LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
March 1, 2000
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 Emerging Markets Growth Fund
Kemper Global Blue Chip Fund
Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper Latin America 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>
HOW THE INVESTING IN
FUNDS WORK THE FUNDS
2 Kemper Asian Growth 32 Kemper International 75 Choosing A Share
Fund Fund Class
8 Kemper Emerging 38 Kemper Latin America 81 How To Buy Shares
Markets Growth Fund Fund
82 How To Exchange
14 Kemper Global Blue 44 Kemper New Europe Or Sell Shares
Chip Fund Fund
83 Policies You Should
20 Kemper Global 51 Other Policies and Know About
Discovery Fund Risks
91 Understanding
26 Kemper Global Income 53 Financial Highlights Distributions And
Fund Taxes
<PAGE>
How The Funds Work
These funds invest significantly in foreign securities. Seven of the funds focus
on stocks, one mainly on bonds. Each fund is dedicated to 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. Their share
prices will go up and down, so be aware that you could lose money.
<PAGE>
TICKER SYMBOLS CLASS: A) KANAX B) KANBX C) KANCX
Kemper
Asian Growth Fund
FUND GOAL The fund seeks long-term capital growth.
2 | Kemper Asian Growth Fund
<PAGE>
The Fund's Main Strategy
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 managers use 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.
[ICON]--------------------------------------------------------------------------
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.
3 | 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 may make sense for investors interested in diversifying a growth
portfolio with exposure to emerging countries in Asia.
4 | Kemper Asian Growth Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has 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.
- ------------------------------------------------------------------------------
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
Best quarter: 40.35%, Q2 '99 Worst quarter: -33.05%, Q2 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 10/21/96
1 Year Life of Class
- ------------------------------------------------------------------------------
Class A 62.14% -2.85%
- ------------------------------------------------------------------------------
Class B 68.21 -2.50
- ------------------------------------------------------------------------------
Class C 69.16 -2.18
- ------------------------------------------------------------------------------
Index 49.83 -0.57*
- ------------------------------------------------------------------------------
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 1999 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 1999 would have been lower if operating expenses
hadn't been reduced.
5 | 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
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
Management Fee 0.85% 0.85% 0.85%
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
Other Expenses** 3.19 3.35 4.26
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 4.04 4.95 5.86
- ------------------------------------------------------------------------------
Expense Reimbursement 1.84 2.17 3.06
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.20 2.78 2.80
- ------------------------------------------------------------------------------
* 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, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.20%, 2.78% and
2.80% for Class A, Class B and Class C shares, respectively, through
02/28/2001.
Based on the figures above (including one year of capped expenses in each
period), 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 $785 $1,576 $2,381 $4,464
- ------------------------------------------------------------------------------
Class B shares 681 1,594 2,507 4,502
- ------------------------------------------------------------------------------
Class C shares 383 1,471 2,638 5,469
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
Class A shares $785 $1,576 $2,381 $4,464
- ------------------------------------------------------------------------------
Class B shares 281 1,294 2,307 4,502
- ------------------------------------------------------------------------------
Class C shares 283 1,471 2,638 5,469
- ------------------------------------------------------------------------------
6 | Kemper Asian Growth Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Tien Yu Sieh Theresa Gusman
Lead Portfolio Manager o Began investment career
o Began investment career in 1983
in 1990 o Joined the advisor in
o Joined the advisor in 1996 1992
o Joined the fund team o Joined the fund team
in 1999 in 1998
Elizabeth J. Allan
o Began investment career
in 1982
o Joined the advisor in 1987
o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
7 | Kemper Asian Growth Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KEMAX B) KEMBX C) KEMCX
Kemper
Emerging Markets
Growth Fund
FUND GOAL The fund seeks long-term capital growth.
8 | Kemper Emerging Markets Growth Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in common stocks and other
equities from emerging market countries, which are located in Latin America,
Asia, Africa, the Middle East and Eastern Europe.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have
exceptional business prospects (due to factors that may range from market
dominance to innovative products or services).
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.
Top-down analysis. 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.
[ICON]--------------------------------------------------------------------------
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 developed foreign and U.S. equities, and may invest up
to 35% of total assets in emerging market and U.S. debt securities, 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.
9 | Kemper Emerging Markets 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 emerging market stocks perform
- -- something that depends on a large number of factors, including economic,
political and demographic trends. When emerging market stock prices fall, you
should expect the value of your investment to fall as well. If the fund
emphasizes a given market, such as Latin America, factors affecting that market
will affect performance. Emerging markets 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. The fact that the fund
is not diversified and may invest in relatively few companies increases fund
risk, because any factors affecting a given company could affect performance. 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 may make sense for investors interested in adding exposure to
countries located in emerging markets.
10 | Kemper Emerging Markets Growth Fund
<PAGE>
Performance
The bar chart shows the total return for the fund's Class A shares, which may
give some idea of risk. The chart doesn't reflect sales loads; if it did,
returns would be lower. The table shows how the fund's returns over different
periods average out.
For context, the table has 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.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1999 49.26
Best quarter: 30.89%, Q4 '99 Worst quarter: -7.31%, Q3 '99
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 1/9/98
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 40.60% 9.77%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 45.01 10.70
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 48.01 12.21
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 66.65 18.81*
- ------------------------------------------------------------------------------
Index: IFCI Emerging Markets Investable Index, a U.S. dollar-denominated index
comprised of stocks of countries classified as either low- or middle-income
economies by the World Bank regardless of their particular stage of development.
* Index comparison begins 1/31/98.
In the chart, total returns for 1999 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 1999 would have been lower if operating expenses
hadn't been reduced.
11 | Kemper Emerging Markets Growth Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 13.14 13.36 13.63
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 14.39 15.36 15.63
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 12.11 12.18 12.48
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.28 3.18 3.15
- ------------------------------------------------------------------------------
* 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, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.28%, 3.18% and
3.15% for Class A, Class B and Class C shares, respectively, through
2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), 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 $793 $3,324 $5,401 $9,111
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 721 3,433 5,593 9,156
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 418 3,172 5,452 9,340
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A $793 $3,324 $5,401 $9,111
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 321 3,133 5,393 9,156
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 318 3,172 5,452 9,340
- ------------------------------------------------------------------------------
12 | Kemper Emerging Markets Growth Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Joyce E. Cornell Theresa Gusman
Lead Portfolio Manager o Began investment career
o Began investment career in 1983
in 1987 o Joined the advisor in
o Joined the advisor in 1991 1992
o Joined the fund team o Joined the fund team
in 1998 in 1998
Andre J. DeSimone Tara C. Kenney
o Began investment career o Began investment career
in 1981 in 1984
o Joined the advisor in 1997 o Joined the advisor in
o Joined the fund team 1995
in 1998 o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
13 | Kemper Emerging Markets Growth Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KGLAX B) KGLBX C) KGLCX
Kemper
Global Blue Chip Fund
FUND GOAL The fund seeks long-term capital growth.
14 | Kemper Global Blue Chip Fund
<PAGE>
The Fund's Main Strategy
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.
[ICON]--------------------------------------------------------------------------
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).
15 | 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.
- --------------------------------------------------------------------------------
If you are interested in large-cap stocks and want to look beyond U.S. markets,
this fund could be suitable for you.
16 | Kemper Global Blue Chip Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has 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.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1998 13.79
1999 28.23
Best quarter: 18.78%, Q4 '99 Worst quarter: -8.00%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 12/31/97
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 20.85% 17.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 24.02 18.34
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 27.07 19.73
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 25.34 25.07
- ------------------------------------------------------------------------------
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 1999 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 1999 would have been lower if operating expenses
hadn't been reduced.
17 | 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
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 3.44 3.84 4.14
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 4.44 5.59 5.89
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 2.64 2.91 3.24
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 1.80 2.68 2.65
- ------------------------------------------------------------------------------
* 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, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
*** By contract, total operating expenses are capped at 1.80%, 2.68% and 2.65%
for Class A, Class B and Class C shares, respectively, through 2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), 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 $747 $1,616 $2,495 $4,735
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 671 1,708 2,732 4,874
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 368 1,464 2,638 5,483
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $747 $1,616 $2,495 $4,735
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 271 1,408 2,532 4,874
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 268 1,464 2,638 5,483
- ------------------------------------------------------------------------------
18 | Kemper Global Blue Chip Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Diego Espinosa William E. Holzer
Lead Portfolio Manager o Began investment career
o Began investment career in 1970
in 1991 o Joined the advisor in
o Joined the advisor in 1996 1980
o Joined the fund team in o Joined the fund team in
1998 1998
Nicholas Bratt
o Began investment career
in 1974
o Joined the advisor in 1976
o Joined the fund team in
1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
19 | Kemper Global Blue Chip Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KGDAX B) KGDBX C) KGDCX
Kemper
Global Discovery Fund*
FUND GOAL The fund seeks above-average long-term capital appreciation.
* Kemper Global Discovery Fund is properly known as Global Discovery
Fund.
20 | Kemper Global Discovery Fund
<PAGE>
The Fund's Main Strategy
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, 1999, companies in which the fund invests typically
have a market capitalization of between $75 million and $5.7 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.
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.
[ICON]--------------------------------------------------------------------------
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).
21 | Kemper Global Discovery Fund
<PAGE>
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 may interest long-term investors who want to diversify a large-cap or
domestic portfolio of investments.
22 | Kemper Global Discovery Fund
<PAGE>
Performance
The bar chart shows the total return for the fund's Class A shares, which may
give some idea of risk. The chart doesn't reflect sales loads; if it did,
returns would be lower. The table shows how the fund's returns over different
periods average out.
For context, the table has 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.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1999 64.15
Best quarter: 41.23%, Q4 '99 Worst quarter: -5.43%, Q3 '99
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 4/16/98
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 54.68% 23.94%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 59.70 28.00
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 62.83 29.53
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 22.36 8.10*
- ------------------------------------------------------------------------------
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 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 1999 would have been lower if operating expenses
hadn't been reduced.
23 | 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
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.10% 1.10% 1.10%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 1.20 1.63 1.19
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 2.30 3.48 3.04
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 0.29 0.65 0.24
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.01 2.83 2.80
- ------------------------------------------------------------------------------
* 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, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.01%, 2.83% and
2.80% for Class A, Class B and Class C shares, respectively, through
2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), 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 $767 $1,226 $1,710 $3,038
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 686 1,308 1,952 3,202
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 383 917 1,575 3,338
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $767 $1,226 $1,710 $3,038
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 286 1,008 1,752 3,202
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 283 917 1,575 3,338
- ------------------------------------------------------------------------------
24 | Kemper Global Discovery Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.88% of average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Gerald J. Moran Steven T. Stokes
Lead Portfolio Manager o Began investment career
o Began investment career in 1986
in 1968 o Joined the advisor in
o Joined the advisor in 1968 1996
o Joined the fund team o Joined the fund team
in 1991 in 1999
Sewall Hodges
o Began investment career
in 1978
o Joined the advisor in 1995
o Joined the fund team
in 1996
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
25 | Kemper Global Discovery Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KGIAX B) KGIBX C) KGICX
Kemper
Global Income Fund
FUND GOAL The fund seeks to provide high current income consistent with
prudent total return asset management.
26 | Kemper Global Income Fund
<PAGE>
The Fund's Main Strategy
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.
[ICON]--------------------------------------------------------------------------
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.
27 | 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 may make sense for investors seeking a less aggressive approach to
international income investing.
28 | Kemper Global Income Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has 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.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1990 22.66
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
Best quarter: 11.23%, Q1 '95 Worst quarter: -4.32%, Q1 '92
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since Since Since 5/31/94 Since
12/31/98 12/31/94 Life of Class 12/31/89
1 Year 5 Years B/C 10 Years
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A -10.58% 5.01% -- 6.36%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B -9.66 5.07 4.88% --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C -7.06 5.30 5.08 --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index -4.27 6.42 6.30 8.03
- ------------------------------------------------------------------------------
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.
29 | 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
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 4.50% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 0.96 0.89 0.86
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 1.71 2.39 2.36
- ------------------------------------------------------------------------------
* 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, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $616 $965 $1,336 $2,379
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 642 1,045 1,475 2,403
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 339 736 1,260 2,696
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $616 $965 $1,336 $2,379
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 242 745 1,275 2,403
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 239 736 1,260 2,696
- ------------------------------------------------------------------------------
30 | Kemper Global Income Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.75% of average daily net assets.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-advisor for Kemper Global Income
Fund. Scudder Investments (U.K.) Limited has served as sub-advisor for mutual
funds since December, 1996 and investment advisor for certain institutional
accounts since August, 1998.
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of the fund's portfolio as allocated to
Scudder Investments (U.K.) Limited by Scudder Kemper Investments, Inc. from
time-to-time for management, including services related to foreign securities,
foreign currency transactions and related investments.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Jan C. Faller Jeremy L. Ragus
Co-Lead Portfolio Manager o Began investment career
o Began investment career in 1977
in 1988 o Joined the advisor
o Joined the advisor in 1999 in 1990
o Joined the fund team in 1999 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
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who
work together to develop the fund's investment strategies.
31 | Kemper Global Income Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KITAX B) KINBX C) KITCX
Kemper
International Fund
FUND GOAL The fund seeks total return through a combination of capital
growth and income.
32 | Kemper International Fund
<PAGE>
The Fund's Main Strategy
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.
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.
[ICON]--------------------------------------------------------------------------
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.
33 | Kemper International 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 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.
- --------------------------------------------------------------------------------
Investors who are looking for a broadly diversified international fund may want
to consider this fund.
