value and represent both actual past performance
figures of Class S to reflect adjusted Class A, B and C shares expense structure
as described above; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.

Average Annual Total Return

Average annual total return is the average annual compound rate of return for
the periods of one year, five years and ten years (or such shorter periods as
may be applicable dating from the commencement of the Fund's operations), all
ended on the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by
computing the average annual compound rates of return of a hypothetical
investment over such periods, according to the following formula (average annual
total return is then expressed as a percentage):

                               T = (ERV/P)^1/n - 1

Where:

      T   = Average Annual Total Return

      P   = a hypothetical initial investment of $1,000

      n   = number of years

      ERV = ending redeemable value: ERV is the value, at the end of the
            applicable period, of a hypothetical $1,000 investment made at the
            beginning of the applicable period.

 Average Annual Total Returns for the Period Ended October 31, 2000 (1)(2)(3)(4)

      ------------------------------------------------------------------------
                                  1 Year          5 Years        Life of Fund
      ------------------------------------------------------------------------
      Scudder Emerging Markets     ____%            ____%           ____%
      Income Fund -- Class A
      ------------------------------------------------------------------------
      Scudder Emerging Markets     ____%            ____%           ____%
      Income Fund -- Class B
      ------------------------------------------------------------------------
      Scudder Emerging Markets     ____%            ____%           ____%
      Income Fund -- Class C
      ------------------------------------------------------------------------

(1)   Because Class B and C shares were not introduced until March 1, 2001, the
      returns for Class A, B and C shares for the period prior to their
      introduction is based upon the performance of Class S shares.

(2)   As described above, average annual total return is based on historical
      earnings and is not intended to indicate future performance. Average
      annual total return for the Fund or class will vary based on changes in
      market conditions and the level of the Fund's and class' expenses.

(3)   The Fund commenced operations on December 31, 1993.

(4)   If the Advisor has not maintained expenses, the average annual return
      would have been lower.


                                       29
<PAGE>

In connection with communicating its average annual total return to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.

Cumulative Total Return

Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment over such periods, according to the
following formula (cumulative total return is then expressed as a percentage):

                                 C = (ERV/P) - 1

Where:

      C   = Cumulative Total Return

      P   = a hypothetical initial investment of $1,000

      ERV = ending redeemable value: ERV is the value, at the end of the
            applicable period, of a hypothetical $1,000 investment made at the
            beginning of the applicable period.

    Cumulative Total Returns for the Period Ended October 31, 2000 (1)(2)(3)

                                    1 Year          5 Years         Life of Fund
      Scudder Emerging Markets      ____%            ____%             ____%
      Income Fund -- Class A
      Scudder Emerging Markets      ____%            ____%             ____%
      Income Fund -- Class B
      Scudder Emerging Markets      ____%            ____%             ____%
      Income Fund -- Class C

(1)   Because Class B and C shares were not introduced until March 1, 2001, the
      returns for Class A, B and C shares for the period prior to their
      introduction is based upon the performance of Class S shares.

(2)   The Fund commenced operations on December 31, 1993.

(3)   If the Advisor has not maintained expenses, the average annual return
      would have been lower.

Total Return

Total return is the rate of return on an investment for a specified period of
time calculated in the same manner as cumulative total return.

From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of the Fund apart from capital appreciation will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Fund's and classes' performance data.

Quotations of a Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of that Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of that Fund's expenses.

Yield

      Yield of the Fund is the net annualized SEC yield of the Fund based on a
specified 30-day (or one month) period assuming semiannual compounding of
income. Yield is calculated by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period, according to the following formula:


                                       30
<PAGE>

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

      Where:

            a  =  dividends and interest earned during the period, including
                  amortization of market premium or accretion of market discount

            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

      The SEC yield of Emerging Markets Income Fund for the 30-day period ended
October 31, 2000 was __%.

      Calculation of the Fund's yield does not take into account "Section 988
Transactions." (See "TAXES.")

      Quotations of each Fund's performance are historical, show the performance
of a hypothetical investment, and are not intended to indicate future
performance. An investor's shares when redeemed may be worth more or less than
their original cost. Performance of a Fund will vary based on changed in market
conditions and the level of the Fund's expenses.

Comparison of Fund Performance

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.

Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests.

From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.

From time to time, in marketing and other Fund literature, members of the Board
and officers of the Fund, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Advisor has under
management in various geographical areas may be quoted in advertising and
marketing materials.

Marketing and other Fund literature may include a description of the potential
risks and rewards associated with an investment in the Fund. The description may
include a "risk/return spectrum" which compares the Fund to other Scudder funds
or broad categories of funds, such as money market, bond or equity funds, in
terms of potential risks and returns. Money market funds are designed to
maintain a constant $1.00 share price and have a fluctuating yield. Share price,
yield and total return of a bond fund will fluctuate. The share price and return
of an equity fund also will fluctuate. The description may also compare the Fund
to bank products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S. government and
offer a fixed rate of return.

Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risks/returns associated with an investment in bond or equity funds depend upon
many factors. For bond funds these factors include, but are not limited to, a
fund's overall investment objective, the average portfolio maturity, credit
quality of the securities held, and interest rate movements. For equity funds,
factors include a fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns associated with an investment in international bond or equity
funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return


                                       31
<PAGE>

than growth funds. In addition, international equity funds usually are
considered more risky than domestic equity funds but generally offer the
potential for greater return.

Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning the Fund,
including reprints of, or selections from, editorials or articles about the
Fund.

INVESTMENT MANAGER AND UNDERWRITER

Investment Manager. Zurich Scudder Investments, Inc. (the "Advisor"), Two
International Place, Boston, Massachusetts, an investment counsel firm, acts as
investment Advisor to the Fund. This organization, the predecessor of which is
Scudder, Stevens & Clark, Inc., ("Scudder") is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Advisor introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder entered
into an agreement with Zurich Insurance Company ("Zurich") pursuant to which
Scudder and Zurich agreed to form an alliance. On December 31, 1997, Zurich
acquired a majority interest in Scudder, and Zurich Kemper Investments, Inc., a
Zurich subsidiary, became part of Scudder. Scudder's name changed to Scudder
Kemper Investments, Inc. (Scudder Kemper). On September 7, 1998, the businesses
of 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. On October
17, 2000, the dual holding company structure of Zurich Financial Services Group,
comprised of Allied Zurich p.l.c. in the United Kingdom and Zurich Allied A.G.
in Switzerland, was unified into an single Swiss company, Zurich Financial
Services. On [Month Day], [2000, 2001] Scudder Kemper Investments, Inc. changed
its name to Zurich Scudder Investments, Inc. The Advisor manages the Fund's
daily investment and business affairs subject to the policies established by the
Corporation's Board of Directors. The Directors have overall responsibility for
the management of the Fund under Massachusetts law.

      Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.

      Pursuant to an investment management agreement with the Fund, the Advisor
acts as the Fund's investment Advisor, 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 principal source of the Advisor's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today it provides investment counsel
for many individuals and institutions, including insurance companies, industrial
corporations, and financial and banking organizations, as well as providing
investment advice to over 280 open and closed-end mutual funds.

      The Advisor maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Advisor receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Advisor's clients. However, the Advisor regards this information and material as
an adjunct to its own research activities. The Advisor's international
investment management team travels the world researching hundreds of companies.
In selecting securities in which the Fund may invest, the conclusions and
investment decisions of the Advisor with respect to the Fund are based primarily
on the analyses of its own research department.

      Certain investments may be appropriate for the Fund and also for other
clients advised by the Advisor. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Advisor in the interest of achieving the most
favorable net results to the Fund.


                                       32
<PAGE>

      The present investment management agreement (the "Agreement") was most
recently approved by the Directors on October 10, 2000, which became effective
on October 2, 2002, will continue in effect until September 30, 2001. The
Agreement will continue in effect until from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Directors
who are not parties to such Agreement or interested persons of the Advisor or
the Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Corporation's Directors or of a majority
of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically terminates in the event of its assignment.

      Under the Agreement, the Advisor regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Corporation's Articles of
Incorporation and By-Laws, the 1940 Act, the Code and to the Fund's investment
objective, policies and restrictions, and subject, further, to such policies and
instructions as the Board of Directors of the Corporation may from time to time
establish. The Advisor also advises and assists the officers of the Corporation
in taking such steps as are necessary or appropriate to carry out the decisions
of its Directors and the appropriate committees of the Directors regarding the
conduct of the business of the Fund.

      Under the Agreement, the Advisor renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Directors and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, Custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends; and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Directors.

      The Advisor pays the compensation and expenses of all Directors, officers
and executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York; Boston, Massachusetts and Chicago,
Illinois) of the Fund affiliated with the Advisor and makes available, without
expense to the Corporation, the services of such Directors, officers and
employees of the Advisor as may duly be elected officers or Directors of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Fund's office space and facilities.

      The Fund pays the Advisor a fee equal to an annual rate of 1.00% of the
Fund's first $500 million average daily net assets, 0.95% of the Fund's average
daily net assets exceeding $500 million. For the fiscal year ended October 31,
1998 and 1999 the management fee amounted to $3,051,240 and $1,971,328,
respectively. For the fiscal year ended October 31, 2000, the fee imposed
amounted to $____, of which $___ was unpaid at October 31, 2000.

      Under the Agreement the Fund is responsible for all of its other expenses
including: organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; taxes and governmental fees; the fees and
expenses of the Transfer Agent; any other expenses of issue, sale, underwriting,
distribution, redemption or repurchase of shares; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Directors, officers and employees of the Fund who are not affiliated with the
Advisor; the cost of printing and distributing reports and notices to
stockholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses of shareholders' meetings, the cost of responding to shareholders'
inquiries, and its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Directors of the Fund with respect thereto.

      The Agreement identifies the Advisor as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Fund, has the
non-exclusive right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Corporation's investment products
and services.

      In reviewing the terms of the Agreement and in discussions with the
Advisor concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Advisor are represented by independent counsel at
the Fund's expense.


                                       33
<PAGE>

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

      Officers and employees of the Advisor from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Advisor's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.

      The Advisor may serve as Advisor to other funds with investment objectives
and policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.