34 | Kemper International Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has 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.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1990 -7.50
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
Best quarter: 29.96%, Q4 '99 Worst quarter: -17.89%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as 12/31/1999
- --------------------------------------------------------------------------------
Since Since 5/31/94 Since
Since 12/31/98 12/31/94 Life of Class 12/31/89
1 Year 5 Years B/C 10 Years
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 33.20% 15.68% -- 9.99%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 37.34 15.90 13.62% --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 40.42 16.03 13.73 --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 27.30 13.15 11.81 7.33
- ------------------------------------------------------------------------------
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 and the
chart, total returns for 1990 would have been lower if operating expenses hadn't
been reduced.
35 | Kemper International Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 0.74% 0.74% 0.74%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 0.88 0.97 0.86
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 1.62 2.46 2.35
- ------------------------------------------------------------------------------
* 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, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $730 $1,057 $1,406 $2,386
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 649 1,067 1,511 2,399
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 338 733 1,255 2,686
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $730 $1,057 $1,406 $2,386
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 249 767 1,311 2,399
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 238 733 1,255 2,686
- ------------------------------------------------------------------------------
36 | Kemper International Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.74% of average daily net assets.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-advisor for Kemper International
Fund. Scudder Investments (U.K.) Limited has served as sub-advisor for mutual
funds since December, 1996 and investment advisor for certain institutional
accounts since August, 1998.
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of the fund's portfolio as allocated to
Scudder Investments (U.K.) Limited by Scudder Kemper Investments, Inc. from
time-to-time for management, including services related to foreign securities,
foreign currency transactions and related investments.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Irene Cheng Marc Slendebroek
Lead Portfolio Manager o Began investment career
o Began investment career in 1990
in 1985 o Joined the sub-advisor
o Joined the advisor in 1993 in 1994
o Joined the fund team o Joined the fund team
in 1999 in 1998
Nicholas Bratt Carol L. Franklin
o Began investment career o Began investment career
in 1974 in 1975
o Joined the advisor in 1976 o Joined the advisor
o Joined the fund team in 1981
in 2000 o Joined the fund team
in 2000
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
37 | Kemper International Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KLAAX B) KLABX C) KLACX
Kemper
Latin America Fund
FUND GOAL The fund seeks long-term capital appreciation.
38 | Kemper Latin America Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in Latin American common stocks
and other equities that are issued by companies organized under the laws of a
Latin American country or traded on Latin American markets and do more than half
of their business in Latin America. The fund generally focuses on Argentina,
Brazil, Chile, Colombia, Mexico and Peru.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with competitive
business positions, good technologies, and sound balance sheets, among other
factors. The managers also consider the quality of management, the impact of
government regulations and trade initiatives and the cost of labor and raw
materials.
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.
[ICON]--------------------------------------------------------------------------
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 non-Latin American (including U.S.) debt and equity
securities, 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.
39 | Kemper Latin America 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 Latin American stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When Latin American 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, Latin American companies could be hurt by such factors
as regional economic downturns, currency devaluations, runaway inflation, shifts
in government policy or fluctuations in commodity prices. Similarly, 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.
Emerging markets, including Latin American 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. 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 may interest investors who believe in the long-term growth potential
of Latin American stocks and can accept above-average risks.
40 | Kemper Latin America Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has 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.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1998 -24.32
1999 50.98
Best quarter: 34.56%, Q4 '99 Worst quarter: -19.35%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 12/31/97
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 42.39% 3.77%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 46.65 4.55
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 49.86 5.97
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 61.85 2.13
- ------------------------------------------------------------------------------
Index: IFC Latin America Investable Return Index, a U.S. dollar-denominated
index comprised of Latin America's stock markets without reference to the
stock's availability to overseas investors.
In the chart, total returns from 1998 through 1999 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 1999 would have been lower if operating expenses
hadn't been reduced.
41 | Kemper Latin America Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 17.92 17.85 18.69
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 19.17 19.85 20.69
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 16.98 16.78 17.65
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.19 3.07 3.04
- ------------------------------------------------------------------------------
* 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, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.19%, 3.07% and
3.04% for Class A, Class B and Class C shares, respectively, through
2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), 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 $784 $3,992 $6,355 $9,886
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 710 4,078 6,493 9,900
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 407 3,890 6,437 10,031
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $784 $3,992 $6,355 $9,886
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 310 3,778 6,293 9,900
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 307 3,890 6,437 10,031
- ------------------------------------------------------------------------------
42 | Kemper Latin America Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Tara C. Kenney Paul H. Rogers
Lead Portfolio Manager o Began investment career
o Began investment career in 1985
in 1984 o Joined the advisor in
o Joined the advisor in 1995 1994
o Joined the fund team o Joined the fund team
in 1997 in 1997
Edmund B. Games, Jr.
o Began investment career
in 1960
o Joined the advisor in 1960
o Joined the fund team
in 1997
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
43 | Kemper Latin America Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KNEAX B) KNEBX C) KNECX
Kemper
New Europe Fund
FUND GOAL The fund seeks long-term capital appreciation.
44 | Kemper New Europe Fund
<PAGE>
The Fund's Main Strategy
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.
[ICON]--------------------------------------------------------------------------
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.
45 | 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 may appeal to investors who seek long-term growth and want to gain
exposure to Europe's established markets.
46 | Kemper New Europe Fund
<PAGE>
Performance
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.
- ------------------------------------------------------------------------------
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
Best quarter: 37.93%, Q4 '99 Worst quarter: -16.81%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since
Since 12/31/98 Since 12/31/94 2/16/90 Life
1 Year 5 Years of Class
- ------------------------------------------------------------------------------
Class M 51.83% 31.39% 15.93%
- ------------------------------------------------------------------------------
Index 16.23 22.54 15.05*
- ------------------------------------------------------------------------------
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.
47 | 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
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed 5.75% None None None
On Purchases (as % of offering price)
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None* 4.00% 1.00% None
(as % of redemption proceeds)
- ------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, None None None 2.00%**
if applicable)
- ------------------------------------------------------------------------------
Exchange Fee None None None 2.00%**
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75 None
- ------------------------------------------------------------------------------
Other Expenses*** 1.05 1.20 1.20 0.70
- ------------------------------------------------------------------------------
Total Annual Operating Expenses**** 1.80 2.70 2.70 1.45
- ------------------------------------------------------------------------------
* 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.
48 | 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 $747 $1,109 $1,494 $2,569
- ------------------------------------------------------------------------------
Class B shares 673 1,138 1,630 2,615
- ------------------------------------------------------------------------------
Class C shares 373 838 1,430 3,032
- ------------------------------------------------------------------------------
Class M shares 345 649 976 1,900
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
Class A shares $747 $1,109 $1,494 $2,569
- ------------------------------------------------------------------------------
Class B shares 273 838 1,430 2,615
- ------------------------------------------------------------------------------
Class C shares 273 838 1,430 3,032
- ------------------------------------------------------------------------------
Class M shares 345 649 976 1,900
- ------------------------------------------------------------------------------
49 | Kemper New Europe Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor 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.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.96% of average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Carol L. Franklin Joan R. Gregory
Lead Portfolio Manager o Began investment career
o Began investment career in 1989
in 1975 o Joined the advisor in
o Joined the advisor in 1981 1992
o Joined the fund team o Joined the fund team
in 1990 in 1992
Nicholas Bratt Marc Slendebroek
o Began investment career o Began investment career
in 1974 in 1990
o Joined the advisor in 1976 o Joined the advisor in
o Joined the fund team 1994
in 1999 o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
50 | 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 Scudder Kemper establishes a security's credit quality when it buys the
security, using independent ratings or, for unrated securities, its own
credit determination. When ratings don't agree, a fund may use the
higher rating. If a security's credit quality falls, the advisor will
determine whether selling it would be in the shareholders' best
interests.
o 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.
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).
51 | Other Policies And Risks
<PAGE>
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.
51 | Other Policies And Risks
<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
Class A
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $5.41 $6.65 $10.04 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.01)(b) .11 .08 --
- ------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 2.65 (1.27) (3.47) .54
- ------------------------------------------------------------------------------
Total from investment operations 2.64 (1.16) (3.39) .54
- ------------------------------------------------------------------------------
Less distributions from net investment
income -- (.08) -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $8.05 $5.41 $6.65 $10.04
- ------------------------------------------------------------------------------
Total return (%) (d) 48.80(c) (17.66)(c) (33.76)(c) 5.68**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets at end of period ($
thousands) 12,685 4,047 3,549 827
- ------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 3.35 2.65 2.62 1.46*
- ------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.76 1.80 1.60 1.46*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (.17) 2.05 .97 .74*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 131 155 74*
- ------------------------------------------------------------------------------
(a) For the period from October 21, 1996 (commencement of operations) to
November 30, 1996.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of sales charges.
* Annualized
** Not annualized
53 | Financial Highlights
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $5.34 $6.58 $10.03 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.02)(b) .06 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 2.59 (1.28) (3.45) .53
- ------------------------------------------------------------------------------
Total from investment operations 2.57 (1.22) (3.45) .53
- ------------------------------------------------------------------------------
Less distributions from net investment
income -- (.02) -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $7.91 $5.34 $6.58 $10.03
- ------------------------------------------------------------------------------
Total return (%) (d) 48.13(c) (18.65)(c)(34.40)(c)5.58**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets at end of period ($
thousands) 8,674 3,035 2,545 941
- ------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 4.25 4.29 3.51 2.34*
- ------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.91 2.78 2.57 2.34*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (.32) 1.07 -- (.14)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 131 155 74*
- ------------------------------------------------------------------------------
(a) For the period from October 21, 1996 (commencement of operations) to
November 30, 1996.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of sales charges.
* Annualized
** Not annualized
54 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $5.35 $6.60 $10.03 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.08)(b) .05 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 2.56 (1.28) (3.43) .53
- ------------------------------------------------------------------------------
Total from investment operations 2.48 (1.23) (3.43) .53
- ------------------------------------------------------------------------------
Less distributions from net investment
income -- (.02) -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $7.83 $5.35 $6.60 $10.03
- ------------------------------------------------------------------------------
Total return (%) (d) 46.36(c) (18.72)(c)(34.20)(c)5.58**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets at end of period ($
thousands) 1,182 334 304 180
- ------------------------------------------------------------------------------
Ratio of expenses, before expense
reductions (%) 5.17 4.56 3.55 2.34*
- ------------------------------------------------------------------------------
Ratio of expenses, after expense
reductions (%) 2.81 2.71 2.54 2.34*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (1.22) 1.14 .03 (.14)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 131 155 74*
- ------------------------------------------------------------------------------
(a) For the period from October 21, 1996 (commencement of operations) to
November 30, 1996.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been
reduced.
(d) Total return does not reflect the effect of sales charges.
* Annualized
** Not annualized
55 | Financial Highlights
<PAGE>
Kemper Emerging Markets Growth Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.80 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.02)(a) .03
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.71 (1.73)
- ------------------------------------------------------------------------------
Total from investment operations 1.69 (1.70)
- ------------------------------------------------------------------------------
Net asset value, end of period $9.49 $7.80
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 21.67 (17.89)
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 10.23 22.38
- ------------------------------------------------------------------------------
Expenses, net (%) 2.19 2.28
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.22) .40
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.74 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment loss (.09)(a) (.01)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.68 (1.75)
- ------------------------------------------------------------------------------
Total from investment operations 1.59 (1.76)
- ------------------------------------------------------------------------------
Net asset value, end of period $9.33 $7.74
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 20.54 (18.53)
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 11.25 24.06
- ------------------------------------------------------------------------------
Expenses, net (%) 3.06 3.18
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.93) (.50)
- ------------------------------------------------------------------------------
(a) Per share data was determined based on average shares outstanding.
(b) For the period from January 9, 1998 (commencement of operations) to October
31, 1998.
56 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.76 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.10)(a) .03
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.69 (1.71)
- ------------------------------------------------------------------------------
Total from investment operations 1.59 (1.74)
- ------------------------------------------------------------------------------
Net asset value, end of period $9.35 $7.76
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 20.49 (18.32)
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 11.55 24.03
- ------------------------------------------------------------------------------
Expenses, net (%) 3.03 3.15
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.13) (.47)
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net assets at end of period $3,493,300 1,771,222
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 78 69
- ------------------------------------------------------------------------------
(a) Per share data was determined based on average shares outstanding.
(b) For the period from January 9, 1998 (commencement of operations) to October
31, 1998.
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund.
57 | Financial Highlights
<PAGE>
Kemper Global Blue Chip Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.21 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .03(a) .05
- ------------------------------------------------------------------------------
Net realized and unrealized gain 1.64 .66
- ------------------------------------------------------------------------------
Total from investment operations 1.67 .71
- ------------------------------------------------------------------------------
Net asset value, end of period $11.88 $10.21
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 16.26 7.47
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses before expense reductions (%) 3.35 6.06
- ------------------------------------------------------------------------------
Expenses, net (%) 1.80 1.80
- ------------------------------------------------------------------------------
Net investment income (loss) (%) .24 .92
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.13 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.07)(a) --
- ------------------------------------------------------------------------------
Net realized and unrealized gain 1.61 .63
- ------------------------------------------------------------------------------
Total from investment operations 1.54 .63
- ------------------------------------------------------------------------------
Net asset value, end of period $11.67 $10.13
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 15.10 6.63
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses before expense reductions (%) 4.54 7.69
- ------------------------------------------------------------------------------
Expenses, net (%) 2.68 2.68
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.64) .04
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period ended December 31, 1997 (commencement of operations) to
October 31, 1998.
58 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.14 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.07) --
- ------------------------------------------------------------------------------
Net realized and unrealized gain 1.62 .64
- ------------------------------------------------------------------------------
Total from investment operations 1.55 .64
- ------------------------------------------------------------------------------
Net asset value, end of period $11.69 $10.14
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 15.19 6.74
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses before expense reductions (%) 4.85 7.66
- ------------------------------------------------------------------------------
Expenses, net (%) 2.65 2.65
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.61) .07
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net assets at end of period $22,977,660 9,539,623
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 68 84
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period ended December 31, 1997 (commencement of operations) to
October 31, 1998.
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The Ratios to Average Net Assets
are computed without this expense waiver or absorption.
59 | Financial Highlights
<PAGE>
Kemper Global Discovery Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $19.78 $23.98
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.24) (.09)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.51 (4.11)
- ------------------------------------------------------------------------------
Total from investment operations 8.27 (4.20)
- ------------------------------------------------------------------------------
Net asset value, end of period $28.05 $19.78
- ------------------------------------------------------------------------------
Total return (%) (c)(d) 41.61 (17.51)**
- ------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 55 11
- ------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) 2.01 1.95*
- ------------------------------------------------------------------------------
Ratio of operating expenses, before expense reductions,
to average daily net assets (%) 2.26 2.20*
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily
net assets (%) (.98) (1.00)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 41
- ------------------------------------------------------------------------------
(a) For the period April 16, 1998 (commencement of sales of Class A shares) to
October 31, 1998.
(b) Based on monthly average shares outstanding during the period.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
60 | Financial Highlights
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $19.70 $23.98
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.43) (.18)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.42 (4.10)
- ------------------------------------------------------------------------------
Total from investment operations 7.99 (4.28)
- ------------------------------------------------------------------------------
Net asset value, end of period $27.69 $19.70
- ------------------------------------------------------------------------------
Total return (%) (c)(d) 40.43 (17.85)**
- ------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 27 6
- ------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) 2.83 2.83*
- ------------------------------------------------------------------------------
Ratio of operating expenses, before expense reductions,
to average daily net assets (%) 3.44 3.13*
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily
net assets (%) (1.81) (1.87)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 41
- ------------------------------------------------------------------------------
(a) For the period April 16, 1998 (commencement of sales of Class B shares) to
October 31, 1998.
(b) Based on monthly average shares outstanding during the period.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
61 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $19.70 $23.98
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.43) (.17)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.44 (4.11)
- ------------------------------------------------------------------------------
Total from investment operations 8.01 (4.28)
- ------------------------------------------------------------------------------
Net asset value, end of period $27.71 $19.70
- ------------------------------------------------------------------------------
Total return (%) (c)(d) 40.41 (17.85)**
- ------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 8 2
- ------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) 2.80 2.80*
- ------------------------------------------------------------------------------
Ratio of operating expenses, before expense reductions,
to average daily net assets (%) 3.00 3.23*
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily
net assets (%) (1.79) (1.88)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 41
- ------------------------------------------------------------------------------
(a) For the period April 16, 1998 (commencement of sales of Class C shares) to
October 31, 1998.
(b) Based on monthly average shares outstanding during the period.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
62 | Financial Highlights
<PAGE>
Kemper Global Income Fund
Class A
- ------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $8.94 $8.58 $8.97 $9.05 $8.55
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .32(a) .37(a) .48(a) .52(a) .61
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.88) .50 (.33) (.02) 1.05
- ------------------------------------------------------------------------------
Total from investment
operations (.56) .87 .15 .50 1.66
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.13) (.40) (.47) (.58) (1.16)
- ------------------------------------------------------------------------------
Tax return of capital (.27) (.11) (.07) -- --
- ------------------------------------------------------------------------------
Total distributions (.40) (.51) (.54) (.58) (1.16)
- ------------------------------------------------------------------------------
Net asset value, end of period $7.98 $8.94 $8.58 $8.97 $9.05
- ------------------------------------------------------------------------------
Total return (%) (b) (6.38) 10.48 1.80 5.87 19.89
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 49,407 69,913 72,145 86,240 102,988
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 1.68 1.58 1.32 1.48 1.34
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 1.67 1.58 1.32 1.48 1.34
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 3.80 4.31 5.56 5.77 6.43
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 165 313 283 276 220
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
63 | Financial Highlights
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $8.96 $8.60 $9.00 $9.09 $8.56
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .26(a) .31(a) .41(a) .46(a) .56
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.88) .49 (.33) (.02) 1.05
- ------------------------------------------------------------------------------
Total from investment
operations (.62) .80 .08 .44 1.61
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.11) (.34) (.42) (.53) (1.08)
- ------------------------------------------------------------------------------
Tax return of capital (.23) (.10) (.06) -- --
- ------------------------------------------------------------------------------
Total distributions (.34) (.44) (.48) (.53) (1.08)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.00 $8.96 $8.60 $9.00 $9.09
- ------------------------------------------------------------------------------
Total return (%) (b) (6.98) 9.56 1.03 5.11 19.21
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 6,955 12,536 25,735 44,678 49,692
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 2.37 2.32 2.18 2.14 1.98
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 2.36 2.32 2.18 2.14 1.98
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 3.11 3.57 4.70 5.11 5.79
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 165 313 283 276 220
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
64 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $8.99 $8.62 $9.02 $9.09 $8.56
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .27(a) .32(a) .42(a) .48(a) .57
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.90) .49 (.33) (.02) 1.05
- ------------------------------------------------------------------------------
Total from investment
operations (.63) .81 .09 .46 1.62
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.11) (.34) (.43) (.53) (1.09)
- ------------------------------------------------------------------------------
Tax return of capital (.24) (.10) (.06) -- --
- ------------------------------------------------------------------------------
Total distributions (.35) (.44) (.49) (.53) (1.09)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.01 $8.99 $8.62 $9.02 $9.09
- ------------------------------------------------------------------------------
Total return (%) (b) (7.06) 9.72 1.09 5.31 19.26
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 1,340 2,346 1,149 821 253
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 2.32 2.13 2.11 2.06 2.06
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 2.31 2.13 2.11 2.06 2.06
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 3.16 3.76 4.77 5.19 5.71
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 165 313 283 276 220
- ------------------------------------------------------------------------------
Notes:
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
65 | Financial Highlights
<PAGE>
Kemper International Fund
Class A
- -------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Net asset value, beginning of year $12.10 $12.68 $11.96 $10.59 $11.13
- -------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (.01) .04 -- .04 .07
- -------------------------------------------------------------------------------
Net realized and unrealized gain 2.57 .01 1.52 1.50 .05
- -------------------------------------------------------------------------------
Total from investment operations 2.56 .05 1.52 1.54 .12
- -------------------------------------------------------------------------------
Less dividends:
- -------------------------------------------------------------------------------
Distribution from net
investment income -- (.08) (.12) (.12) --
- -------------------------------------------------------------------------------
Distribution from net
realized gain (1.81) (.55) (.68) (.05) (.66)
- -------------------------------------------------------------------------------
Total dividends (1.81) (.63) (.80) (.17) (.66)
- -------------------------------------------------------------------------------
Net asset value, end of year $12.85 $12.10 $12.68 $11.96 $10.59
- -------------------------------------------------------------------------------
Total return (%) 23.47(a) .45 13.49 14.70 1.69
- -------------------------------------------------------------------------------
Ratios to average net assets
- -------------------------------------------------------------------------------
Expenses, before expense reductions
(%) 1.59 1.64 1.57 1.64 1.57
- -------------------------------------------------------------------------------
Expenses, net (%) 1.59 1.64 1.57 1.64 1.57
- -------------------------------------------------------------------------------
Net investment income (loss) (%) (.12) .36 .16 .34 .83
- -------------------------------------------------------------------------------
66 | Financial Highlights
<PAGE>
Class B
- -------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Net asset value, beginning of year $11.90 $12.50 $11.81 $10.46 $11.09
- -------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (.11) (.08) (.12) (.06) (.02)
- -------------------------------------------------------------------------------
Net realized and unrealized gain 2.52 .03 1.51 1.47 .05
- -------------------------------------------------------------------------------
Total from investment operations 2.41 (.05) 1.39 1.41 .03
- -------------------------------------------------------------------------------
Less dividends:
- -------------------------------------------------------------------------------
Distribution from net
investment income -- -- (.02) (.01) --
- -------------------------------------------------------------------------------
Distribution from net
realized gain (1.81) (.55) (.68) (.05) (.66)
- -------------------------------------------------------------------------------
Total dividends (1.81) (.55) (.70) (.06) (.66)
- -------------------------------------------------------------------------------
Net asset value, end of period $12.50 $11.90 $12.50 $11.81 $10.46
- -------------------------------------------------------------------------------
Total return (%) 22.50(a) (.37) 12.32 13.59 .84
- -------------------------------------------------------------------------------
Ratios to average net assets
- -------------------------------------------------------------------------------
Expenses, before expense
reductions (%) 2.44 2.62 2.57 2.53 2.50
- -------------------------------------------------------------------------------
Expenses, net (%) 2.43 2.62 2.57 2.53 2.50
- -------------------------------------------------------------------------------
Net investment income (loss) (%) (.96) (.62) (.84) (.55) (.10)
- ------------------------------------------------------------------------------
(a) If the Advisor had not reimbursed the fund, the total return for the
year ended October 31, 1999 would have been lower.
67 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.91 $12.51 $11.81 $10.46 $11.09
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.10) (.08) (.09) (.06) (.02)
- ------------------------------------------------------------------------------
Net realized and unrealized gain 2.51 .03 1.49 1.47 .05
- ------------------------------------------------------------------------------
Total from investment operations 2.41 (.05) 1.40 1.41 .03
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net
investment income -- -- (.02) (.01) --
- ------------------------------------------------------------------------------
Distribution from net
realized gain (1.81) (.55) (.68) (.05) (.66)
- ------------------------------------------------------------------------------
Total dividends (1.81) (.55) (.70) (.06) (.66)
- ------------------------------------------------------------------------------
Net asset value, end of period $12.51 $11.91 $12.51 $11.81 $10.46
- ------------------------------------------------------------------------------
Total return (%) 22.49(a) (.37) 12.45 13.59 .84
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense
reductions (%) 2.33 2.55 2.49 2.50 2.50
- ------------------------------------------------------------------------------
Expenses, net (%) 2.32 2.55 2.49 2.50 2.50
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.85) (.55) (.76) (.52) (.10)
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net assets at end of year
(in thousands) $658,211 604,684 588,069 472,243 364,708
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 140 105 76 104 114
- ------------------------------------------------------------------------------
(a) If the Advisor had not reimbursed the fund, the total return for the year
ended October 31, 1999 would have been lower.
Note: Total return does not reflect the effect of any sales charges. Per share
data were determined based on average shares outstanding for the years ended
1995, 1996 and 1998, respectively.
68 | Financial Highlights
<PAGE>
Kemper Latin America Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.31 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .07 .06
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .80 (2.25)
- ------------------------------------------------------------------------------
Total from investment operations .87 (2.19)
- ------------------------------------------------------------------------------
Distribution from net investment income (.06) --
- ------------------------------------------------------------------------------
Net asset value, end of period $8.12 $7.31
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 12.01 (23.05)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 9.16 12.75
- ------------------------------------------------------------------------------
Expenses, net (%) 2.19 2.21
- ------------------------------------------------------------------------------
Net investment income (%) .87 1.38
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.26 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.01) .04
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .81 (2.28)
- ------------------------------------------------------------------------------
Total from investment operations .80 (2.24)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.06 $7.26
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 11.02 (23.58)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 9.93 14.38
- ------------------------------------------------------------------------------
Expenses, net (%) 3.06 3.09
- ------------------------------------------------------------------------------
Net investment income (%) (.13) .50
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period from December 31, 1997 (commencement of operations) to
October 31, 1998.
69 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.26 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income -- .04
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .80 (2.28)
- ------------------------------------------------------------------------------
Total from investment operations .80 (2.24)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.06 $7.26
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 11.02 (23.58)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 10.73 14.34
- ------------------------------------------------------------------------------
Expenses, net (%) 3.04 3.06
- ------------------------------------------------------------------------------
Net investment income (%) (.02) .53
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net assets at end of period $2,462,031 1,460,498
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 76 55
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period from December 31, 1997 (commencement of operations) to
October 31, 1998.
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund.
70 | Financial Highlights
<PAGE>
Kemper New Europe Fund
Class A
- ------------------------------------------------------------------------------
1999(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $14.27
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.03)
- ------------------------------------------------------------------------------
Net realized and unrealized gain .63
- ------------------------------------------------------------------------------
Total from investment operations .60
- ------------------------------------------------------------------------------
Net asset value, end of period $14.87
- ------------------------------------------------------------------------------
Total return (not annualized) (%) (c) 4.20
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 1.63
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.21)
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
1999(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $13.91
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.05)
- ------------------------------------------------------------------------------
Net realized and unrealized gain .63
- ------------------------------------------------------------------------------
Total from investment operations .58
- ------------------------------------------------------------------------------
Net asset value, end of period $14.49
- ------------------------------------------------------------------------------
Total return (not annualized) (%) (c) 4.17
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.36
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.95)
- ------------------------------------------------------------------------------
(a) For the period September 3, 1999 (commencement of Class) to October 31,
1999.