      None of the officers or Directors of the Corporation may have dealings
with the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of Shares of the Fund.

      The term Scudder Investments is the designation given to the services
provided by Zurich Scudder Investments, Inc. and its affiliates to the Scudder
Family of Funds.

AMA InvestmentLink(SM) Program

      Pursuant to an Agreement between the Advisor and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Advisor has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Advisor with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Advisor
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment Advisor
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Advisor (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.

Code of Ethics

      The Fund, the Advisor and principal underwriter have each adopted codes of
ethics under rule 17j-1 of the Investment Company Act. Board members, officers
of the Corporation and employees of the The Advisor and principal underwriter
are permitted to make personal securities transactions, including transactions
in securities that may be purchased or held by the Fund, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The The Advisor's
Code of Ethics contains provisions and requirements designed to identify and
address certain conflicts of interest between personal investment activities and
the interests of the Fund. Among other things, the The Advisor's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the The
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.

Principal Underwriter. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the
Advisor, is the principal underwriter and distributor for the Class A, B and C
shares of the Fund and acts as agent of the Fund in the continuous offering of
its Shares. KDI bears all of 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 Directors of the Fund, including the Directors 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 Directors or a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the distribution agreement or a
"majority of the outstanding voting securities" of the class of the Fund, as
defined under the 1940 Act. The distribution 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


                                       34
<PAGE>

amendments must in any event be approved by the Board of Directors in the manner
described above with respect to the continuation of the distribution agreement.

      Class B Shares and Class C Shares. The Fund has adopted a plan under Rule
12b-1 (the "Rule 12b-1 Plan") that provides for fees payable as an expense of
the Class B shares and Class C shares that are used by KDI to pay for
distribution and services for those classes. Because 12b-1 fees are paid out of
class assets on an ongoing basis they will, over time, increase the cost of an
investment and cost more than other types of sales charges.

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

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

      For its services under the distribution agreement, KDI receives a fee from
Class B shares net assets, 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. KDI currently compensates firms for sales of Class B
shares at a commission rate of 0.75%.

      For its services under the distribution agreement, KDI receives a fee from
Class C shares net assets, 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 a Fund. KDI also
receives any contingent deferred sales charges.

Administrative Fee. The Fund has entered into an administrative services
agreement with Zurich Scudder (the "Administration Agreement"), pursuant to
which Zurich Scudder will provide or pay others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Zurich Scudder under its investment management agreements with the Fund, as
described above) in exchange for the payment by the Fund of an administrative
services fee (the "Administrative Fee") of [0.XX]% for Class A, [0.XX]% for
Class B and [0.XX]% for Class C. One effect of this arrangement is to make the
Fund's future expense ratio more predictable.

Various third-party service providers (the "Service Providers"), some of which
are affiliated with Zurich Scudder, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Zurich Scudder, computes net asset value for the
Fund and maintains its accounting records. Kemper Service Company is the
transfer, shareholder servicing and dividend-paying agent for the shares of the
Fund. As custodian, Brown Brothers Harriman & Co. holds the portfolio securities
of the Fund, pursuant to a custodian agreement. PricewaterhouseCoopers LLP
audits the financial statements of the Fund and provides other audit, tax, and
related services. Dechert acts as general counsel for the Fund.

Zurich Scudder will pay the Service Providers for the provision of their
services to the Fund and will pay other fund expenses, including insurance,
registration, printing and postage fees. In return, the Fund will pay Zurich
Scudder an Administrative Fee.

The Administration Agreement has an initial term of three years, subject to
earlier termination by the Fund's Board. The fee payable by the Fund to Zurich
Scudder pursuant to the Administration Agreements is reduced by the amount of
any credit received from the Fund's custodian for cash balances.

Certain expenses of the Fund will not be borne by Zurich Scudder under the
Administration Agreements, such as taxes, brokerage, interest and extraordinary
expenses; and the fees and expenses of the Independent Directors (including the
fees and expenses of their independent counsel). In addition, the Fund will
continue to pay the fees required by its investment management agreement with
Zurich Scudder.


                                       35
<PAGE>

Administrative Services. Administrative services are provided to the Fund on
behalf of Class A, B and C shareholders 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. The Fund pays KDI an administrative
services 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.

      KDI enters 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 in 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,
payable quarterly, at an annual rate of up to 0.25% of the net assets in Fund
accounts that it maintains and services attributable to Class A Shares,
commencing with the month after investment. With respect to Class B and Class C
Shares, KDI currently advances to firms the first-year service fee at a rate of
up to 0.25% of the purchase price of such Shares. For periods after the first
year, KDI currently intends to pay firms a service fee at a rate of up to 0.25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C Shares maintained and serviced by the firm. After the first year,
a firm becomes eligible for the quarterly service fee and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid
include affiliates of KDI. 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 Fund.

      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, the
administrative services fee payable to KDI is payable at an annual rate of 0.25%
based upon Fund assets in accounts for which a firm provides administrative
services and at the annual rate of 0.15% based upon Fund assets in accounts for
which there is no firm of record (other than KDI) listed on the Fund's records.
The effective administrative services fee rate to be charged against all assets
of 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. The Board of Directors of the Fund, in its discretion,
may approve basing the fee to KDI at the annual rate of 0.25% on all Fund assets
in the future

      Certain Directors or officers of the Fund are also directors or officers
of the Advisor or KDI, as indicated under "Officers and Directors."

Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts, a subsidiary of the Advisor,
computes net asset value for the Fund. SFAC is paid an annual fee equal to 0.08%
of the first $150 million of average net assets, 0.06% of such assets in excess
of $150 million and 0.04% of such assets in excess of $1 billion. For the fiscal
years ended October 31, 1998, 1999 and 2000, SFAC was paid fees of $556,145,
$443,319 and $___, respectively, of which $___ was unpaid on October 31, 2000.

Custodian, Transfer Agent and Shareholder Service Agent. Brown Brothers Harriman
& Company, 40 Water Street, Boston, Massachusetts 02109, as custodian has
custody of all securities and cash of the Fund held outside the United States.
The Custodian attends 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"), 811 Main Street, Kansas City, Missouri 64105-2005, an
affiliate of the Advisor, is the Fund's transfer agent, dividend-paying agent
and shareholder service agent for the Fund's Class A, B and C shares. KSVC
receives as transfer agent, annual account fees of $5 per account, transaction
and maintenance charges, annual fees associated with the contingent deferred
sales charge (Class B shares only) and out-of-pocket expense reimbursement.

Independent Accountants and Reports to Shareholders. The financial highlights of
the Fund included in the Fund's prospectus and the Financial Statements
incorporated by reference in this Statement of Additional Information have been
so included or incorporated by reference in reliance on the report of
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. PricewaterhouseCoopers LLP audits the financial
statements of the Fund and provides other audit, tax and related services.
Shareholders will receive annual audited financial statements and semi-annual
unaudited financial statements.

PORTFOLIO TRANSACTIONS

Brokerage Commissions.  Allocation of brokerage may be placed by the Advisor.

      The primary objective of the Advisor in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results taking into account such factors as price, commission where
applicable, size of order, difficulty of execution and skill required of the
executing broker/dealer. The Advisor seeks to evaluate the


                                       36
<PAGE>

overall reasonableness of brokerage commissions paid (to the extent applicable)
through the familiarity of Scudder Investor Services, Inc. ("SIS"), a
corporation registered as a broker-dealer and a subsidiary of the Advisor, with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others. The Advisor
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.

      The Fund's purchases and sales of fixed-income securities are generally
placed by the Advisor with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.

      When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Advisor's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Advisor is not authorized when placing portfolio transactions for the Fund
to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction solely on account of the receipt of
research, market or statistical information. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.

      In selecting among firms believed to meet the criteria for handling a
particular transaction, the Advisor may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Advisor.

      To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through SIS. SIS will place orders on behalf
of the Fund with issuers, underwriters or other brokers and dealers. SIS will
not receive any commission, fee or other remuneration from the Fund for this
service.

      Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Advisor, it is the opinion
of the Advisor that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Advisor's staff. Such information may be useful to the Advisor in providing
services to clients other than the Fund and not all such information is used by
the Advisor in connection with the Fund. Conversely, such information provided
to the Advisor by broker/dealers through whom other clients of the Advisor
effect securities transactions may be useful to the Advisor in providing
services to the Fund.

      The Directors of the Fund review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.

      The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.

[For the fiscal years ended October 31, 2000, 1999 and 1998, the Fund paid no
brokerage commissions.]

Portfolio Turnover

      Average annual portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less.

      The Fund's portfolio turnover rate for each of the fiscal years ended
October 31, 2000 and 1999 was __% and 326.8%, respectively.

      Recent economic and market conditions necessitated more active trading,
resulting in the higher portfolio turnover rates. A higher rate involves greater
transaction expenses to a Fund and may result in the realization of net capital
gains, which would be taxable to shareholders when distributed. Purchases and
sales are made for a Fund's portfolio whenever necessary, in management's
opinion, to meet the Fund's objectives.


                                       37
<PAGE>

Net Asset Value

      The net asset value of shares of the Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading
(the "Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Net asset value per share is
determined separately for each class of shares by dividing the value of the
total assets of the Fund attributable to the shares of that class, less all
liabilities attributable to that class, by the total 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 higher expenses borne by the Class B and Class C Shares.

      An exchange-traded equity security is valued at its most recent sale price
on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system will be valued at its most recent sale
price on such system as of the Value Time. Lacking any sales, the security will
be valued at the most recent bid quotation as of the Value Time. The value of an
equity security not quoted on the Nasdaq system, but traded in another
over-the-counter market, is its most recent sale price if there are any sales of
such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation the security is valued at the
most recent bid quotation as of the Value Time.

      Debt securities, other than money market instruments, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Advisor may calculate the price of
that debt security, subject to limitations established by the Board.

      An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

      If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

      If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.

      Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

PURCHASE, REPURCHASE AND REDEMPTION OF SHARES

      Fund Shares are sold at their public offering price, which is the net
asset value per such shares next determined after an order is received in proper
form plus, with respect to Class A Shares, an initial sales charge. The minimum
initial investment for Class A, B or C is $1,000 and the minimum subsequent
investment is $100 but such minimum amounts may be changed at any time. The Fund
may waive the minimum for purchases by trustees, directors, officers or
employees of the Fund or the Advisor and its affiliates. 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


                                       38
<PAGE>

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.