(b) Based on monthly average shares outstanding during the period.
(c) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested.
71 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
1999(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $14.02
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.04)
- ------------------------------------------------------------------------------
Net realized and unrealized gain .64
- ------------------------------------------------------------------------------
Total from investment operations .60
- ------------------------------------------------------------------------------
Net asset value, end of period $14.62
- ------------------------------------------------------------------------------
Total return (not annualized) (%) (c) 4.28
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.40
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.99)
- ------------------------------------------------------------------------------
(a) For the period September 3, 1999 (commencement of Class) to October 31,
1999.
(b) Based on monthly average shares outstanding during the period.
(c) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested.
Note: Total return does not reflect the effect of any sales charges. Prior to
September 3, 1999, the fund operated as a closed-end investment company. On
September 3, 1999, the fund became an open-end investment company and offered
three additional classes of shares.
72 | Financial Highlights
<PAGE>
Class M
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $22.23 $19.96 $16.60 $13.24 $11.61
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (a) (.00)(c) (.00) (.01) .05 .05
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions 4.62 4.47 3.43 3.36 1.58
- ------------------------------------------------------------------------------
Total from investment operations 4.62 4.47 3.42 3.41 1.63
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.03) (.09) (.06) (.05) --
- ------------------------------------------------------------------------------
Net realized gains on
investment transactions (6.36) (2.11) -- -- --
- ------------------------------------------------------------------------------
Total distributions (6.39) (2.20) (.06) (.05) --
- ------------------------------------------------------------------------------
Redemption fees .13 -- -- -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $20.59 $22.23 $19.96 $16.60 $13.24
- ------------------------------------------------------------------------------
Total return (%)
- ------------------------------------------------------------------------------
Per share net asset value (%)
(b)(d) 27.95 27.70 20.66 25.92 14.04
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses (%) 1.68(e) 1.41 1.49 1.51 1.62
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.00) (.01) (.03) .31 .39
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net assets at end of period ($
millions) $295 359 320 266 213
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 57.8 41.4 44.7 35.3 32.4
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested.
(c) Net investment income per share includes non-recurring dividend income
amounting to $.08 per share.
(d) The performance of Class M shares reflects performance of the fund in
closed-end form. The fund's performance may have been lower if it had
operated as an open-end fund during these periods.
(e) Includes reorganization expense ratio of .20%.
Note: Total return does not reflect the effect of any sales charges.
73 | Financial Highlights
<PAGE>
Investing In The Funds
The following pages tell you about many of the services, choices and benefits of
being a Kemper Funds shareholder. You'll also find information on how to check
the status of your account using the method that's most convenient for you.
You can find out more about the topics covered here by speaking with your
financial representative or 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.
- ------------------------------------------------------------------------------
Classes and features Points to help you compare
- ------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, o Some investors may be able to
charged when you buy shares reduce or eliminate their sales
charges; see page 84
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 o Shares automatically convert to
you bought within the last six years Class A six years after purchase,
which means lower annual expenses
o 0.75% distribution fee going forward
- ------------------------------------------------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never convert
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you remain higher
bought within the last year
o 0.75% distribution fee
- ------------------------------------------------------------------------------
75 | Choosing A Share Class
<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 Sales charge
as a % of as a % of your
Your investment offering price net investment
- ---------------------------------------------------------
Up to $50,000 5.75% 6.10%
- ---------------------------------------------------------
$50,000-$99,999 4.50 4.71
- ---------------------------------------------------------
$100,000-$249,999 3.50 3.63
- ---------------------------------------------------------
$250,000-$499,999 2.60 2.67
- ---------------------------------------------------------
$500,000-$999,999 2.00 2.04
- ---------------------------------------------------------
$1 million or more See page 85
- ---------------------------------------------------------
Kemper Global Income Fund
Sales charge Sales charge
as a % of as a % of your
Your investment offering price 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 85
- ---------------------------------------------------------
The offering price includes the sales charge.
76 | Choosing A Share Class
<PAGE>
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")
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.
77 | Choosing A Share Class
<PAGE>
You may be able to buy Class A shares without sales charges when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under which you pay a
fee to an investment advisor or other firm for portfolio management
services
There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper can answer
your questions and help you determine if you are eligible.
If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper can answer your questions and help you determine if
you're eligible.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.
78 | Choosing A Share Class
<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.
79 | Choosing A Share Class
<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.
80 | Choosing A Share Class
<PAGE>
How to Buy Shares
Once you've chosen a share class, use these instructions to make investments.
Make out any checks to "Kemper Funds."
- ------------------------------------------------------------------------------
First investment Additional investments
- ------------------------------------------------------------------------------
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative using o Contact your representative using
the method that's most convenient 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 and a Kemper
investment slip to us at the
o Send it to us at the appropriate appropriate address below
address, along with an investment
check o If you don't have an investment
slip, simply include a letter with
your name, account number, the full
name of the fund and the share class
and your investment instructions
- ------------------------------------------------------------------------------
By wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
- ------------------------------------------------------------------------------
By phone
- -- o Call (800) 621-1048 for
instructions
- ------------------------------------------------------------------------------
With an automatic investment plan
- -- o To set up regular investments,
call (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
Regular mail: Kemper Funds, PO Box 219415, Kansas City, MO 64121-9415
Express, registered or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: (800) 818-7526 (for exchanging and selling only)
81 | How to Buy Shares
<PAGE>
How to Exchange Or Sell Shares
Use these instructions to exchange or sell shares in your account.
- ------------------------------------------------------------------------------
Exchanging into another fund Selling shares
- ------------------------------------------------------------------------------
$1,000 or more to open a new account Some transactions, including most
for over $50,000, can only be
$100 or more for exchanges between ordered in writing with a signature
existing accounts guarantee; if you're in doubt, see
page 92
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by
method that's most convenient the method that's most convenient
for you 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
o the fund, class and account number number from which you want to sell
you're exchanging out of shares
o the dollar amount or number of o the dollar amount or number of
shares 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 a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments
Kemper fund account, call from a Kemper fund account, call
(800) 621-1048 (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
82 | How to Exchange or Sell Shares
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder.
If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.
KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper funds generally and on accounts held directly at Kemper. You can also use
it to make exchanges and sell shares.
83 | Policies You Should Know About
<PAGE>
EXPRESS-Transfer lets you set up a link between a Kemper account and a bank
account. Once this link is in place, you can move money between the two with a
phone call. You'll need to make sure your bank has Automated Clearing House
(ACH) services. Transactions take two to three days to be completed, and there
is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the account
application; to add it to an existing account, call (800) 621-1048.
Share certificates are available on written request. However, we don't recommend
them unless you want them for a specific purpose, because they can only be sold
by mailing them in, and if they're ever lost they're difficult and expensive to
replace.
When you call us to sell shares, we may record the call, ask you for certain
information or take other steps designed to prevent fraudulent orders. It's
important to understand that, with respect to certain pre-authorized privileges,
as long as we take reasonable steps to ensure that an order appears genuine, we
are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are normally completed within 24 hours. The funds can only
send or accept wires of $1,000 or more.
Exchanges among Kemper funds are an option for most shareholders. Exchanges are
a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject or limit purchase orders, for
these or other reasons.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
84 | Policies You Should Know About
<PAGE>
When you want to sell more than $50,000 worth of shares, or send the proceeds to
a third party or to a new address, you'll usually need to place your order in
writing and include a signature guarantee. The only exception is if you want
money wired to a bank account that is already on file with us; in that case, you
don't need a signature guarantee. Also, you don't need a signature guarantee for
an exchange, although we may require one in certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
When you sell shares that have a contingent deferred sales charge (CDSC), we
calculate the CDSC as a percentage of what you paid for the shares or what you
are selling them for -- whichever results in the lowest charge to you. In
processing orders to sell shares, we turn to the shares with the lowest CDSC
first. Exchanges from one Kemper fund into another don't affect CDSCs: for each
investment you make, the date you first bought Kemper shares is the date we use
to calculate a CDSC on that particular investment.
There are certain cases in which you may be exempt from a CDSC. These include:
o the death or disability of an account owner (including a joint owner)
o withdrawals made through a systematic withdrawal plan
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship provisions or returns
of excess contributions from retirement plans
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 is waiving
the applicable commission.
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.
85 | Policies You Should Know About
<PAGE>
In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper can answer your questions and help you determine if you are eligible.
If you sell shares in a Kemper fund and then decide to invest with Kemper again
within six months, you can take advantage of the "reinstatement feature." With
this feature, you can put your money back into the same class of a Kemper fund
at its current NAV and for purposes of sales charges it will be treated as if it
had never left Kemper. You'll also be reimbursed (in the form of fund shares)
for any CDSC you paid when you sold your shares. 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, 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.
86 | Policies You Should Know About
<PAGE>
Redemption Fee (Class M shares)
Upon the redemption or exchange of Class M shares of the fund (including
redemptions in kind) until September 3, 2000, a fee of 2% of the current net
asset value of the shares will be assessed and retained by the fund for the
benefit of the remaining shareholders. This fee is intended to discourage short
term trading in a vehicle intended for long term investment, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge and is not a
commission paid to the investment manager or its subsidiaries. The fund reserves
the right to modify the terms of or terminate this fee at any time.
The fee applies to all redemptions from the fund and exchanges to other Kemper
Funds by Class M shareholders. The fee is applied to the shares being redeemed
or exchanged in the order in which they were purchased.
87 | Policies You Should Know About
<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.
88 | Policies You Should Know About
<PAGE>
Other rights we reserve
For each fund in this prospectus, you should be aware that we may do any of the
following:
o withhold 31% of your distributions as federal income tax if we have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$1,000 for the entire quarter; this policy doesn't apply to most
retirement accounts or if you have an automatic investment plan
o pay you for shares you sell by "redeeming in kind," that is, by giving
you marketable securities (which typically will involve brokerage costs
for you to liquidate) rather than cash; with respect to Kemper Asian
Growth Fund, Global Discovery Fund, Kemper Global Income Fund and
Kemper New Europe Fund, the funds generally won't make a redemption in
kind unless your requests over a 90-day period total more than $250,000
or 1%, whichever is less, of a portfolio's net assets; the other funds
may make similar arrangements
89 | Policies You Should Know About
<PAGE>
o prior to September 3, 2000, all redemptions of Kemper New Europe Fund
Class M shares that total more than $500,000 over a 90-day period will
be paid in kind; in addition to paying the usual 2% redemption fee,
shareholders that are subject to redemption in kind may bear additional
expenses greater than 1% of the value of the shares redeemed, and must
submit their redemption request in writing using a form available from
Kemper Service Company
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
90 | Policies You Should Know About
<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.
91 | Understanding Distributions And Taxes
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- -------------------------------------------------------
o short-term capital gains from selling fund shares
- -------------------------------------------------------
o income dividends you receive from a fund
- -------------------------------------------------------
o short-term capital gains distributions received from a
fund
- -------------------------------------------------------
Generally taxed at capital gains rates
- -------------------------------------------------------
o long-term capital gains from selling fund shares
- -------------------------------------------------------
o long-term capital gains distributions received from a
fund
- -------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.
Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends- received deduction for a portion
of income dividends they receive.
92 | Understanding Distributions And Taxes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we mail one copy per
household. For more copies, call (800) 621-1048.
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
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 short-term world(SM)
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GLOBAL DISCOVERY FUND - KEMPER SHARES
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2000
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, B and C Shares (the "Shares" or
"Kemper Shares") of Global Discovery Fund (the "Fund"). This Statement of
Additional Information should be read in conjunction with the combined
prospectus of the Shares dated March 1, 2000. 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 and is
also available along with other related materials at the Securities and Exchange
Commission's Internet web site (http://www.sec.gov).
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TABLE OF CONTENTS
Page
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Investment Restrictions................................................ 2
Investment Policies and Techniques..................................... 3
Dividends, Distributions and Taxes..................................... 25
Investment Adviser and Underwriter..................................... 32
Portfolio Transactions................................................. 38
Purchase and Redemption of Shares...................................... 40
Performance............................................................ 54
Officers and Directors................................................. 57
Shareholder Rights..................................................... 61
Appendix............................................................... A-1
The financial statements appearing in the Fund's 1999 Annual Report to
Shareholders is incorporated herein by reference. The Annual Report for the Fund
accompanies this document and may be obtained without charge by calling
1-800-621-1048. Scudder Kemper Investments, Inc. (the "Adviser") serves as the
Fund's investment adviser.
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INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a "majority" of its outstanding voting shares. As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), this
means the lesser of (1) 67% of the Fund's shares present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the Fund's outstanding shares.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.
The Fund has elected to be classified as a diversified series of an
open-end investment company.
The Fund may not, as a fundamental policy:
1. 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;
2. issue senior securities, except as permitted under the 1940
Act, 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 1940 Act, 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 to other persons 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.
Other Investment Policies
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 currently does not
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;
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(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.
In addition, other non-fundamental policies may be established from
time to time by the Fund's Directors and would not require the approval of
shareholders.
Master/feeder fund structure. The Corporation's 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.
INVESTMENT POLICIES AND TECHNIQUES
General. Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Fund may engage (such
as short selling, hedging, etc.) or a financial instrument 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 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
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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 is a diversified series of Global/International
Fund, Inc. (the "Corporation"), an open-end management investment company. The
Fund's investment objective is to seek above-average capital appreciation over
the long term by investing primarily in the equity securities of small companies
located throughout the world. The Fund's investment objective is non-fundamental
and may be changed without a vote of shareholders. 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 Corporation
500 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 Fund's investment adviser, Scudder Kemper Investments, Inc. (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.