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. Each
class has distinct advantages and disadvantages for different investors, and
investors may choose the class that best suits their circumstances and
objectives.

<TABLE>
<CAPTION>
                                                    Annual 12b-1 Fees
                                                    (as a % of average
              Sales Charge                          daily net assets)           Other Information
              ------------                          -----------------           -----------------

<S>           <C>                                          <C>                  <C>
Class A       Maximum initial sales charge of              0.25%(1)             Initial sales charge
              5.75% of the public offering price                                waived or reduced for
                                                                                certain purchases

Class B       Maximum contingent deferred sales               1.00%             Shares convert to Class A
              charge of 4% of redemption                                        shares six years after
              proceeds; declines to zero after                                  issuance
              six years

Class C       Contingent deferred sales charge of             1.00%             No conversion feature
              1% of 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 each of Class A, B and C of 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.

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

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

<TABLE>
<CAPTION>
                                                                    Sales Charge
                                                                    ------------
                                                                                       Allowed to Dealers
                                            As a Percentage of    As a Percentage of   As a Percentage of
Amount of Purchase                            Offering Price       Net Asset Value*      Offering Price
------------------                            --------------       ----------------      --------------

<S>                                               <C>                   <C>                  <C>
Less than $50,000                                 5.75%                 6.10%                5.20%
$50,000 but less than $100,000                     4.50                  4.71                 4.00
$100,000 but less than $250,000                    3.50                  3.63                 3.00
$250,000 but less than $500,000                    2.60                  2.67                 2.25
$500,000 but less than $1 million                  2.00                  2.04                 1.75
$1 million and over                               .00**                 .00**                  ***
</TABLE>

*     Rounded to the nearest one-hundredth percent.

**    Redemption of shares may be subject to a contingent deferred sales charge
      as discussed below.

***   Commission is payable by KDI as discussed below.


                                       39
<PAGE>

      The Fund receives the entire net asset value of all its 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 re-allow to dealers up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed, 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 by: (a) any
purchaser, provided that the amount invested in such Fund or other Zurich
Scudder Funds listed under "Special Features -- Class A Shares -- Combined
Purchases" totals at least $1,000,000 including purchases of Class A shares
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features described under "Special Features"; or (b) a
participant-directed qualified retirement plan described in Code Section 401(a),
a participant-directed non-qualified deferred compensation plan described in
Code Section 457 or a participant-directed qualified retirement plan described
in Code Section 403(b)(7) which is not sponsored by a K-12 school district,
provided in each case that such plan has not less than 200 eligible employees
(the "Large Order NAV Purchase Privilege"). Redemption within two years of the
purchase 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 at 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
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Zurich Scudder
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 [and including purchases of
Class R shares of certain Scudder Funds. 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.

      Class A shares of the Fund or of any other Zurich Scudder 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-transferable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 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 of a Fund may be purchased at net asset value by persons
who purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.

      Class A shares of the Fund may be purchased at net asset value in any
amount by certain professionals who assist in the promotion of [Scudder Kemper
Mutual Fund]s 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 a Fund may be purchased at net asset value by persons
who purchase shares of the Fund through KDI as part of an automated billing and
wage deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.


                                       40
<PAGE>

      Class A shares may be sold at net asset value in any amount to: (a)
officers, trustees, 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) any trust,
pension, profit-sharing or other benefit plan for only such persons; (d) 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; and (e) persons who purchase shares of the Fund
through KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to 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 shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase 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 Advisors registered under the 1940 Act and other financial services
firms acting solely as agent for their clients, 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 or
agency commission program under which such clients pay a fee to the investment
Advisor or other firm for portfolio management or agency brokerage 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 Fund. The Fund may
also issue Class A shares at net asset value in connection with the acquisition
of the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income and
capital gain dividends.

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

Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment 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 Fund six years after issuance on the basis of the relative net asset value
per share of the Class B shares. 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
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. In making
this


                                       41
<PAGE>

decision, investors should review their particular circumstances carefully with
their financial representative. 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. KDI has established the following procedures regarding
the purchase of Class A, Class B and Class C shares. These procedures do not
reflect in any way the suitability of a particular class of shares for a
particular investor and should not be relied upon as such. That determination
must be made by investors with the assistance of their financial representative.
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 (not including plans under Code Section 403 (b)(7)
sponsored by a K-12 school district) using the subaccount record keeping system
made available through the Shareholder Service Agent ("KemFlex Plans") will be
invested instead in Class A shares at net asset value where the combined
subaccount value in a Fund or other [Scudder Kemper Mutual Fund]s listed under
"Special Features - Class A Shares - Combined Purchases" is in excess of $1
million for Class B shares or $5 million for Class C shares including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features described under "Special Features." KemFlex Plans that on May
1, 2000 have in excess of $1 million invested in Class B shares of Kemper Mutual
Funds, or have in excess of $850,000 invested in Class B shares of Kemper Mutual
Funds and are able to qualify for the purchase of Class A shares at net asset
value (e.g., pursuant to a Letter of Intent), will have future investments made
in Class A shares and will have the option to covert their holdings in Class B
shares to Class A shares free of any contingent deferred sales charge on May 1,
2002. 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 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 under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.

      In addition to the discounts or commissions described above, KDI will,
from time to tome, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, to firms that sell shares of the Fund. 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.

      Orders for the purchase of shares of the Fund will be confirmed at a price
based on the net asset value of the Fund next determined after receipt in good
order 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 in good order 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 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."

      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


                                       42
<PAGE>

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 for any reason. 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 such Fund normally are permitted to
continue to purchase additional shares of such class and to have dividends
reinvested.

Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period.

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

REDEMPTION OR REPURCHASE OF SHARES

General. Any shareholder may require 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 such shares by sending a written request with
signatures guaranteed to [Scudder Kemper Mutual Fund]s, Attention: Redemption
Department, P.O. Box 219153, Kansas City, Missouri 64141-9153. When certificates
for shares have been issued, they must be mailed to or deposited with the
Shareholder Service Agent, along with a duly endorsed stock power and
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account holder with signatures guaranteed by a
commercial bank, trust company, savings and loan association, federal savings
bank, member firm of a national securities exchange or other eligible financial
institution. The redemption request and stock power must be signed exactly as
the account is registered including any special capacity of the registered
owner. Additional documentation may be requested, and a signature guarantee is
normally required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.

      The redemption price for shares of a class of the Fund will be the net
asset value per share of that class 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 have yet received good payment (i.e., purchases by
check, Quick-Buy or 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 any account with a balance below $800 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: Redemption by
Wire and Quick-Buy and Quick-Sell 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, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.


                                       43
<PAGE>

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 Quick-Buy
or 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
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.

Redemption by Wire. 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 per Share Fund effective on that day
and normally the proceeds will be sent to the designated account the following
business day. Delivery of the proceeds of a wire redemption of $250,000 or more
may be delayed by the Fund for up to seven days if the Fund or the Shareholder
Service Agent 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 is 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 Quick-Buy or Direct Deposit may not be redeemed by
wire transfer until such shares have been owned for at least 10 days. Account
holders may not use this privilege to redeem shares held in certificated form.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the expedited wire transfer redemption
privilege, although investors can still redeem by mail. 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 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer-sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Automatic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.


                                       44
<PAGE>

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.

            Year of Redemption                         Contingent Deferred
            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 an automatic withdrawal plan (see "Special Features
-- Automatic Withdrawal Plan" below), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions
to satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in 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 an s automatic withdrawal plan (limited to 10% of
the net asset value of the account during the first year, see "Special Features
-- Automatic 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
(g) redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to [Scudder Kemper Mutual Fund]s 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, and (g) redemption of shares purchased through a dealer-sponsored
asset allocation program maintained on an omnibus record-keeping system provided
the dealer of record had waived the advance of the first year administrative
services and distribution fees applicable to such shares and has agreed 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 of share appreciation to a
total of $12,000. If the investor were then to redeem the entire $12,000 in
share value, the contingent deferred sales charge would be payable only with
respect to $10,000 because neither the $1,000 of reinvested dividends nor the
$1,000 of share appreciation is subject to the charge. The charge would be at
the rate of 3% ($300) because it was in the second year after the purchase was
made.

      The rate of the contingent deferred sales charge is determined by the
length of the period of ownership. Investments are tracked on a monthly basis.
The period of ownership for this purpose begins the first day of the month in
which the order for the investment is received. For example, an investment made
in March 1998 will be eligible for the second year's charge if redeemed on or
after March 1, 1999. In the event no specific order is requested when redeeming


                                       45
<PAGE>

shares subject to a contingent deferred sales charge, the redemption will be
made first from shares representing reinvested dividends and then from the
earliest purchase of shares. KDI receives any contingent deferred sales charge
directly.

Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other [Scudder 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 [Scudder Kemper Mutual Fund]s. A
shareholder of the Fund or other [Scudder Kemper Mutual Fund]s 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 the same class of shares as the case may be, of the Fund or of
other [Scudder Kemper Mutual Fund]s. 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 schedule. 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 [Scudder Kemper
Mutual Fund]s 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 [Scudder Kemper Mutual Fund]s available for sale in the
shareholder's state of residence as listed under "Special Features -- Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of shares of the Fund, the reinvestment in
shares of 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.

Redemption in Kind. Although it is the Fund's present policy to redeem in cash,
if the Board of Directors determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the SEC, taking such securities at the same value used to
determine net asset value, and selecting the securities in such manner as the
Board of Directors may deem fair and equitable. If such a distribution occurred,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash. The Corporation has elected, however, to be governed by Rule
18f-1 under the 1940 Act, as a result of which the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of a Share at the
beginning of the period.

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 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 Strategic Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, 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 (available only upon exchange or conversion from Class A shares of
another [Scudder Kemper Mutual Fund]), Kemper U.S. Mortgage Fund, Kemper
Short-Intermediate Government Fund, Kemper Value Plus Growth Fund, Kemper
Horizon Fund, Kemper New Europe Fund, Inc., Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper Equity
Trust and Kemper Securities Trust, Scudder 21st Century Growth Fund, The Japan
Fund, Inc., Scudder High Yield Tax Free Fund, Scudder Pathway Series - Moderate
Portfolio, Scudder Pathway Series - Conservative Portfolio, Scudder Pathway
Series - Growth Portfolio, Scudder International Fund, Scudder Growth and Income
Fund, Scudder Large Company Growth Fund, Scudder Health Care Fund, Scudder
Technology Fund, Global Discovery Fund, Value Fund, and Classic Growth Fund
("[Scudder Kemper Mutual Fund]s"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"),
which are not considered a "[Scudder Kemper Mutual Fund]" 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 [Scudder 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.


                                       46
<PAGE>

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 [Scudder Kemper Mutual Fund]s 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 [Scudder Kemper Mutual Fund]s held of
record as of the initial purchase date under the Letter as an "accumulation
credit" toward the completion of the Letter, but no price adjustment will be
made on such shares. Only investments in Class A shares are included 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 [Scudder Kemper Mutual Fund]s (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 [Scudder
Kemper Mutual Fund]s in accordance with the provisions below.

Class A Shares. Class A shares of the [Scudder Kemper Mutual Fund]s 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.

      Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another [Scudder 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 calculating the contingent deferred sales
charge.

Class B Shares. Class B shares of the Fund and Class B shares of any other
[Scudder Kemper Mutual Fund] listed under "Special Features -- Class A Shares --
Combined Purchases" may be exchanged for each other at their relative net asset
values. Class B shares may be exchanged without a contingent deferred sales
charge being imposed at the time of exchange. For purposes of calculating 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
[Scudder 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 purposes of 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 [Scudder Kemper Mutual Fund] with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange through
another [Scudder 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"). In addition, shares of a [Scudder Kemper Mutual Fund] with a value of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
another [Scudder Kemper Mutual Fund], or from a money market fund, may not be
exchanged thereafter until they have been owned for 15 days, if, in the
Advisor's judgment, the exchange activity may have an adverse effect on the
fund. In


                                       47
<PAGE>

particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the [Scudder Kemper Mutual Fund] and therefore may
be subject to the 15-Day Hold Policy.

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

Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a [Scudder 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 [Scudder Kemper Mutual Fund]. If
selected, exchanges will be made automatically until the shareholder or the
[Scudder Kemper Mutual Fund] terminates the privilege. Exchanges are subject to
the terms and conditions described above under "Exchange Privilege," except that
the $1,000 minimum investment requirement for the [Scudder Kemper Mutual Fund]
acquired on exchange is not applicable. This privilege may not be used for the
exchange of shares held in certificated form.

Quick-Buy and Quick-Sell. Quick-Buy and Quick-Sell permits the transfer of money
via the Automated ClearingHouse 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 Quick-Buy or Direct Deposit may not be redeemed under this privilege
until such Shares have been owned for at least 10 days. By enrolling in
Quick-Buy and Quick-Sell, 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 Quick-Buy and Quick-Sell, a shareholder can initiate a transaction by calling
Kemper Shareholder Services toll free at 1-800-621-1048, Monday through Friday,
8:00 a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. Quick-Buy and Quick-Sell cannot be used with passbook savings accounts
or for tax-deferred plans such as Individual Retirement Accounts ("IRAs").

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


                                       48
<PAGE>

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.

Automatic 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 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 an automatic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.

      The purchase of Class A shares while participating in an automatic
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 an automatic
withdrawal plan. The right is reserved to amend the automatic withdrawal plan on
30 days' notice. The plan may be terminated at any time by the investor or the
Fund.

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:

o     Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
      This includes Savings Incentive Match Plan for Employees of Small
      Employers ("SIMPLE"), Simplified Employee Pension Plan ("SEP") IRA
      accounts and prototype documents.

o     403(b)(7) Custodial Accounts. This type of plan is available to employees
      of most non-profit organizations.

o     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. Investors should consult with their own tax advisors before
establishing a retirement plan.

      The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the Exchange is closed other than
customary weekend and holiday closings or during any period in which trading on
the Exchange is restricted, (b) during any period when an emergency exists as a
result of which (i) disposal of the Fund's investments is not reasonably
practicable, or (ii) it is not reasonably practicable for the Fund to determine
the value of its net assets, or (c) for such other periods as the SEC may by
order permit for the protection of the Fund's shareholders.

      The net asset value per Share of the Fund is determined separately for
each class by dividing the value of the Fund's net assets attributable to that
class by the number of Shares of that class outstanding. The per share net asset
value of the Class B and Class C Shares of 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. The net asset value of Shares of the Fund is
computed as of the close of regular trading on the Exchange on each day the
Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.

      Although it is the Fund's present policy to redeem in cash, if the Board
of Directors determines that a material adverse effect would be experienced by
the remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Directors may
deem fair and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be so liquid as a redemption entirely in cash.

      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


                                       49
<PAGE>

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.

OFFICERS AND DIRECTORS

      The officers and Directors of the Corporation, their ages, their principal
occupations and their affiliations, if any, with the Advisor, and Kemper
Distributors, Inc., are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Kemper Distributors,
Name, Age, and Address             Position with Fund      Principal Occupation**                  Inc.
----------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                     <C>                                     <C>
Henry P. Becton, Jr. (57)          Director                President, WGBH Educational Foundation            --
WGBH
125 Western Avenue
Allston, MA 02134
----------------------------------------------------------------------------------------------------------------------------
Linda C. Coughlin (49)+*           Director and President  Managing Director of Zurich Scudder     Director and Senior
                                                           Investments, Inc.                       Vice President
----------------------------------------------------------------------------------------------------------------------------
Dawn-Marie Driscoll (54)           Director                Executive Fellow, Center for Business             --
4909 SW 9th Place                                          Ethics, Bentley College; President,
Cape Coral, FL  33914                                      Driscoll Associates (consulting firm)
----------------------------------------------------------------------------------------------------------------------------
Edgar R. Fiedler (71)              Director                Senior Fellow and Economic Counselor,             --
50023 Brogden                                              The Conference Board,
Chapel Hill, NC                                            Inc.(not-for-profit business research
                                                           organization)
----------------------------------------------------------------------------------------------------------------------------
Keith R. Fox (46)                  Director                Private Equity Investor, General                  --
10 East 53rd Street                                        Partner, Exeter Group of Funds
New York, NY  10022
----------------------------------------------------------------------------------------------------------------------------
Joan E. Spero (56)                 Director                President, Doris Duke Charitable                  --
Doris Duke Charitable Foundation                           Foundation; Department of State -
650 Fifth Avenue                                           Undersecretary of State for Economic,
New York, NY  10128                                        Business and Agricultural Affairs
                                                           (March 1993 to January 1997)
----------------------------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg (57)        Director                Consultant; Director, Financial                   --
3816 Military Road, NW                                     Institutions Issues, U.S. General
Washington, D.C.                                           Accounting Office (1996-1997);
                                                           Partner, Fulbright & Jaworski Law
                                                           Firm (1978-1996)
----------------------------------------------------------------------------------------------------------------------------
Jean C. Tempel (57)                Director                Managing  Director, First Light                   --
One Boston Place 23rd Floor                                Capital, LLC (venture capital firm)
Boston, MA 02108
----------------------------------------------------------------------------------------------------------------------------
Steven Zaleznick (46)*             Director                President and CEO, AARP Services, Inc.            --
601 E Street
Washington, D.C. 20004
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       50
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   Position with
                                                                                                   Underwriter,
                                                                                                   Kemper Distributors,
Name, Age, and Address             Position with Fund      Principal Occupation**                  Inc.
----------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                     <C>                                     <C>
Thomas V. Bruns (43)#              Vice President          Managing Director of Zurich Scudder                __
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
James M. Eysenbach (38)@           Vice President          Managing Director of Zurich Scudder                __
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
William F. Glavin (42)#            Vice President          Managing Director of Zurich Scudder     Vice President
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
James E. Masur (40)+               Vice President          Senior Vice President of Zurich                    __
                                                           Scudder Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Ann M. McCreary (44) ++            Vice President          Managing Director of Zurich Scudder               --
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (48)+             Vice President and      Managing Director of Zurich Scudder     Director, Senior Vice
                                   Assistant Secretary     Investments, Inc.                       President, Chief Legal
                                                                                                   Officer and Assistant
                                                                                                   Clerk
----------------------------------------------------------------------------------------------------------------------------
Howard S. Schneider (43)#          Vice President          Managing Director of Zurich Scudder                __
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Susan Dahl(35)                     Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
William E. Holzer(51)              Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Gerald J. Moran(61)                Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
M. Isabel Saltzman(46)             Vice President          Managing Director of Zurich Scudder
                                                           Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
John R. Hebble (42)+               Treasurer               Senior Vice President of Zurich         Assistant Treasurer
                                                           Scudder Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Brenda Lyons (37)+                 Assistant Treasurer     Senior Vice President of Zurich
                                                           Scudder Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Caroline Pearson (38)+             Assistant Secretary     Senior Vice President of Zurich         Clerk
                                                           Scudder Investments, Inc.; Associate,
                                                           Dechert Price & Rhoads (law firm)
                                                           1989 - 1997
----------------------------------------------------------------------------------------------------------------------------
John Millette (38)+                Vice President and      Vice President of Zurich Scudder                  --
                                   Secretary               Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

      *     Ms. Coughlin and Mr. Zaleznick are considered by the Fund and its
            counsel to be persons who are "interested persons" of the Advisor or
            of the Corporation, within the meaning of the Investment Company Act
            of 1940, as amended.


                                       51
<PAGE>

      **    Unless otherwise stated, all of the Directors and officers have been
            associated with their respective companies for more than five years,
            but not necessarily in the same capacity.
      +     Address: Two International Place, Boston, Massachusetts
      ++    Address: 345 Park Avenue, New York, New York
      #     222 South Riverside Plaza, Chicago, Illinois
      @     101 California Street, San Francisco, California

      The Directors and Officers of the Corporations also serve in similar
capacities with other Scudder Funds.