While the 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. Based on this policy, the companies represented in the Fund's
portfolio typically will have individual equity market capitalizations of
between approximately $50 million and $2 billion, although the Fund will be free
to invest in smaller capitalization issues. Furthermore, the median market
capitalization of the companies in which the Fund invests will not exceed $750
million. 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
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
reverse repurchase agreements, invest in illiquid securities, purchase
securities on a when-issued or
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forward delivery basis, and engage in strategic transactions, including
derivatives. 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 accurately predict how long such
alternative strategies will be utilized.
Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the Securities and Exchange Commission (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.
Common Stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
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.
Foreign Securities. The 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.
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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. The Fund may invest up to 5% of its
total assets in the securities of issuers domiciled in Eastern European
countries.
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.
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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 Fund's custodian values
each Fund's assets daily in terms of U.S. dollars, the Fund does not intend 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
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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 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 chart below sets forth the risk ratings of
selected emerging market countries' sovereign debt securities.
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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 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.
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
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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 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
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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 each 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. 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.
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Economic reforms launched in the 1980s continue to benefit Turkey.
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.
However, the general decline in oil prices has had an adverse impact on many
economies.
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 or AAA, AA, A or BBB by S&P or, if unrated,
judged to be of equivalent quality as determined by the Adviser. Bonds rated Baa
or BBB may have
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<PAGE>
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
(commonly referred to as "junk bonds") 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, 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" hereafter.
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.
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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 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.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
unrestricted securities.
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
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<PAGE>
"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.
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.
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, 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
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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 the repurchase agreement, a 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.
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.
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
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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 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," hereafter).
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
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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. The prices of certain CMOs, depending on their
structure and the rate of pre-payments, can be volatile. Some CMOs may not be as
liquid as other securities.
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 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 for the Fund 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.
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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 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
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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
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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
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
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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.
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.
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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.
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
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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 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
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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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends. 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 net investment 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" hereafter.)
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 month and paid during the following January will be treated by
shareholders for federal
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income tax purposes as if received on December 31 of the calendar year declared.
Additional distributions may be made if necessary.
The level of income dividends per share (as a percentage of net asset
value) will be lower for Class B and Class C shares than for Class A shares
primarily as a result of the distribution services fee applicable to Class B and
Class C shares. Distributions of capital gains, if any, will be paid in the same
proportion for each class.
Dividends will be reinvested in shares of the same class of the Fund
unless shareholders indicate in writing that they wish to receive them in cash
or in shares of other Kemper Funds as provided in the prospectus.
Taxes. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Code, and, if so qualified, the Fund generally will
not be liable for federal income taxes to the extent its earnings are
distributed. To so qualify, the 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
gain over 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.
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 generally 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.
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
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 such reported gains and the individual tax
credit.
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 the shares, 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 the shares of the
Fund are deemed to have been held by the Fund or the shareholders, 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
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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 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.
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.
A single individual who is not an active participant in an
employer-maintained retirement plan, such as a pension or profit sharing plan, a
governmental plan, a simplified employee pension plan, a simple retirement
account, or a tax-deferred annuity plan or account (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. If an individual is an active participant,
the deductibility of his or her IRA contributions in 2000 is phased out if the
individual has gross income between $32,000 and $42,000 and is single, if the
individual has gross income between $52,000 and $62,000 and is married filing
jointly, or if the individual has gross income between $0 and $10,000 and is
married filing separately; the phase-out ranges for individuals who are single
or married filing jointly are subject to annual adjustment through 2005 and
2007, respectively. If an individual is married filing jointly and the
individual's spouse is an active participant but the individual is not, the
deductibility of his or her IRA contributions is phased out if their combined
gross income is between $150,000 and $160,000. Whenever the 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.
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.
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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 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 the 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 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 security. The purchase of a put option may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or substantially identical
security in the 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 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 and forward contracts entered into by the Fund, certain
forward foreign currency contracts, and all 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 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 (and
generally, on October 31 for purposes of the 4% excise
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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 capital gain or loss. Under certain circumstances, entry into a
futures contract to sell a security may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in the Fund's
portfolio. Under Section 988 of the Code, discussed below, foreign currency
gains or loss from foreign currency related forward contracts, certain futures
and similar financial instruments entered into or acquired by the 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 the Fund's
portfolio.
Positions of the 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 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 consisting of at least one position not governed
by Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the 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. The 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 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,
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
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 level of the Fund. In addition, if the Fund invests in certain
high yield original issue discount obligations issued by corporations, a portion
of the original issue discount
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accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such an event, properly designated dividends of
investment company taxable income received from the Portfolio by its corporate
shareholders, to the extent attributable to such portion of the accrued original
issue discount, may be eligible for the deduction received by corporations.
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.
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 the Fund
or any other Kemper Mutual Fund listed herein under "Special Features-Class A
Shares-Combined Purchases" (other than shares of Kemper Cash Reserves Fund not
acquired by exchange from another Kemper Mutual Fund) may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption as described herein under "Redemption or Repurchase of
Shares-Reinvestment Privilege." If redeemed shares were held less than 91 days,
then the lesser of (a) the sales charge waived on the reinvested shares, or (b)
the sales charge incurred on the redeemed shares, is included in the basis of
the reinvested shares and is not included in the basis of the redeemed shares.
If a shareholder realizes a loss on the redemption or exchange of the Fund's
shares and reinvests in shares of another fund within 30 days before or after
the redemption or exchange, the transactions may be subject to the wash sale
rules resulting in a postponement of the recognition of such loss for federal
income tax purposes. An exchange of the Fund's shares for shares of another fund
is treated as a redemption and reinvestment for federal income tax purposes upon
which gain or loss may be recognized.
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 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 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.
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Shareholders of the Fund may be subject to state, local and foreign
taxes on Fund distributions and disposition of Fund shares.
Retirement Plans
Shares of the Fund may be purchased as an investment in a number of
kinds of retirement plans, including qualified pension, profit sharing, money
purchase pension, and 401(k) plans, Code Section 403(b) custodial accounts, and
individual retirement accounts.
Individual Retirement Accounts. One of the tax-deferred retirement plan
accounts that may hold Fund shares is an individual retirement account ("IRA").
There are three kinds of IRAs that an individual may establish: traditional
IRAs, Roth IRAs and education IRAs. With a traditional IRA, an individual may
make a contribution of up to $2,000 or, if less, the amount of the individual's
earned income for any taxable year prior to the year the individual reaches 70
1/2. The contribution will be fully deductible if neither the individual nor his
or her spouse is an active participant in an employer's retirement plan. If an
individual is (or has a spouse who is) an active participant in an
employer-sponsored retirement plan, the amount, if any, of IRA contributions
that are deductible by such an individual is determined by the individual's (or,
if married and filing jointly, the couple's) adjusted gross income for the year.
Even if an individual is not permitted to make a deductible contribution to an
IRA for a taxable year, however, the individual nonetheless may make
nondeductible contributions up to $2,000, or 100% of earned income if less, for
that year. A higher-earning spouse also may contribute up to $2,000 per year to
the lower-earning spouse's own IRA, whether or not the lower-earning spouse has
earned income of less than $2,000, as long as the spouses' joint earned income
is at least equal to the combined amount of the spouses' IRA contributions for
the 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. Lump sum distributions from another qualified
retirement plan, may be rolled over into a traditional IRA also.
With a Roth IRA, an individual may make only non-deductible
contributions; contributions can be made of up to $2,000 or, if less, the amount
of the individual's earned income for any taxable year, but only if the
individual's adjusted gross income for the year is less than $95,000 for single
individuals or, if married and filing jointly, the couple's adjusted gross
income is less than $150,000. The maximum contribution amount phases out and
falls to zero between $95,000 and $110,000 for single persons and between
$150,000 and $160,000 for married persons. Contributions to a Roth IRA may be
made even after the individual attains age 70 1/2. Distributions from a Roth IRA
that satisfy certain requirements will not be taxable when taken; other
distributions of earnings will be taxable. An individual with adjusted gross
income of $100,000 or less generally may elect to roll over amounts from a
traditional IRA to a Roth IRA. The full taxable amount held in the traditional
IRA that is rolled over to a Roth IRA will be taxable in the year of the
rollover, except rollovers made for 1998, which may be included in taxable
income over a four year period.
An education IRA provides a method for saving for the higher education
expenses of a child; it is not designed for retirement savings. Generally,
amounts held in an education IRA may be used to pay for qualified higher
education expenses at an eligible (postsecondary) educational institution. An
individual may contribute to an educational IRA for the benefit of a child under
18 years old if the individual's income does not exceed certain limits. The
maximum contribution for the benefit of any one child is $500 per year.
Contributions are not deductible, but earnings accumulate tax-free until
withdrawal, and withdrawals used to pay qualified higher education expenses of
the beneficiary (or transferred to an education IRA of a qualified family
member) will not be taxable. Other withdrawals will be subject to tax.
In addition, there are special IRA programs available for employers
under which an employer may establish IRA accounts for its employees in lieu of
establishing more complicated retirement plans, such as qualified profit sharing
or 401(k) plans. Known as SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE
IRAs, they permit employers to maintain a retirement program for their employees
without being subject to a number of the recordkeeping and testing requirements
applicable to qualified plans.
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<PAGE>
Qualified Retirement Plans. Fund shares also may be held in profit
sharing, money purchase pension, and 401(k) plan accounts. An employer, whether
a corporation, partnership or other kind of business entity, generally may
maintain one or more qualified retirement plans for its employees. These plans,
which are qualified plans under Code Section 401(a), are subject to numerous
rules relating to such matters as the maximum contribution that can be allocated
to participant's accounts, nondiscrimination, and distributions from the plan,
as well as being subject in many cases to the fiduciary duty and other
provisions of the Employee Retirement Income Securities Act of 1974, as amended.
Businesses considering adopting a qualified retirement plan are encouraged to
seek competent professional advice before adopting one of these plans.
403(b) Plan Accounts. Fund shares also may be purchased as an
investment for Code Section 403(b)(7) custodial accounts. In general, employees
of tax-exempt organizations described in Code Section 501(c)(3) and of public
school systems are eligible to participate in 403(b) accounts. These
arrangements may permit employer contributions and/or employee salary reduction
contributions, and are subject to rules relating to such matters as the maximum
contribution than can be made to a participant's account, nondiscrimination, and
distributions from the account.
General Information. Please call the Fund to obtain information
regarding the establishment of IRAs or other retirement plans. A retirement plan
custodian may charge fees in connection with establishing and maintaining the
plan. An investor should consult with a competent adviser for specific advice
concerning his or her tax status and the possible benefits of establishing one
or more retirement plan accounts. The description above is only very general;
there are numerous other rules applicable to these plans to be considered before
establishing one.
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.
INVESTMENT ADVISER AND UNDERWRITER
Investment Adviser. Scudder Kemper Investments, Inc. (the "Adviser"),
an investment counsel firm, 345 Park Avenue, New York, New York, acts as
investment adviser 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 United States. 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 United States 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.
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
Adviser acts as the Fund's investment adviser, manages its investments,
administers its business affairs, furnishes office facilities and equipment,
provides clerical and administrative services and permits any of its officers or
employees to serve without compensation as directors or officers of the Fund if
elected to such positions.
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
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 securities in which the Fund may invest, the conclusions and
32
<PAGE>
investment decisions of the Adviser 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 Adviser. Investment decisions for the Fund and other
clients are made with a view toward 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
date. 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 the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
The transaction between Scudder and Zurich resulted in the assignment
of the Fund's investment management agreement with Scudder, that agreement was
deemed to be automatically terminated at the consummation of the transaction. In
anticipation of the transaction, however, a new investment management agreement
between the Fund and the Adviser was approved by the Corporation's Directors. At
the special meeting of the Fund's shareholders held on October 27, 1997, the
shareholders also approved the proposed new investment management agreement. The
new investment management agreement (the "Agreement") became effective as of
December 31, 1997.
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.
Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board approved a new investment management agreement
with Scudder Kemper, which is substantially identical to the then current
investment management agreement, except for the dates of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and was approved at a shareholder
meeting held in December, 1998.
The Agreement dated September 7, 1998 was approved by the Directors of
the Fund on August 6, 1998. The Agreement will continue in effect until
September 30, 1999 and 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 the 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 Directors or of a majority of the
outstanding voting securities of the respective 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 Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund 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, the 1940 Act and the Code and to the Fund's
investment objectives, policies and restrictions and subject, further, to such
policies and instructions as the Directors of the Corporation may from time to
time establish. The Adviser 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.
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<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; Boston,
Massachusetts and Chicago, Illinois) of all Directors, officers and executive
employees of the Corporation affiliated with the Adviser and makes available,
without expense to the Corporation, the services of such Directors, officers and
employees of the Adviser 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 Corporation's office space and facilities.
For these services, the Fund pays the Adviser an annual fee equal to
1.10% of the average daily net assets of the Fund. For the fiscal year ended
October 31, 1997, the management fee amounted to $3,960,949. For the fiscal year
ended October 31, 1998, the management fee amounted to $3,960,160, of which
$326,115 was unpaid at October 31, 1998. For the fiscal year ended October 31,
1999, the management fee amounted to $4,401,513, of which $879,688 was unpaid at
October 31, 1999.