      [TO BE UPDATED: INSERTION OF SHAREHOLDING INFORMATION as of January 31,
2001 for Class AARP & Class S]

Remuneration

Responsibilities of the Board--Board and Committee Meetings

      The Board of Directors of the Corporation is responsible for the general
oversight of the Fund's business. A majority of the Board's members are not
affiliated with Zurich Scudder Investments, Inc. These "Independent Directors"
have primary responsibility for assuring that the Fund is managed in the best
interests of its shareholders.

      The Board of Directors meets at least quarterly to review the investment
performance of the Fund of the Corporation and other operational matters,
including policies and procedures designated to assure compliance with various
regulatory requirements. At least annually, the Independent Directors review the
fees paid to Scudder and its affiliates for investment advisory services and
other administrative and shareholder services. In this regard, they evaluate,
among other things, the quality and efficiency of the various other services
provided, costs incurred by Scudder and its affiliates, and comparative
information regarding fees and expenses of competitive funds. They are assisted
in this process by the Fund's independent public accountants and by independent
legal counsel selected by the Independent Directors.

      All of the Independent Directors serve on the Committee of Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.

Compensation of Officers and Directors of the Fund

      Each Independent Director receives compensation for his or her services,
which includes an annual retainer and an attendance fee for each meeting
attended. The Independent Director who serves as lead Director receives
additional compensation for his or her service. No additional compensation is
paid to any Independent Director for travel time to meetings, attendance at
directors' educational seminars or conferences, service on industry or
association committees, participation as speakers at directors' conferences or
service on special trustee task forces or subcommittees. Independent Directors
do not receive any employee benefits such as pension or retirement benefits or
health insurance. Notwithstanding the schedule of fees, the Independent
Directors have in the past and may in the future waive a portion of their
compensation.

      The Independent Directors also serve in the same capacity for other funds
managed by the Advisor. These funds differ broadly in type and complexity and in
some cases have substantially different Director fee schedules. The following
table shows the aggregate compensation received by each Independent Director
during 2000 from each Corporation and from all of the Scudder funds as a group.

--------------------------------------------------------------------------------
                                       Global/
                                    International
            Name                     Fund, Inc.*           All Scudder Funds
--------------------------------------------------------------------------------
Henry P. Becton, Jr.**                      $                 $(30 funds)
--------------------------------------------------------------------------------
Dawn-Marie Driscoll**                                          (30 funds)
--------------------------------------------------------------------------------
Edgar R. Fiedler+                                              (29 funds)
--------------------------------------------------------------------------------
Keith R. Fox**                                                 (23 funds)
--------------------------------------------------------------------------------
Joan E. Spero**                                                (23 funds)
--------------------------------------------------------------------------------
Jean Gleason Stromberg                                         (16 funds)
--------------------------------------------------------------------------------
Jean C. Tempel**                                               (30 funds)
--------------------------------------------------------------------------------


                                       52
<PAGE>

*     Global/International Fund, Inc. consists of four funds: Global Discovery
      Fund, Scudder Emerging Markets Income Fund, Scudder Global Fund and
      Scudder Global Bond Fund.
**    Newly elected Director. On July 13, 2000, shareholders of the Fund elected
      a new Board of Directors. See the "Directors and Officers" section for the
      newly-constituted Board of Directors.
+     Mr. Fiedler's total compensation includes the $9,900 accrued, but not
      received, through the deferred compensation program.

      Members of the Board of Directors who are employees of the Advisor or its
affiliates receive no direct compensation from the Corporation, although they
are compensated as employees of the Advisor, or its affiliates, as a result of
which they may be deemed to participate in fees paid by the Fund.

SHAREHOLDER RIGHTS

The Fund is a series of Global/International Fund, Inc., a Maryland corporation
organized on May 15, 1986. The name of this Corporation was changed, effective
May 29, 1998, from Scudder Global Fund, Inc. This Corporation currently consists
of four series: Scudder Global Fund, Scudder Global Bond Fund, Global Discovery
Fund and Scudder Emerging Markets Income Fund. Each Fund is further divided into
two classes of shares, Class AARP and Class S shares, except the Fund and Global
Discovery Fund whose shares are divided into five classes of shares, Class AARP,
Class S Class A, Class B and Class C shares.

The authorized capital stock of Global/International Fund, Inc. consists of
1,559,993,796 billion shares with $0.01 par value, 200 million shares of which
are allocated to Global Discovery Fund, 529,154,575 million shares of which are
allocated to Scudder Global Bond Fund, 320 million shares of which are allocated
to each of, Scudder Emerging Markets Income Fund and Scudder Global Fund. Each
share of each series of the Corporation (or class thereof) has equal rights as
to each other share of that series (or class) as to voting for Directors,
redemption, dividends and liquidation. The Directors have the authority to issue
additional series of shares and to designate the relative rights and preferences
as between the different series. All shares issued and outstanding are fully
paid and non-assessable, transferable and redeemable at net asset value at the
option of the shareholder. Shares have no pre-emptive or conversion rights.

Shares of the Corporation have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of Directors
can elect 100% of the Directors if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors. The assets of the Corporation 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 charged
with the liabilities in respect to such series and with a share of the general
liabilities of the Corporation. 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
Corporation, subject to the general supervision of the Directors, 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 Corporation 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.

The assets of the Corporation 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 such a share of the general
liabilities of the Corporation. 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
Corporation, subject to the general supervision of the Directors, 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 Corporation 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.


                                       53
<PAGE>

Shares of the Corporation entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and by class on matters affecting an individual class. For example, a
change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.

The Directors of the Corporation, in their discretion, may authorize the
additional division of shares of a series into different classes permitting
shares of different classes to be distributed by different methods. Although
shareholders of different classes of a series would have an interest in the same
portfolio of assets, shareholders of different classes may bear different
expenses in connection with different methods of distribution.

The Corporation adopted a plan on March 14, 2000 pursuant to Rule 18f-3 under
the 1940 Act (the "Plan") to permit the Corporation to establish a multiple
class distribution system for the Funds.

Under the Plan, shares of each class represent an equal pro rata interest in the
Fund and, generally, shall have identical voting, dividend, liquidation, and
other rights, preferences, powers, restrictions, limitations, qualifications and
terms and conditions, except that: (1) each class shall have a different
designation; (2) each class of shares shall bear its own "class expenses;" (3)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relates to its administrative services, shareholder services
or distribution arrangements; (4) each class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class; (5) each class may have separate
and distinct exchange privileges; (6) each class may have different conversion
features; and (7) each class may have separate account size requirements.
Expenses currently designated as "Class Expenses" by the Corporation's Board of
Directors under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.

Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.

The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall not be liable for actions taken by them
in good faith, in a manner reasonably believed to be in the best interests of
the Corporation and with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In so acting, a Director shall
be fully protected in relying in good faith upon the records of the Corporation
and upon reports made to the Corporation by persons selected in good faith by
the Directors as qualified to make such reports. The Articles and the By-Laws of
the Corporation provide that the Corporation will indemnify its Directors,
officers, employees or agents against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Corporation consistent with applicable law.

Additional Information

Other Information

The CUSIP numbers of the classes are:

      Class A: [INSERT CUSIP NUMBER]

      Class B: [INSERT CUSIP NUMBER]

      Class C: [INSERT CUSIP NUMBER]

      The Fund has a fiscal year ending October 31.

      Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Advisor in light of the Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.


                                       54
<PAGE>

      The Corporation employs Brown Brothers Harriman & Company, 40 Water
Street, Boston, Massachusetts 02109 as custodian for the Fund. Brown Brothers
Harriman & Company has entered into agreements with foreign subcustodians
approved by the Directors of the Corporation pursuant to Rule 17f-5 of the 1940
Act.

      The law firm of Dechert is counsel to the Fund.

      The Fund's Shares prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Fund has filed with the SEC under the Securities Act of
1933 and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. The
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.

Financial Statements

      The financial statements, including the investment portfolio of the Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Fund dated October 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.

                                    APPENDIX

      The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds.

Ratings of Municipal and Corporate Bonds

      S&P:

      Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. 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. 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.

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

      Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.

      Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.


                                       55
<PAGE>

      Moody's:

      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. 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. 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.

      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. 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 other good and bad times over
the future. Uncertainty of position characterizes bonds in this class. 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.

      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. Bonds, which are rated Ca, represent obligations that are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. 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.


                                       56
<PAGE>

<TABLE>
<CAPTION>
Item 23                        Exhibits:

<S>                            <C>      <C>      <C>
                               (a)      (1)      Articles of Amendment and Restatement, dated December 13, 1990, is
                                                 incorporated by reference to Post-Effective Amendment No. 8 to the
                                                 Registration Statement.

                                        (2)      Articles of Amendment, dated December 29, 1997, is incorporated by
                                                 reference to Post-Effective Amendment No. 34 to the Registration
                                                 Statement.

                                        (3)      Articles of Amendment, dated May 29, 1998, is incorporated by
                                                 reference to Post-Effective Amendment No. 34 to the Registration
                                                 Statement.

                                        (4)      Articles Supplementary, dated February 14, 1991, is incorporated by
                                                 reference to Post-Effective Amendment No. 9 to the Registration
                                                 Statement.

                                        (5)      Articles Supplementary, dated July 11, 1991, is incorporated by
                                                 reference to Post-Effective Amendment No. 12 to the Registration
                                                 Statement.

                                        (6)      Articles Supplementary, dated November 24, 1992, is incorporated by
                                                 reference to Post-Effective Amendment No. 18 to the Registration
                                                 Statement.

                                        (7)      Articles Supplementary, dated October 20, 1993, is incorporated by
                                                 reference to Post-Effective Amendment No. 19 to the Registration
                                                 Statement.

                                        (8)      Articles Supplementary, dated December 14, 1995, is incorporated by
                                                 reference to Post-Effective Amendment No. 26 to the Registration
                                                 Statement.

                                        (9)      Articles Supplementary, dated March 6, 1996, is incorporated by
                                                 reference to Post-Effective Amendment No. 28 to the Registration
                                                 Statement.

                                        (10)     Articles Supplementary, dated April 15, 1998 is incorporated by
                                                 reference to Post-Effective Amendment No. 34 to the Registration
                                                 Statement.