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; fees and
expenses of the Fund's accounting agent; brokers' commissions; legal, auditing
and accounting expenses; the fees and expenses of the Transfer Agent; and 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 Corporation 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 its expenses of shareholder 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 with respect thereto. The
Agreement expressly provides that the Adviser shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies 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 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
Adviser concerning such Agreement, the Directors who are not "interested
persons" of the Adviser are represented by independent counsel at the Fund's
expense.
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
34
<PAGE>
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 Fund's 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.
The Adviser may serve as adviser 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 or holders of shares of the Fund.
Personal Investments by Employees of the Adviser. Employees of the Adviser and
certain of its subsidiaries are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, 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 monthly 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 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
Adviser, 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 agreements continue 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 Corporation, including the Directors who are
not interested persons of the Corporation and who have no direct or indirect
financial interest in the agreement. The agreements automatically terminate in
the event of their 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
Corporation and who have no direct or indirect financial interest in the
distribution agreement or a "majority of the outstanding voting securities" of
such class of the Fund, as defined under the 1940 Act. The distribution
agreements 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 A Shares. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of Class A shares and
pays out a portion of this sales charge or allows concessions or discounts to
firms for the sale of the Fund's Class A shares.
35
<PAGE>
The following information concerns the underwriting commissions paid in
connection with the Fund's Class A shares for the fiscal years ended October 31,
1998 and 1999.
Commissions Commissions
Commissions Retained KDI Paid Paid to KDI
Year by KDI to All Firms Affiliated Firms
- ---- ------ ------------ ----------------
1999 $5,643 $206,026 0
1998* $0 $133,868 0
* From April 16, 1998 (inception of Class) through October 31, 1998
Rule 12b-1 Plan. The Fund has adopted, in accordance with Rule 12b-1
under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to the
Fund's Class B and Class C shares. Since the Rule 12b-1 Plan provides for fees
payable as an expense of each of the Class B shares and the Class C shares that
are used by KDI to pay for distribution services for those classes, each
agreement is approved and reviewed separately for the Class B shares and the
Class C shares in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"), which regulates the manner in which an investment company
may, directly or indirectly, bear the expenses of distributing its shares.
Because 12b-1 fees are paid out of fund assets on an ongoing basis they will,
over time, increase the cost of the investment and may cost more than other
types of sales charges.
Class B shares. For its services under the Rule 12b-1Plan, KDI receives
a fee from the Fund, payable monthly, at the annual rate of 0.75% of average
daily net assets of the Fund attributable to its Class B shares. This fee is
accrued daily as an expense of Class B shares. KDI also receives any contingent
deferred sales charges received on redemptions of Class B shares. See
"Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class B
Shares." KDI currently compensates firms for sales of Class B shares at a
commission rate of 3.75%.
Class C shares. For its services under the Rule 12b-1 Plan , KDI
receives a fee from the Fund, payable monthly, at the annual rate of 0.75% of
average daily net assets of the Fund attributable to its Class C shares. This
fee is accrued daily as an expense of Class C shares. KDI currently advances to
firms the first year distribution fee at a rate of 0.75% of the purchase price
of Class C shares. For periods after the first year, KDI currently pays firms
for sales of Class C shares a distribution fee, payable quarterly, at an annual
rate of 0.75% of net assets attributable to Class C shares maintained and
serviced by the firm and the fee continues until terminated by KDI or the Fund.
KDI also receives any contingent deferred sales charges. See "Redemption or
Repurchase of Shares--Contingent Deferred Sales Charges--Class C Shares."
If a Rule 12b-1 Plan for a class is terminated in accordance with its
terms, the obligation of the Fund to make payments to KDI pursuant to such 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. (See
"Principal Underwriter" for more information.)
Expenses of the Fund and of KDI, in connection with the Rule 12b-1
Plans for the Class B and Class C shares for the fiscal year ended October 31,
1999 and 1998 are set forth below. A portion of the marketing, sales and
operating expenses shown below could be considered overhead expenses.
36
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses paid by KDI
---------------------------------------
Contingent Distribution
Distrib Deferred Total Paid by KDI
tion Fees Sales Distribution to KDI Advertising Marketing Misc.
Fiscal Paid by Fund Charges Paid Fees Paid by Affiliated and Prospectus and Sales Operating Interest
Year to KDI to KDI KDI to Firms Firms Literature Printing Expenses Expenses Expenses
---- ------ ------ ------------ ----- ------------------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B 1999 $100,084 $36,221 $281,041 -- $23,928 $1,760 $65,110 $6,801 $44,791
Shares 1998* $11,000 -- $237,000 -- $6,000 $1,000 $17,000 $3,000 $7,000
Class C 1999 $36,727 $1,920 $19,879 -- $9,471 3 $27,296 $2,717 $1,159
Shares 1998* $5,000 -- $3,000 -- $2,000 -- $5,000 $1,000 __
</TABLE>
* From April 16, 1998 (inception of class) through October 31, 1998.
Administrative Services. Administrative services are provided to the Shares
under an administrative services agreement ("administrative agreement") with
KDI. KDI bears all of 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 may
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 Funds.
The following information concerns the administrative service fee paid
by the Fund for the fiscal years ended October 31, 1998 (for Class A shares
only) and 1999:
<TABLE>
<CAPTION>
Administrative Total Service Fees Service Fees Paid by KDI
Service Fees Paid Paid by KDI to to KDI-Affiliated
Class Year by the Fund Firms Firms
----- ---- ----------- ----- -----
<S> <C> <C> <C> <C>
Class A 1999 $0* $60,578 $0
1998 $0* $133,868 $0
Class B 1999 $0* $31,130 $0
Class C 1999 $4,935* $6,045 $0
</TABLE>
* After waiver.
37
<PAGE>
KDI also may provide some of the above services and may retain any
portion of the fee under the administrative agreement not paid to firms to
compensate itself for administrative functions performed for the Fund.
Currently, 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, effective January 1, 2000, at the annual
rate of 0.15% based upon Fund assets in accounts for which there is no firm of
record (other than KDI) listed on the Fund's records. The effective
administrative services fee rate to be charged against all assets of the Fund
while this procedure is in effect will depend upon the proportion of Fund assets
that is in accounts for which there is a firm of record. The Board of 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. In addition, KDI may, from time
to time, from its own resources, pay certain firms additional amounts for
ongoing administrative services and assistance provided to their customers and
clients who are shareholders of the Funds.
Certain directors or officers of the Corporation are also directors or
officers of the Adviser or KDI, as indicated under "OFFICERS AND DIRECTORS."
Fund Accounting Agent. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts, 02210-4103, a subsidiary of the Adviser, computes
net asset value for the Fund.
The Fund pays Scudder Fund Accounting Corporation 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, 0.020% of such assets in excess of $1 billion,
plus holding and transaction charges for this service. Before the multiclassing
of the Fund on April 16, 1998, Scudder Fund Accounting Corporation charged the
Fund an aggregate fee of $207,838, for the fiscal year ended October 31, 1997.
For the fiscal year ended October 31, 1998, the amount charged the Fund an
aggregate fee of $302,281. For the fiscal year ended October 31, 1999, the
amount charged to the Fund aggregated $416,308, of which $77,999 was unpaid at
October 31, 1999.
Custodian, Transfer Agent and Shareholder Service Agent. Brown Brothers Harriman
& Co. (the "Custodian"), 40 Water Street, Boston, MA, 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 Adviser, is the transfer agent, dividend- paying agent and
shareholder service agent for the Fund's Class A, B and C Shares. KSvC receives
as transfer agent the following: prior to January 1, 1999, annual account fees
at a maximum rate of $6 per account plus account set up, transaction and
maintenance charges, annual fees associated with the contingent deferred sales
charge (Class B Shares only) and out-of- pocket expense reimbursement, and
effective January 1, 1999, annual account fees of $10.00 ($18.00 for retirement
accounts) plus set up charges, annual fees associated with the contingent
deferred sales charges (Class B only), an asset-based fee of 0.08% and
out-of-pocket reimbursement. For the period beginning April 16, 1998 (inception
of Classes A, B and C shares) through October 31, 1998, the amount charged to
Classes A, B and C by KSvC aggregated $11,105, $7,785, and $3,086. For the
fiscal year ended October 31, 1999, the amount charged to Classes A, B and C by
KSvC aggregated $125,755, $107,969 and $21,043, respectively, of which $56,055
was unpaid at October 31, 1999.
Independent Auditors and Reports to Shareholders. The Fund's independent
auditors, PricewaterhouseCoopers, LLP 160 Federal Street, Boston, Massachusetts
02110, audit and report on the Fund's annual financial statements, review
certain regulatory reports and the Fund's federal income tax return, and perform
other professional accounting, auditing, tax and advisory services when engaged
to do so by the Fund. Shareholders will receive annual audited financial
statements and semi-annual unaudited financial statements.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
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<PAGE>
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
Scudder Investor Services, Inc. ("SIS") with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Adviser routinely reviews commission rates,
execution and settlement services performed and makes 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 brokerage and research services to the Adviser or the
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of research services. The Adviser has negotiated arrangements,
which are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or the Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser ([will not/may] will not is used for Scudder funds may is for Kemper
funds) place orders with a broker/dealer on the basis that the broker/dealer has
or has not sold shares of the Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through SIS which is a corporation
registered as a broker/dealer and a subsidiary of the Adviser; SIS will place
orders on behalf of the 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 services 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 the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Fund, and not all such information is used by the Adviser
in connection with the 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 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.
During the fiscal years ended October 31, 1999, 1998 and 1997, the Fund
paid brokerage commissions of $509,685, $526,742 and $722,757, respectively.
During the fiscal year ended October 31, 1999, the Fund paid brokerage
commissions of $454,169 (89.11% of the total brokerage commissions), resulting
from orders placed consistent with the policy to obtain the most favorable net
results, for transactions placed with brokers and dealers who provided
supplementary research, market and statistical information to the Corporation or
the Adviser. The
39
<PAGE>
balance of such brokerage was not allocated to any particular broker or dealer
with regard to the above-mentioned or any other special factors.
Portfolio Turnover. The Fund's average annual portfolio turnover rates (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) for the fiscal
years ended October 31, 1999, 1998 and 1997, was 64%, 41% and 61%, respectively.
Higher levels of activity by the Fund result in higher transaction costs and may
also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for the Fund whenever necessary, in
management's opinion, to meet the Fund's objective. Purchases and sales are made
for the Fund's portfolio whenever necessary, in management's opinion, to meet
the Fund's objective.
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
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. The net asset value per share of each class of the Fund is
computed by dividing the value of the total assets attributable to a specific
class, less all liabilities attributable to those shares, by the total number of
outstanding shares of that class.
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. 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. 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. 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 each 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.
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.
40
<PAGE>
If, in the opinion of the Corporation'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 AND REDEMPTION OF SHARES
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> <C>
Class A Maximum initial sales charge of None Initial sales charge
5.75% of the public offering price waived or reduced for
certain purchases (1)
Class B Maximum contingent deferred sales 0.75% Shares convert to
charge of 4% of redemption Class A shares six
proceeds; declines to zero after years after issuance
six years
Class C Contingent deferred sales charge of 0.75% 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.
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<PAGE>
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 0.00** 0.00** ***
</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 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 Kemper
Fund 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
42
<PAGE>
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 Kemper Fund 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 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 Kemper 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 the Fund may be purchased at net asset value by
persons who purchase such Shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm.
Class A shares of the Fund may be purchased at net asset value in any
amount by certain professionals who assist in the promotion of Kemper Funds
pursuant to personal services contracts with KDI, for themselves or members of
their families. KDI in its discretion may compensate financial services firms
for sales of Class A shares under this privilege at a commission rate of 0.50%
of the amount of Class A shares purchased.
Class A shares of the Fund may be purchased at net asset value by
persons who purchase shares of the Fund through KDI as part of an automated
billing and wage deduction program administered by RewardsPlus of America for
the benefit of employees of participating employer groups.
Class A shares may be sold at net asset value in any amount to: (a)
officers, trustees, directors, employees (including retirees) and sales
representatives of the Fund, its investment manager, its principal underwriter
or certain affiliated companies, for themselves or members of their families;
(b) registered representatives and employees of broker-dealers having selling
group agreements with KDI and officers, directors and employees of service
agents of the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value 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, and (d) any trust or pension, profit-sharing or other benefit plan for
only such persons. Class A shares may be sold at net asset value in any amount
to selected employees (including their spouses and dependent children) of banks
and other financial services firms that provide administrative services related
to order placement and payment to facilitate transactions in shares of the Fund
for their clients pursuant to an agreement with KDI or one of its affiliates.
Only those employees of such banks and other firms who as part of their usual
duties provide services related to transactions in
43
<PAGE>
Fund Class A shares may purchase Fund shares at net asset value hereunder. Class
A shares may be sold at net asset value in any amount to unit investment trusts
sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase the Fund's Class A shares at net asset value through reinvestment
programs described in the prospectuses of such trusts that have such programs.
Class A shares of the Fund may be sold at net asset value through certain
investment advisers registered under the Investment Advisers Act of 1940 and
other financial services firms 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 adviser 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 Adviser 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 Adviser and Underwriter."
44
<PAGE>
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
Shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on
the amount of Shares of the Fund sold under the following conditions: (i) the
purchased Shares are held in a Kemper IRA account, (ii) the Shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will,
from time to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, 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 the Fund will be confirmed at a
price based on the net asset value per share 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 per Share 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,
Redemption and Repurchase of Shares" herein.
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 statement of additional
information 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 statement of additional information 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
45
<PAGE>
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 statement of additional information.