                                        (11)     Articles Supplementary, dated March 31, 2000, are incorporated by
                                                 reference to Post-Effective Amendment No. 44 to the Registration
                                                 Statement.

                               (b)      (1)      By-Laws, dated May 15, 1986, are incorporated by reference
                                                 to the original Registration Statement.

                                       3
<PAGE>

                                        (2)      Amendment, dated May 4, 1987, to the By-Laws is incorporated by
                                                 reference to Post-Effective Amendment No. 2 to the Registration
                                                 Statement.

                                        (3)      Amendment to the By-Laws, dated September 14, 1987, is incorporated
                                                 by reference to Post-Effective Amendment No. 5 to the Registration
                                                 Statement.

                                        (4)      Amendment to the By-Laws, dated July 27, 1988, is incorporated by
                                                 reference to Post-Effective Amendment No. 5 to the Registration
                                                 Statement.

                                        (5)      Amendment to the By-Laws, dated September 15, 1989, is incorporated
                                                 by reference to Post-Effective Amendment No. 7 to the Registration
                                                 Statement.

                                        (6)      Amended and Restated By-Laws, dated March 4, 1991, are incorporated
                                                 by reference to Post-Effective Amendment No. 12 to the Registration
                                                 Statement.

                                        (7)      Amendment to the By-Laws, dated September 20, 1991, is incorporated
                                                 by reference to Post-Effective Amendment No. 15 to the Registration
                                                 Statement.

                                        (8)      Amendment to the By-Laws, dated December 12, 1991, is incorporated
                                                 by reference to Post-Effective Amendment No. 23 to the Registration
                                                 Statement.

                                        (9)      Amendment to the By-Laws, dated October 1, 1996, is incorporated by
                                                 reference to Post-Effective Amendment No. 27 to the Registration
                                                 Statement.

                                        (10)     Amendment to the By-Laws, dated December 3, 1997, is incorporated
                                                 by reference to Post-Effective Amendment No. 34 to the Registration
                                                 Statement.

                                        (11)     Amendment to the By-Laws, dated February 7, 2000, is incorporated
                                                 by reference to Post-Effective Amendment No. 43 to the Registration
                                                 Statement.

                               (c)      (1)      Specimen Share Certificate representing shares of capital stock of
                                                 $.01 par value of Scudder Global Fund is incorporated by reference
                                                 to Post-Effective Amendment No. 6 to the Registration Statement.

                                        (2)      Specimen Share Certificate representing shares of capital stock of
                                                 $.01 par value of Scudder International Bond Fund is incorporated
                                                 by reference to Post-Effective Amendment No. 6 to the Registration
                                                 Statement.

                                       4
<PAGE>

                               (d)      (1)      Investment Management Agreement between the Registrant (on behalf
                                                 of Scudder Global Fund) and Scudder Kemper Investments, Inc. dated
                                                 September 7, 1998 is incorporated by reference to Post-Effective
                                                 Amendment No. 36 to the Registration Statement.

                                        (2)      Investment Management Agreement between the Registrant (on behalf
                                                 of Scudder International Bond Fund) and Scudder Kemper Investments,
                                                 Inc., dated September 7, 1998, is incorporated by reference to
                                                 Post-Effective Amendment No. 36 to the Registration Statement.

                                        (3)      Investment Management Agreement between the Registrant (on behalf
                                                 of Scudder Global Bond Fund) and Scudder Kemper Investments, Inc.,
                                                 dated September 7, 1998, is incorporated by reference to
                                                 Post-Effective Amendment No. 36 to the Registration Statement.

                                        (4)      Investment Management Agreement between the Registrant (on behalf
                                                 of Scudder Global Discovery Fund) and Scudder Kemper Investments,
                                                 Inc., dated September 7, 1998, is incorporated by reference to Post
                                                 Effective Amendment No. 36 to the Registration Statement.

                                        (5)      Investment Management Agreement between the Registrant (on behalf
                                                 of Scudder Emerging Markets Income Fund) and Scudder Kemper
                                                 Investments, Inc., dated September 7, 1998 is incorporated by
                                                 reference to Post-Effective Amendment No. 36 to the Registration
                                                 Statement.

                               (e)      (1)      Underwriting Agreement between the Registrant and Scudder Investor
                                                 Services, Inc., dated September 7, 1998, is incorporated by
                                                 reference to Post-Effective Amendment No. 36 to the Registration
                                                 Statement.

                                        (2)      Underwriting and Distribution Services Agreement between the
                                                 Registrant  (on behalf of Global Discovery Fund) and Kemper
                                                 Distributors, Inc., dated August 6, 1998, is incorporated by
                                                 reference to Post Effective Amendment 36 to the Registration
                                                 Statement.

                                        (3)      Underwriting and Distribution Services Agreement between the
                                                 Registrant, (on behalf of Global Discovery Fund) and Kemper
                                                 Distributors, Inc., dated September 7, 1998, is incorporated by
                                                 reference to Post Effective Amendment No. 37 to the Registration
                                                 Statement.

                                        (4)      Underwriting Agreement between the Registrant and Scudder Investor
                                                 Services, Inc., dated May 8, 2000, is incorporated by reference to
                                                 Post Effective Amendment No. 45 to the Registration Statement.

                                       5
<PAGE>

                               (f)               Inapplicable.

                               (g)      (1)      Custodian Agreement between the Registrant and State Street Bank
                                                 and Trust Company, dated July 24, 1986, is incorporated by
                                                 reference to Post-Effective Amendment No. 1 to the Registration
                                                 Statement.

                                        (2)      Fee schedule for Exhibit (g)(1) is incorporated by reference to
                                                 Post-Effective Amendment No. 4 to the Registration Statement.

                                        (3)      Custodian Agreement between the Registrant (on behalf of Scudder
                                                 International Bond Fund) and Brown Brothers Harriman & Co., dated
                                                 July 1, 1988, is incorporated by reference to Post-Effective
                                                 Amendment No. 5 to the Registration Statement.

                                        (4)      Fee schedule for Exhibit 8(g)(3) is incorporated by reference to
                                                 Post-Effective Amendment No. 5 to the Registration Statement.

                                        (5)      Amendment, dated September 16, 1988, to the Custodian Contract
                                                 between the Registrant and State Street Bank and Trust Company
                                                 dated July 24, 1986 is Incorporated by reference to Post-Effective
                                                 Amendment No. 6 to the Registration Statement.

                                        (6)      Amendment, dated December 7, 1988, to the Custodian Contract
                                                 between the Registrant and State Street Bank and Trust Company
                                                 dated July 24, 1986 is incorporated by reference to Post-Effective
                                                 Amendment No. 6 to the Registration Statement.

                                        (7)      Amendment, dated November 30, 1990, to the Custodian Contract
                                                 between the Registrant and State Street Bank and Trust Company,
                                                 dated July 24, 1986, is incorporated by reference to Post-Effective
                                                 Amendment No. 10 to the Registration Statement.

                                        (8)      Custodian Agreement between the Registrant (on behalf of Scudder
                                                 Short Term Global Income Fund) and Brown Brothers Harriman & Co.,
                                                 dated February 28, 1991, is incorporated by reference to
                                                 Post-Effective Amendment No. 15 to the Registration Statement.

                                        (9)      Custodian Agreement between the Registrant (on behalf of Scudder
                                                 Global Small Company Fund) and Brown Brothers Harriman & Co., dated
                                                 August 30, 1991, is incorporated by reference to Post-Effective
                                                 Amendment No. 16 to the Registration Statement.

                                       6
<PAGE>

                                        (10)     Custodian Agreement between the Registrant (on behalf of Scudder
                                                 Emerging Markets Income Fund) and Brown Brothers Harriman & Co.,
                                                 dated December 31, 1993, is incorporated by reference to
                                                 Post-Effective Amendment No. 23 to the Registration Statement.

                                        (11)     Amendment  (on behalf of Scudder Global Fund) dated October 3, 1995
                                                 to the Custodian Agreement between the Registrant and Brown
                                                 Brothers Harriman & Co., dated March 7, 1995, is incorporated by
                                                 reference to Post-Effective Amendment No. 24 to the Registration
                                                 Statement.

                                        (12)     Amendment, dated September 29, 1997, to the Custodian Contract
                                                 between the Registrant and Brown Brothers Harriman & Co. dated,
                                                 March 7, 1995, is incorporated by reference to Post-Effective
                                                 Amendment No. 32 to the Registration Statement.

                                        (13)     Amendment (on behalf of Scudder International Bond Fund), dated
                                                 April 16, 1998, to the Custodian Agreement between the Registrant
                                                 and Brown Brothers Harriman & Co., dated March 7, 1995, is
                                                 incorporated by reference to Post-Effective Amendment No. 34 to the
                                                 Registration Statement.

                                        (14)     Amendment (on behalf of Scudder Global Discovery Fund), dated April
                                                 16, 1998, to the Custodian Agreement between the Registrant and
                                                 Brown Brothers Harriman & Co., dated March 7, 1998, is incorporated
                                                 by reference to Post-Effective Amendment No. 34 to the Registration
                                                 Statement.

                                        (15)     Amendment (on behalf of Scudder Emerging Markets Income Fund),
                                                 dated June 17, 1998, to the Custodian Agreement between the
                                                 Registrant and Brown Brothers Harriman & Co., dated March 7, 1995,
                                                 is incorporated by reference to Post-Effective Amendment No. 34 to
                                                 the Registration Statement.

                               (h)      (1)      Transfer Agency and Service Agreement between the Registrant and
                                                 Scudder Service Corporation, dated October 2, 1989, is incorporated
                                                 by reference to Post-Effective Amendment No. 7 to the Registration
                                                 Statement.

                                        (2)      Revised fee schedule dated October 1, 1996 for Exhibit 9(a)(1) is
                                                 incorporated by reference to Post-Effective Amendment No. 28 to the
                                                 Registration Statement.

                                       7
<PAGE>

                                        (3)      Agency agreement between the Registrant, (on behalf of Global
                                                 Discovery Fund) and Kemper Service Company, dated April 16,1998, is
                                                 incorporated by reference to Post-Effective Amendment No. 35 to the
                                                 Registration Statement.

                                        (4)      COMPASS Service Agreement between Scudder Trust Company and the
                                                 Registrant, dated October 1, 1995, is incorporated by reference to
                                                 Post-Effective Amendment No. 26 to the Registration Statement.

                                        (5)      Revised fee schedule, dated October 1, 1996, for Exhibit 9(b)(4) is
                                                 incorporated by reference to Post-Effective Amendment No. 28 to the
                                                 Registration Statement.

                                        (6)      Shareholder Services Agreement with Charles Schwab & Co., Inc.,
                                                 dated June 1, 1990, is incorporated by reference to Post-Effective
                                                 Amendment No. 7 to the Registration Statement.

                                        (7)      Service Agreement between Copeland Associates, Inc. and Scudder
                                                 Service Corporation (on behalf of Scudder Global Fund and Scudder
                                                 Global Small Company Fund), dated June 8, 1995, is incorporated by
                                                 reference to Post-Effective Amendment No. 24 to the Registration
                                                 Statement.

                                        (8)      Administrative Services Agreement between McGladvey & Pullen, Inc.
                                                 and the Registrant, dated September 30, 1995, is incorporated by
                                                 reference to Post-Effective Amendment No. 26 to the Registration
                                                 Statement.

                                        (9)      Administrative Services Agreement between the Registrant (on behalf
                                                 of Global Discovery Fund) and Kemper Distributors, Inc., dated
                                                 April 16, 1998, is incorporated by reference to Post-Effective
                                                 Amendment No. 34 to the Registration Statement.

                                        (10)     Fund Accounting Services Agreement between the Registrant (on
                                                 behalf of Scudder Global Fund) and Scudder Fund Accounting
                                                 Corporation, dated March 14, 1995, is incorporated by reference to
                                                 Post-Effective Amendment No. 24 to the Registration Statement.

                                        (11)     Fund Accounting Services Agreement between the Registrant (on
                                                 behalf of Scudder International Bond Fund) and Scudder Fund
                                                 Accounting Corporation, dated August 3, 1995, is incorporated by
                                                 reference to Post-Effective Amendment No. 25 to the Registration
                                                 Statement.

                                       8
<PAGE>

                                        (12)     Fund Accounting Services Agreement between the Registrant (on
                                                 behalf of Scudder Global Small Company Fund) and Scudder Fund
                                                 Accounting Corporation, dated June 15, 1995, is incorporated by
                                                 reference to Post-Effective Amendment No. 25 to the Registration
                                                 Statement.

                                        (13)     Fund Accounting Services Agreement between the Registrant (on
                                                 behalf of Scudder Global Bond Fund (formerly Scudder Short Term
                                                 Global Income Fund) and Scudder Fund Accounting Corporation, dated
                                                 November 29, 1995, is incorporated by reference to Post-Effective
                                                 Amendment No. 26 to the Registration Statement.

                                        (14)     Fund Accounting Services Agreement between the Registrant (on
                                                 behalf of Scudder Emerging Markets Income Fund) and Scudder Fund
                                                 Accounting Corporation, dated February 1, 1996, is incorporated by
                                                 reference to Post-Effective Amendment No. 27 to the Registration
                                                 Statement.

                                        (15)     Administrative Agreement between the Registrant on behalf of
                                                 Global/International Fund, Inc. and Scudder Kemper Investments,
                                                 Inc. dated September 11, 2000, to be filed by Amendment.

                               (i)               Opinion and Consent of Legal Counsel to be filed by amendment.

                               (j)               Consent of Independent Accountants to be filed by amendment.

                               (k)               Inapplicable.

                               (l)               Inapplicable.

                               (m)      (1)      Amended and Restated Rule 12b-1 Plan for Global Discovery Fund
                                                 Class B Shares, dated August 6, 1998, is incorporated by reference
                                                 to Post Effective Amendment No. 36 to the Registration Statement.

                                        (2)      Amended and Restated Rule 12b-1 Plan for Global Discovery Fund
                                                 Class C Shares dated August 6, 1998 is incorporated by reference to
                                                 Post Effective Amendment No. 36 to the Registration Statement.

                               (n)      (1)      Mutual Funds Multi-Distribution System Plan pursuant to Rule 18f-3
                                                 is incorporated by reference to Post-Effective Amendment No. 33 to
                                                 the Registration Statement. (Previously filed as Exhibit o to
                                                 Post-Effective Amendment No. 33).

                                       9
<PAGE>


                                        (2)      Plan with respect to Scudder Emerging Markets Income Fund pursuant
                                                 to Rule 18f-3 is incorporated by reference to Post-Effective
                                                 Amendment No. 45 to the Registration Statement.

                                        (3)      Plan with respect to Scudder Global Fund pursuant to Rule 18f-3 is
                                                 incorporated by reference to Post-Effective Amendment No. 45 to the
                                                 Registration Statement.

                                        (4)      Plan with respect to Scudder Global Bond Fund pursuant to Rule
                                                 18f-3 is incorporated by reference to Post-Effective Amendment No.
                                                 45 to the Registration Statement.

                                        (5)      Amended and Restated Plan with respect to Scudder Emerging Markets
                                                 Income Fund pursuant to Rule 18f-3 is incorporated by reference to
                                                 Post-Effective Amendment No. 45 to the Registration Statement.

                                        (6)      Amended and Restated Plan with respect to Scudder Global Fund
                                                 pursuant to Rule 18f-3 is incorporated by reference to
                                                 Post-Effective Amendment No. 45 to the Registration Statement.

                                        (7)      Amended and Restated Plan with respect to Scudder Global Bond Fund
                                                 pursuant to Rule 18f-3 is incorporated by reference to
                                                 Post-Effective Amendment No. 45 to the Registration Statement.

                                        (8)      Amended and Restated Plan with respect to Scudder International
                                                 Bond Fund pursuant to Rule 18f-3 is incorporated by reference to
                                                 Post-Effective Amendment No. 45 to the Registration Statement.

                               (p)      (1)      Scudder Kemper Investments, Inc., Scudder Investor Services, Inc.
                                                 and Kemper Distributors, Inc. Code of Ethics is incorporated by
                                                 reference to Post-Effective Amendment No. 44 Exhibit (p) to the
                                                 Registration Statement.

                                        (2)      Code of Ethics of the Global/International Fund, Inc. is
                                                 incorporated by reference to Post-Effective Amendment No. 45 to the
                                                 Registration Statement.
</TABLE>

Item 24.          Persons Controlled by or under Common Control with Registrant
--------          -------------------------------------------------------------

                  None

Item 25.          Indemnification.
--------          ----------------

         A policy of insurance covering Scudder Kemper Investments, Inc., its
subsidiaries including Scudder Investor Services, Inc., and all of the
registered investment companies advised by Scudder Kemper Investments, Inc.
insures the Registrant's Directors and officers and others against liability

                                       10
<PAGE>

arising by reason of an alleged breach of duty caused by any negligent error or
accidental omission in the scope of their duties.

         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
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 26.          Business or Other Connections of Investment Adviser
--------          ---------------------------------------------------

                                       11
<PAGE>

                  Scudder Kemper Investments, Inc. has stockholders and
                  employees who are denominated officers but do not as such have
                  corporation-wide responsibilities. Such persons are not
                  considered officers for the purpose of this Item 26.

<TABLE>
<CAPTION>
                                     Business and Other Connections of Board
                                     ---------------------------------------
         Name                          of Directors of Registrant's Adviser
         ----                          ------------------------------------

<S>                   <C>
Stephen R. Beckwith   Treasurer, Scudder Kemper Investments, Inc.**
                      Director, Kemper Service Company
                      Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
                      Director and Treasurer, 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**
                      Director and Chairman, Scudder Threadneedle International Ltd.

                      Director, Scudder Kemper Holdings (UK) Ltd. oo
                      Director and President, Scudder Realty Holdings Corporation *

                      Director, Scudder, Stevens & Clark Overseas Corporation o
                      Director and Treasurer, Zurich Investment Management, Inc. xx
                      Director and Treasurer, Zurich Kemper Investments, Inc.

Lynn S. Birdsong      Director, Vice President and Chief Investment Officer, Scudder Kemper Investments,
                            Inc.**
                      Director and Chairman, Scudder Investments (Luxembourg) S.A.#

                      Director, Scudder Investments (U.K.) Ltd. oo

                      Director and Chairman of the Board, Scudder Investments Asia, Ltd. ooo
                      Director and Chairman, Scudder Investments Japan, Inc. +
                      Senior Vice President, Scudder Investor Services, Inc.
                      Director and Chairman, Scudder Trust (Cayman) Ltd. @@@
                      Director, Scudder, Stevens & Clark Australia x
                      Director and Vice President, Zurich Investment Management, Inc. xx
                      Director and President, Scudder, Stevens & Clark Corporation **

                      Director and President, Scudder , Stevens & Clark Overseas Corporation o
                      Director, Scudder Threadneedle International Ltd.
                      Director, Korea Bond Fund Management Co., Ltd. @@

William H. Bolinder   Director, Scudder Kemper Investments, Inc.**
                      Member Group Executive Board, Zurich Financial Services, Inc. ##
                      Chairman, Zurich-American Insurance Company  xxx

Nicholas Bratt        Director, Scudder Kemper Investments, Inc.**
                      Vice President, Scudder, Stevens & Clark Corporation **

                      Vice President, Scudder, Stevens & Clark Overseas Corporation o

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

                                       12
<PAGE>

Gunther Gose          Director, Scudder Kemper Investments, Inc.**
                      CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
                      CEO/Branch Offices, Zurich Life Insurance Company ##

Rolf Huppi            Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
                      Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
                      Director, Chairman of the Board, Zurich Holding Company of America xxx
                      Director, ZKI Holding Corporation xx

Harold D. Kahn        Chief Financial Officer, Scudder Kemper Investments, Inc.**

Kathryn L. Quirk      Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
                            Investments, Inc.**
                      Director, Vice President, Chief Legal Officer and Secretary, Kemper Distributors,
                            Inc.
                      Director and Secretary, Kemper Service Company
                      Director, Senior Vice President, Chief Legal Officer & 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 and Secretary, 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. @
                      Director and Secretary, Scudder, Stevens & Clark Corporation**