REDEMPTION OR REPURCHASE OF SHARES
As described herein, 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 each of Class A, B and
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 Adviser 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.
Upon receipt by the Shareholder Service Agent of a request for
redemption, Shares of the Fund will be redeemed by the Fund at the applicable
net asset value per Share of the Fund as described herein.
Scheduled variations in or the elimination of the initial sales charge
for purchases of Class A Shares or the contingent deferred sales charge for
redemptions of Class B or Class C Shares by certain classes of persons or
through certain types of transactions as described herein are provided because
of anticipated economies of scale in sales and sales-related efforts.
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 Kemper Shares' transfer
agent, the shareholder may redeem such Shares by sending a written request with
signatures guaranteed to Kemper 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 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
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not have yet received good payment (i.e., purchases by check, EXPRESS-Transfer
or Bank Direct Deposit), it may delay transmittal of redemption proceeds until
it has determined that collected funds have been received for the purchase of
such shares, which will be up to 10 days from receipt by 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 $1,000 for the
quarter. The fee will not apply to accounts enrolled in an automatic investment
program, Individual Retirement Accounts or employer-sponsored employee benefit
plans using the subaccount record-keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited
wire transfer redemptions and EXPRESS-Transfer transactions (see "Special
Features") and exchange transactions for individual and institutional accounts
and pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, 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, 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 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. The
repurchase price will be the net asset value per Share 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
per Share (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. 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. Requirements as to stock
powers, certificates, payments and delay of payments are the same as for
redemptions.
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EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in Shares being redeemed that day at the net asset value per Share of the
Fund effective on that day and normally the proceeds will be sent to the
designated account the following business day. Delivery of the proceeds of a
wire redemption of $250,000 or more may be delayed by the Fund for up to seven
days if 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 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, 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 Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the Shares redeemed, excluding amounts not subject to the charge.
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
------------------------------------------ ----------------
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
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The contingent deferred sales charge will be waived: (a) in the event
of the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in the Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the Shares redeemed, excluding amounts not subject to the
charge. The contingent deferred sales charge will be waived: (a) in the event of
the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer-sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent, (g) for redemption of shares by an employer sponsored employee benefit
plan that (i) offers funds in addition to Kemper Funds (i.e., "multi-manager"),
and (ii) whose dealer of record has waived the advance of the first year
administrative service and distribution fees applicable to such shares and has
agreed 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 and 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 May 1998 will be eligible for the second year's charge if redeemed on or
after May 1, 1999. In the event no specific order is requested when redeeming
shares subject to a contingent deferred sales charge, the redemption will be
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<PAGE>
made first from shares representing reinvested dividends and then from the
earliest purchase of shares. KDI receives any contingent deferred sales charge
directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper 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 per Share at the time of the reinvestment in Class A
shares of the Fund or of the other listed Kemper Funds. A shareholder of the
Fund or other Kemper Funds 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 per Share at the time of the reinvestment, in the same class of
shares as the case may be, of the Fund or of other Kemper 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 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 Kemper 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 Funds available for sale in the
shareholder's state of residence as listed under "Special Features--Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
Shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of shares of 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 Securities and Exchange Commission, 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. 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 Emerging Markets Growth Fund, Kemper
Emerging Markets Income Fund, Kemper Europe 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, Kemper Horizon 10+ Portfolio, Kemper Horizon 20+ Portfolio, Kemper
Horizon 5 Portfolio, Kemper Income And Capital Preservation Fund, Kemper
Intermediate Municipal Bond, Kemper International Fund, Kemper International
Growth and Income Fund, Kemper Large Company Growth Fund (currently available
only to employees of Scudder Kemper Investments, Inc.; not available in all
states), Kemper Latin America Fund, Kemper Municipal Bond Fund, Kemper New York
Tax-Free Income Fund, Kemper Ohio Tax-Free Income Fund, Kemper Research Fund
(currently available only to employees of Scudder Kemper Investments, Inc.; not
available in all states), Kemper Target 2010 Fund, 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
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- -- Series VII, Kemper Short-Term U.S. Government Fund, Kemper Small Cap Value
Fund, Kemper Small Cap Value+Growth Fund (currently available only to employees
of Scudder Kemper Investments, Inc.; not available in all states), Kemper Small
Capitalization Equity Fund, Kemper Small Cap Relative Value Fund, Kemper
Strategic Income Fund, Kemper Technology Fund, Kemper Total 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 High Return Equity Fund, Kemper-Dreman Financial Services 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 this statement of additional information, also apply to the
aggregate amount of purchases of such Kemper 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 Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included for this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Kemper Funds (computed at the maximum offering price at
the time of the purchase for which the discount is applicable) already owned by
the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features--Class A Shares--Combined Purchases"
above may be exchanged for each other at their relative net asset values. Shares
of Money Market Funds and the Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the Offering Period for such series as
described in this statement of additional information. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
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Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper 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
Kemper 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
Kemper 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, such Shares received by exchange the cost
and purchase date of the Shares that were originally purchased and exchanged.
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). In addition, shares
of a Kemper fund with a value of $1,000,000 or less (except Kemper Cash Reserves
Fund) acquired by exchange from another Kemper fund, or from a money market
fund, may not be exchanged thereafter until they have been owned for 15 days,
if, in the Adviser'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 of such
shares. Shareholders interested in exercising the exchange privilege may obtain
prospectuses of the other funds from dealers, other firms or KDI. Exchanges may
be accomplished by a written request to KSvC, Attention: Exchange Department,
P.O. Box 419557, Kansas City, Missouri 64141-6557, or by telephone if the
shareholder has given authorization. Once the authorization is on file, the
Shareholder Service Agent will honor requests by telephone at 1-800-621-1048,
subject to the limitations on liability under "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 funds that are
available for sale in the shareholder's state of residence. Currently,
Tax-Exempt California Money Market Fund is available for sale only in California
and the portfolios of Investors Municipal Cash Fund are available for sale only
in certain states.
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The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange ("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 Securities and Exchange Commission may by order permit for the protection of
the Fund's shareholders.
The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange ("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.
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.
53
<PAGE>
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 herein.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem Shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such Shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling 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. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank 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 Bank Direct Deposit,
the shareholder authorizes the Fund and its agents to either draw checks or
initiate Automated Clearing House debits against the designated account at a
bank or other financial institution. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Shareholder Service Agent for appropriate forms. A shareholder may terminate
his or her Plan by sending written notice to Kemper Service Company, P.O. Box
419415, Kansas City, Missouri 64141-6415. Termination by a shareholder will
become effective within thirty days after the Shareholder Service Agent has
received the request. A Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The 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.
54
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value per such Share plus, in the case
of Class A shares, the initial sales charge) may provide for the payment from
the owner's account of any requested dollar amount to be paid to the owner or a
designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares may be redeemed (and Class A shares purchased under the Large Order NAV
Purchase Privilege and Class C shares in their first year following the
purchase) under a systematic withdrawal plan is 10% of the net asset value of
the account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional Shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the Shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic
withdrawal plan will ordinarily be disadvantageous to the investor because the
investor will be paying a sales charge on the purchase of shares at the same
time that the investor is redeeming shares upon which a sales charge may have
already been paid. Therefore, the Fund will not knowingly permit additional
investments of less than $2,000 if the investor is at the same time making
systematic withdrawals. KDI will waive the contingent deferred sales charge on
redemptions of Class A shares purchased under the Large Order NAV Purchase
Privilege, Class B shares and Class C shares made pursuant to a systematic
withdrawal plan. The right is reserved to amend the systematic withdrawal plan
on 30 days' notice. The plan may be terminated at any time by the investor or
the 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.
PERFORMANCE
The Fund's historical performance or return for a class of Shares may
be shown in the form of "average annual total return" and "total return"
figures. These measures of performance are described below. Performance
information will be computed separately for each class.
The Fund may advertise several types of performance information for a
class of shares, including "average annual total return" and "total return."
Performance information will be computed separately for each of Class A, Class B
and Class C shares. Each of these figures is based upon historical results and
is not representative of the future performance of any class of the Fund. A Fund
with fees or expenses being waived or absorbed by the Adviser may also advertise
performance information before and after the effect of the fee waiver or expense
absorption.
Average annual total return and total return measure both the net
investment income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio. The Fund's average annual total return quotation is computed in
accordance with a standardized method
55
<PAGE>
prescribed by rules of the SEC. The average annual total return for each class
of the Fund for a specific period is found by first taking a hypothetical $1,000
investment ("initial investment") in the shares of a class on the first day of
the period, adjusting to deduct the maximum sales charge (in the case of Class A
Shares), and computing the "redeemable value" of that investment at the end of
the period. Average annual return quotations will be determined to the nearest
1/100th of 1%. The redeemable value in the case of Class B Shares or Class C
Shares include the effect of the applicable contingent deferred sales charge
that may be imposed at the end of the period. The redeemable value is then
divided by the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. Average annual return
calculated in accordance with this formula does not take into account any
required payments for federal of state income taxes. Such quotations for Class B
Shares for periods over six years will reflect conversion of such shares to
Class A Shares at the end of the sixth year. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at net
asset value on the reinvestment dates during the period. Average annual total
return may also be calculated in a manner not consistent with the standard
formula described above, without deducting the maximum sales charge or
contingent deferred sales charge.
Average Annual Total Return for the periods ended October 31, 1999
One Year Five Year Life of Class*
Class A 33.44% 14.46% 13.29%
Class B 37.43% N/A 7.80%
Class C 40.41% N/A 9.69%
* Classes A, B and C shares commenced operations on April 16, 1998. Prior
to that date, the fund consisted of one class of shares which, on that
date, were re-designated as Class S shares of the fund. Returns shown
for Class A, B, and C shares for the periods prior to their inception
are derived from the historical performance of Class S shares of
Classic Growth Fund during the period and have been adjusted to reflect
the current maximum 5.75% initial sales charge for Class A shares or
the maximum CDSC, if any, currently applicable to Class B and C shares.
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's financial statements and
prospectus. Total return performance for a specific period is calculated by
first taking a hypothetical investment ("initial investment") in the Fund's
shares on the first day of the period, either adjusting or not adjusting to
deduct the maximum sales charge (in the case of Class A Shares), and computing
the "ending value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from the
ending value and dividing the remainder by the initial investment and expressing
the result as a percentage. The ending value in the case of Class B Shares or
Class C Shares may or may not include the effect of the applicable contingent
deferred sales charge that may be imposed at the end of the period. The
calculation assumes that all income and capital gains dividends paid by the Fund
have been reinvested at net asset value on the reinvestment dates during the
period. Total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Total return calculations that do not
include the effect of the sales charge for Class A Shares or the contingent
deferred sales charge for Class B and Class C Shares would be reduced if such
charges were included.
The Fund's performance figures are based upon historical results and
are not necessarily representative of future performance. The Fund's Class A
Shares are sold at net asset value plus a maximum sales charge of 5.75% of the
offering price. Class B and Class C Shares are sold at net asset value.
Redemption of Class B Shares may be subject to a contingent deferred sales
charge that is 4% in the first year following the purchase, declines by a
specified percentage each year thereafter and becomes zero after six years.
Redemption of Class C Shares may be subject to a 1% contingent deferred sales
charge in the first year following the purchase. 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. Returns
and net asset value will fluctuate. Factors affecting the Fund's performance
include general market conditions, operating expenses and investment management.
Any additional fees charged by
56
<PAGE>
a dealer or other financial services firm would reduce returns described in this
section. Shares of the Fund are redeemable at the then current net asset value,
which may be more or less than original cost.
The Fund's performance may be compared to that of the Consumer Price
Index or various unmanaged indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's Financial Services Index, the Standard
& Poor's 500 Composite Stock Price Index, the Russell 1000(R) Index, the Russell
1000(R) Growth Index, the Wilshire Large Company Growth Index, the Wilshire 750
Mid Cap Company Growth Index, the Standard & Poor's/Barra Value Index, the
Standard & Poor's/Barra Growth Index, the Russell 1000(R) Value Index, the
Europe/Australia/Far East Index, International Finance Corporation's Latin
America Investable Return Index, the Morgan Stanley Capital International World
Index, the J.P. Morgan Global Traded Bond Index, and the Salomon Brothers World
Government Bond Index. The performance of the Fund may also be compared to the
performance of other mutual funds or mutual fund indices with similar objectives
and policies as reported by independent mutual fund reporting services such as
Lipper Analytical Services, Inc. ("Lipper"). Lipper performance calculations are
based upon changes in net asset value with all dividends reinvested and do not
include the effect of any sales charges.
There are differences and similarities between the investments which
the Fund may purchase and the investments measured by the indices which are
described herein. The Consumer Price Index is generally considered to be a
measure of inflation. The Dow Jones Industrial Average and the Standard & Poor's
Corporation 500 Stock Index are indices of common stocks which are considered to
be generally representative of the U.S. stock market. The Financial
Times/Standard & Poor's Actuaries World Index-Europe(TM) is a managed index that
is generally representative of the equity securities of European markets. The
foregoing indices are unmanaged. The net asset value and returns of the Fund
will fluctuate.
Investors may want to compare the performance of the Shares to
certificates of deposit issued by banks and other depository institutions.