                      Director and Secretary, Scudder, Stevens & Clark Overseas Corporation o
                      Director, Vice President and Secretary, Scudder Defined Contribution Services,
                            Inc.**
                      Director, Vice President and Secretary, Scudder Capital Asset Corporation**
                      Director, Vice President and Secretary, Scudder Capital Stock Corporation**
                      Director, Vice President and Secretary, Scudder Capital Planning Corporation**
                      Director, Vice President and Secretary, SS&C Investment Corporation**
                      Director, Vice President and Secretary, SIS Investment Corporation**
                      Director, Vice President and Secretary, SRV Investment Corporation**
                      Director, Vice President, Chief Legal Officer and Secretary, Scudder Financial
                            Services, Inc.*
                      Director, Korea Bond Fund Management Co., Ltd. @@
                      Director, Scudder Threadneedle International Ltd.
                      Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd.
                      Director, Scudder Investments Japan, Inc. +

                      Director and Secretary, Scudder Kemper Holdings (UK) Ltd. oo
                      Director and Secretary, Zurich Investment Management, Inc. xx

                                       13
<PAGE>

Edmond D. Villani     Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
                      Director, Scudder, Stevens & Clark Japan, Inc. ###

                      President and Director, Scudder, Stevens & Clark Overseas Corporation o
                      President and Director, Scudder, Stevens & Clark Corporation**
                      Director, Scudder Realty Advisors, Inc.  @
                      Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of
                            Luxembourg
                      Director, Scudder Threadneedle International Ltd.
                      Director, Scudder Investments Japan, Inc. +

                      Director, Scudder Kemper Holdings (UK) Ltd. oo
                      President and Director, Zurich Investment Management, Inc. xx
                      Director and Deputy Chairman, Scudder Investment Holdings Ltd.
</TABLE>

     *    Two International Place, Boston, MA
          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
          Grand Cayman, Cayman Islands, British West Indies
     @@@
      o   20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
     ###  1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
     xx   222 S. Riverside, Chicago, IL
     xxx  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
          One South Place, 5th Floor, London EC2M 2ZS England
     oo
     ooo  One Exchange Square, 29th Floor, Hong Kong
     +    Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon, Minato-ku,
             Tokyo 105-0001
     x    Level 3, Five Blue Street, North Sydney, NSW 2060

Item 27.          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 27.

                                       14
<PAGE>

<TABLE>
<CAPTION>
                    (1)                                  (2)                               (3)
      Scudder Investor Services, Inc.         Position and Offices with               Positions and
             Name and Principal            Scudder Investor Services, Inc.       Offices with Registrant
             Business Address              -------------------------------       -----------------------
             ----------------

<S>                                    <C>                                     <C>
     Lynn S. Birdsong                  Senior Vice President                   None
     345 Park Avenue
     New York, NY 10154-0010

     Ann P. Burbank                    Vice President                          None
     Two International Place
     Boston, MA  02110-4103

     Mark S. Casady                    President, Director and Assistant       None
     Two International Place           Treasurer
     Boston, MA  02110-4103

     Linda C. Coughlin                 Director and Senior Vice President      Trustee and President
     Two International Place
     Boston, MA  02110-4103

     Scott B. David                    Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     Richard W. Desmond                Vice President                          None
     345 Park Avenue
     New York, NY  10154-0010

     William F. Glavin                 Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     Robert J. Guerin                  Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     John R. Hebble                    Assistant Treasurer                     Treasurer
     Two International Place
     Boston, MA  02110-4103

     James J. McGovern                 Chief Financial Officer and Treasurer   None
     345 Park Avenue
     New York, NY  10154-0010

     Kimberly S. Nassar                Vice President                          None
     Two International Place
     Boston, MA  02110-4103

     Gloria S. Nelund                  Vice President                          None
     345 Park Avenue
     New York, NY 10154-0010

     Lorie C. O'Malley                 Vice President                          None
     Two International Place
     Boston, MA 02110-4103

                                       15
<PAGE>

                    (1)                                  (2)                               (3)
      Scudder Investor Services, Inc.         Position and Offices with               Positions and
             Name and Principal            Scudder Investor Services, Inc.       Offices with Registrant
             Business Address              -------------------------------       -----------------------
             ----------------

     Caroline Pearson                  Clerk                                   Assistant Secretary
     Two International Place
     Boston, MA  02110-4103

     Kevin G. Poole                    Vice President                          None
     Two International Place
     Boston, MA  02110-4103

     Kathryn L. Quirk                  Director, Senior Vice President, Chief  Vice President and
     345 Park Avenue                   Legal Officer and Assistant Clerk       Assistant Secretary
     New York, NY  10154-0010

     Howard S. Schneider               Vice President                          None
     Two International Place
     Boston, MA 02110-4103

     Linda J. Wondrack                 Vice President and Chief Compliance     None
     Two International Place           Officer
     Boston, MA  02110-4103
</TABLE>

         (c)

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

<S>                                          <C>                 <C>                 <C>                <C>
               Scudder Investor              None                None                None               None
                Services, Inc.
</TABLE>

         (d)

         Kemper Distributors, Inc. acts as principal underwriters of the
Registrant's shares (on behalf of Global Discovery Fund - Class A, Class B and
Class C Shares) and acts as principal underwriters of the Kemper Funds.

         (e)

<TABLE>
<CAPTION>
         (1)                    (2)                                         (3)

         Name                   Positions and Offices with                   Positions and
         ----                   Kemper Distributors, Inc.                    Offices with Registrant
                                -------------------------                    -----------------------

<S>                             <C>                                          <C>
         Thomas V. Bruns        President                                    None

                                       16
<PAGE>

         Linda C. Coughlin      Director and Vice Chairman                   None

         Kathryn L. Quirk       Director, Secretary, Chief Legal             Vice President
                                Officer and Vice President

         James J. McGovern      Chief Financial Officer and Treasurer        None

         Linda J. Wondrack      Vice President and Chief Compliance Officer  Vice President

         Paula Gaccione         Vice President                               None

         Michael E. Harrington  Managing Director                            None

         Todd N. Gierke         Assistant Treasurer                          None

         Philip J. Collora      Assistant Secretary                          Vice President and Secretary

         Diane E. Ratekin       Assistant Secretary                          None

         Mark S. Casady         Director and Chairman                        President

         Terrence S. McBride    Vice President                               None

         Robert Froelich        Managing Director                            None

         C. Perry Moore         Senior Vice President and Managing Director  None

         Lorie O'Malley         Managing Director                            None

         William F. Glavin      Managing Director                            None

         Gary N. Kocher         Managing Director                            None

         Susan K. Crenshaw      Vice President                               None

         Johnston A. Norris     Managing Director and Senior Vice President  None

         John H. Robison, Jr.   Managing Director and Senior Vice President  None

         Robert J. Guerin       Vice President                               None

         Kimberly S. Nassar     Vice President                               None

         Scott B. David         Vice President                               None

         Richard A. Bodem       Vice President                               None
</TABLE>

                                       17
<PAGE>

Item 28.          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 are maintained by Brown Brothers
                  Harriman & Co., 40 Water Street, Boston, Massachusetts.


Item 29.          Management Services.
-------           -------------------

                  Inapplicable.

Item 30.          Undertakings.
-------           ------------

                  None.


                                       18
<PAGE>

                           SIGNATURES
                           ----------

         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant pursuant to Rule 485(a) under the
Securities Act of 1933 has duly caused this amendment to its 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
22nd day of December 2000.



                                                 GLOBAL/INTERNATIONAL FUND, INC.


                                                 By /s/ John Millette
                                                    -----------------
                                                    John Millette
                                                    Secretary

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

<TABLE>
<CAPTION>
SIGNATURE                                   TITLE                                        DATE
---------                                   -----                                        ----
<S>                                         <C>                                          <C>

/s/ Linda C. Coughlin
--------------------------------------
Linda C. Coughlin                           Director and President (Chief                December 22, 2000
                                            Executive Officer)

/s/ Henry P. Becton, Jr.
--------------------------------------
Henry P. Becton, Jr.*                       Director                                     December 22, 2000

/s/Dawn-Marie Driscoll
--------------------------------------
Dawn-Marie Driscoll*                        Director                                     December 22, 2000

/s/ Edgar R. Fiedler
--------------------------------------
Edgar R. Fiedler *                          Director                                     December 22, 2000

/s/ Keith R. Fox
--------------------------------------
Keith R. Fox*                               Director                                     December 22, 2000

/s/ Joan E. Spero
--------------------------------------
Joan E. Spero*                              Director                                     December 22, 2000

/s/ Jean Gleason Stromberg
--------------------------------------
Jean Gleason Stromberg *                    Director                                     December 22, 2000

/s/ Jean C. Tempel
--------------------------------------
Jean C. Tempel*                             Director                                     December 22, 2000

/s/ Steven Zaleznick
--------------------------------------
Steven Zaleznick*                           Director                                     December 22, 2000

/s/ John R. Hebble
--------------------------------------
John R. Hebble                              Treasurer (Chief Financial Officer)          December 22, 2000
</TABLE>




<PAGE>


*By:     /s/ John Millette
         -----------------
         John Millette**
         Secretary

**Attorney-in-fact pursuant to the powers of attorney contained in and
incorporated by reference to Post- Effective Amendment No. 45 to the
Registration Statement, as filed on July 14, 2000.



<PAGE>



                                                               File No. 33-5724
                                                               File No. 811-4670


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    EXHIBITS

                                       TO

                                    FORM N-1A


                         POST-EFFECTIVE AMENDMENT NO. 47

                            TO REGISTRATION STATEMENT

                                      UNDER

                           THE SECURITIES ACT OF 1933

                                       AND

                                AMENDMENT NO. 50

                            TO REGISTRATION STATEMENT

                                      UNDER

                       THE INVESTMENT COMPANY ACT OF 1940



                         GLOBAL/INTERNATIONAL FUND, INC.




                                Part C - Page 1
<PAGE>


                         GLOBAL/INTERNATIONAL FUND, INC.

                                  Exhibit Index

                            TO BE FILED BY AMENDMENT



                                Part C - Page 2


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