Certificates of deposit may offer fixed or variable interest rates and principal
is guaranteed and may be insured. Withdrawal of deposits prior to maturity will
normally be subject to a penalty. Rates offered by banks and other depository
institutions are subject to change at any time specified by the issuing
institution. Information regarding bank products may be based upon, among other
things, the BANK RATE MONITOR National Index(TM) for certificates of deposit,
which is an unmanaged index and is based on stated rates and the annual
effective yields of certificates of deposit in the ten largest banking markets
in the United States, or the CDA Investment Technologies, Inc. Certificate of
Deposit Index, which is an unmanaged index based on the average monthly yields
of certificates of deposit.
Investors also may want to compare the performance of the Shares to
that of U.S. Treasury bills, notes or bonds. Treasury obligations are issued in
selected denominations. Rates of Treasury obligations are fixed at the time of
issuance and payment of principal and interest is backed by the full faith and
credit of the U.S. Treasury. The market value of such instruments will generally
fluctuate inversely with interest rates prior to maturity and will equal par
value at maturity. Information regarding the performance of Treasury obligations
may be based upon, among other things, the Towers Data Systems U.S. Treasury
Bill index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Shares to that of
money market funds. Money market funds seek to maintain a stable net asset value
and yield fluctuates. Information regarding the performance of money market
funds may be based upon, among other things, Financial Data Inc.'s Money Fund
Averages(R) (All Taxable). As reported by Financial Data Inc., all investment
results represent total return (annualized results for the period net of
management fees and expenses) and one year investment results are effective
annual yields assuming reinvestment of dividends.
On April 16, 1998, the Fund was divided into multiple classes of
shares, including the Kemper Class A, B and C Shares described herein. Prior to
that date, the Fund consisted of only one class of shares; the shares of the
Fund outstanding as of April 16, 1998, were redesignated as Scudder Shares of
the Fund, which class has no sales charges or Rule 12b-1 fees. The performance
figures shown below reflect the performance of the Fund prior to the
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<PAGE>
creation of multiple classes, restated to reflect the sales charges of the
Kemper Class A Shares of the Fund. The performance figures have not been
restated to reflect Rule 12b-1 fees, which are included only from the date of
inception of the Fund's Rule 12b-1 plans on April 16, 1998. The Rule 12b-1 fees
applicable to the Kemper Class A, B and C Shares of the Fund will affect
subsequent performance.
OFFICERS AND DIRECTORS
The officers and directors of the Corporation, their ages, their principal
occupations and other affiliations, if any, with the Adviser, and Kemper
Distributors, Inc. are as follows:
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age and Position Scudder Investor
Address with Corporation Principal Occupation** Services, Inc.
- ------- ---------------- ---------------------- --------------
<S> <C> <C> <C>
Nicholas Bratt (51)++@ President, Global Discovery Managing Director of Scudder --
Fund Kemper Investments, Inc.
Sheryle J. Bolton (53) Director Chief Executive Officer and --
Scientific Learning Corporation Director, Scientific Learning
1995 University Ave. Corporation, Former President
Suite 400 and Chief Operating Officer,
San Francisco, CA 94704 Physicians Online, Inc.
(electronic transmission of
clinical information for
physicians (1994-1995)
William T. Burgin (56) Director General Partner, Bessemer --
83 Walnut Street Venture Partners; General
Wellesley, MA 02181-2101 Partner, Deer & Company;
Director, Fort James
Corporation; Director, Galileo
Corporation; Director of
various privately held
companies
Keith R. Fox (45) Director Private Equity Investor, --
10 East 53rd Street Exeter Capital Management
New York, NY 10022 Corporation
William H. Luers (70) Director Chairman and President of the --
The United Nations Association United Nations Association of
of America America (organizer/researcher
801 Second Avenue of U.N.-supporting entities);
New York, NY 10017 Retired, President, The
Metropolitan Museum of Art
(1986 to 1999)
58
<PAGE>
Position with
Underwriter,
Name, Age and Position Scudder Investor
Address with Corporation Principal Occupation** Services, Inc.
- ------- ---------------- ---------------------- --------------
Kathryn L. Quirk*#++(47) Director, Vice President Managing Director of Scudder Director, Senior Vice
and Assistant Secretary Kemper Investments, Inc. President, Chief Legal
Officer and Assistant
Clerk
Joan E. Spero (55) Director President, Doris Duke __
Doris Duke Charitable Charitable
Foundation Foundation(1997-present);
650 Fifth Avenue Undersecretary of State for
19th Floor Economic, Business and
New York, NY 10128 Agricultural Affairs (March
1993-January 1997)
Paul Bancroft III (69) Honorary Director Venture Capitalist and
79 Pine Lane Consultant: Retired President,
Box 6639 Chief Executive Officer and
Snowmass Village, CO Director, Besemer Securities
81615 Corporation
Thomas J. Devine (73) Honorary Director Consultant --
450 Park Avenue
New York, NY 10022
William H. Gleysteen, Jr. (73) Honorary Director Consultant; Guest Scholar, --
4937 Crescent Street Brookings Institution;
Bethesda, MD 20816 President, The Japan Society,
Inc. (1989-December 1995)
Robert G. Stone, Jr. (77) Honorary Director Chairman Emeritus and --
405 Lexington Avenue Director, Kirby Corporation
New York, NY 10174 (inland and offshore marine
transportation and diesel
repairs)
Jan C. Faller ( 33 )+ Vice President Vice President of Scudder __
Kemper Investments, Inc.
Ann M. McCreary++(43) Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Gerald J. Moran++ (59) Vice President Senior Vice President of --
Scudder Kemper Investments,
Inc.
Isabel M. Saltzman+ (44) Vice President Managing Director of Scudder --
Kemper Investments, Inc.
John R. Hebble+ (41) Treasurer Senior Vice President of Assistant Treasurer
Scudder Kemper Investments,
Inc.
59
<PAGE>
Position with
Underwriter,
Name, Age and Position Scudder Investor
Address with Corporation Principal Occupation** Services, Inc.
- ------- ---------------- ---------------------- --------------
John Millette (37)+ Vice President and Assistant Vice President of --
Secretary Scudder Kemper Investments,
Inc. since September 1994;
previously employed by the law
firm Kaye, Scholer, Fierman,
Hays & Handler
Caroline Pearson+ (37) Assistant Secretary Senior Vice President of Clerk
Scudder Kemper Investments,
Inc.; Associate, Dechert Price
& Rhoads (law firm) 1989 - 1997
</TABLE>
* Mr. Bratt and Ms. Quirk is considered by the Corporation and its
counsel to be a person who is an "interested person" of the Adviser or
of the Corporation (as defined in the 1940 Act).
** Unless otherwise stated, all the Directors and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Ms. Quirk is a member of the Executive Committee, which may exercise
the powers of the Directors when they are not in session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ The President of a series shall have the status of Vice President of
the Corporation.
To the knowledge of the Corporation, as of January 29, 2000 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) less than 1% of the
shares of the Fund outstanding on such date.
To the knowledge of the Corporation, as of January 29, 2000, no person
owned beneficially more than 5% of the Fund's outstanding shares, except as
stated below.
- ------------------------------------- ---------------------------- -----------
NAME and ADDRESS CLASS PERCENTAGE
- ------------------------------------- ---------------------------- -----------
Donaldson, Lufkin & Jenrette A 7.63
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ---------------------------- -----------
Oppenheimer & Co. A 8.27
280 Park Avenue
New York, NY 10017
- ------------------------------------- ---------------------------- -----------
60
<PAGE>
- ------------------------------------- ---------------------------- -----------
NAME and ADDRESS CLASS PERCENTAGE
- ------------------------------------- ---------------------------- -----------
McKeeSport Health Care A 5.35
National City Bank of PA., Trustee
Attn: Mutual Funds Dept.
P.O. Box 94984
Cleveland, OH 44101
- ------------------------------------- ---------------------------- -----------
National Financial Services Corp. B 7.24
FBO Claudia Havens
200 Liberty Street
New York, NY 10281
- ------------------------------------- ---------------------------- -----------
Donaldson, Lufkin & Jenrette B 17.51
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ---------------------------- -----------
National Financial Services Corp. C 8.46
FBO Francis Downs, Trustee
200 Liberty Street
New York, NY 10281
- ------------------------------------- ---------------------------- -----------
Donaldson, Lufkin & Jenrette C 10.31
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ---------------------------- -----------
Wedbush Morgan Securities C 11.19
Accounting Dept.
P.O. Box 30014
Los Angeles, CA 90030
- ------------------------------------- ---------------------------- -----------
To the knowledge of the Corporation, as of January 29, 2000 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) less than 1% of the shares of the
Fund outstanding on such date.
To the knowledge of the Corporation, as of January 29, 2000, no person
owned beneficially more than 5% of the Fund's outstanding shares, except as
stated below.
The Directors and officers of the Corporation also serve in similar
capacities with respect to other funds advised by the Adviser.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Directors is responsible for the general oversight of each Fund's
business. A majority of the Board's members are not affiliated with the Adviser.
These "Independent Directors" have primary responsibility for assuring that each
Fund is managed in the best interests of its shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of each Fund 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 the Adviser and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, each 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
61
<PAGE>
expenses of competitive funds. They are assisted in this process by each Fund's
independent public accountants and by independent legal counsel selected by the
Independent Directors.
Several of the officers and Directors of the Corporation may be
officers or employees of the Adviser, or of the Distributor, the Transfer Agent,
Scudder Trust Company or Scudder Fund Accounting Corporation from whom they
receive compensation, as a result of which they may be deemed to participate in
the fees paid by the Corporation. The Corporation pays no direct remuneration to
any officer of the Corporation. However, each of the Directors who is not
affiliated with the Adviser will be compensated for all expenses relating to
corporation business (specifically including travel expenses relating to
Corporation business). Each of these unaffiliated Directors receives an annual
Director's fee of $4,000 from a Fund plus $400 for attending each Directors'
meeting, audit committee meeting or meeting held for the purpose of considering
arrangements between the Corporation on behalf of a Fund and the Adviser or any
of its affiliates. Each unaffiliated Director also receives $150 per committee
meeting attended other than those set forth above. For the fiscal year ended
October 31, 1998, Directors' fees and expenses amounted to $288,000 for the
Fund.
Effective July 1, 1998, each unaffiliated Director will receive an
Annual Director's fee of $3,500 from the Fund plus $325 for attending each
Director's meeting, audit committee meeting or meeting held for the purpose of
considering arrangements between the Corporation on behalf of a Fund and the
Adviser or any of its affiliates. Each unaffiliated Director will also receive
$100 per committee meeting attended other than those set forth above.
The following table shows the aggregate compensation received by each
unaffiliated Director during 1999 from the Registrant and from all funds advised
by the Adviser as a group.
<TABLE>
<CAPTION>
Name Global/International Fund, Inc.* All Scudder Funds
---- -------------------------------- -----------------
<S> <C> <C> <C>
Paul Bancroft III, **Honorary $31,500 $159,991 (25 funds)
Director
Sheryle J. Bolton, Director $38,000 $179,860 (24 funds)
William T. Burgin, Director $36,375 $160,325 (23 funds)
Keith R. Fox, Director $36,375 $160,325 (23 funds)
William H. Gleysteen, Jr. $ 0.00 $19,933@ (2 funds)
Honorary Director
William H. Luers, Director $39,625 $212,596 (26 funds)
Joan E. Spero*** $39,625 $175,275 (23 funds)
Director
Robert G. Stone, Jr. $ 0.00 $9,000 (1 fund)
Honorary Director
</TABLE>
62
<PAGE>
* 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.
** Elected as Honorary Director in December 1999, after serving as
Director.
*** Elected as Director of the Corporation in September 1998.
@ This amount does not reflect $6,208 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.
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 the Fund.
SHAREHOLDER RIGHTS
The Fund is a diversified series of Global/International Fund, Inc., a Maryland
corporation, and was organized on May 15, 1986, as Scudder Global Fund, Inc., an
open-end management company. The Corporation changed its name from Scudder
Global Fund, Inc. on May 29, 1998. On March 5, 1996, directors of Scudder Global
Small Company Fund approved the change in name to Scudder Global Discovery Fund,
and on April 16, 1998 the Fund changed its name to Global Discovery Fund. The
Corporation's other series are Scudder Global Fund, Scudder Emerging Markets
Income Fund, Scudder Global Bond Fund and Scudder International Bond Fund.
The Board of Directors has subdivided the shares of the Fund into four
classes, namely, the Scudder Shares and the 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, 100 million shares of which are allocated to the
Fund, 300 million shares of which are allocated to Scudder Global Bond Fund, 200
million shares of which are allocated to Scudder International Bond Fund, and
100 million shares of which are allocated to 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 as to
voting for
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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 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 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 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.
The Fund's activities are supervised by the Corporation's Board of
Directors. 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 and officers 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 or officer 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 his or her office.
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.
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ADDITIONAL INFORMATION
Other Information
The CUSIP number of each class of the Fund is Class A, 378947-60-0; Class B,
378947-70-9; and Class C, 378947-80-8.
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 Adviser 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.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, Brown Brothers Harriman & Co., 40
Water Street, Boston, Massachusetts 02109.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
The Shares' prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Corporation 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, 1999 are incorporated herein by reference and are
hereby deemed to be a part of this Statement of Additional Information.
Effective April 16, 1998, the Corporation's Board of Directors has
approved a name change of the Fund from Scudder Global Discovery Fund to Global
Discovery Fund. In addition, the Board of Directors has subdivided the Fund's
shares into classes. Shares of the Fund outstanding on such date are
redesignated as Scudder Shares of the Fund. The financial statements
incorporated herein reflect the investment performance of the Fund prior to the
aforementioned reclassification of shares.
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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
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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 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.
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