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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1999
REGISTRATION NO. 33-32430
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
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SCUDDER NEW EUROPE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
AREA CODE AND TELEPHONE NUMBER: (212) 326-6200
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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BRUCE H. GOLDFARB, ESQ.
SCUDDER NEW EUROPE FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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COPIES TO:
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BURTON M. LEIBERT, ESQ DAVID A. STURMS, ESQ.
WILLKIE FARR & GALLAGHER VEDDER, PRICE, KAUFMAN & KAMMHOLZ
787 SEVENTH AVENUE 222 NORTH LASALLE STREET
NEW YORK, NY 10019-6099 CHICAGO, IL 60601
</TABLE>
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as possible after
the effective date of this Registration Statement.
TITLE OF SECURITIES BEING REGISTERED: Common Stock, $.001 par value per
share.
Registrant is registering an indefinite amount of securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended; accordingly, no
fee is payable herewith.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Letter to Shareholders
Notice of Special Meeting
Part A -- Prospectus/Proxy Statement
Part B -- Statement of Additional Information
Part C -- Other Information
Signature Page
Exhibits
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KEMPER EUROPE FUND
YOUR VOTE IS IMPORTANT
Dear Shareholder:
The Board of Trustees of Kemper Europe Fund has recently reviewed and
unanimously endorsed a proposal for the reorganization of the Kemper Europe
Fund. UNDER THE TERMS OF THE PROPOSAL, SCUDDER NEW EUROPE FUND, INC. ("SCUDDER
EUROPE FUND") WOULD ACQUIRE THE ASSETS AND LIABILITIES OF THE KEMPER EUROPE
FUND. We are pleased to invite you to attend a special meeting (the "Meeting")
of the shareholders of the Kemper Europe Fund to consider the approval of an
Agreement and Plan of Reorganization (the "Plan") pursuant to which the
reorganization of your Fund (the "Reorganization") would be effected. The
Reorganization is contingent upon the approval by the shareholders of the
Scudder Europe Fund of a proposal necessary to convert that Fund from closed-end
form to open-end form.
The Kemper Europe Fund's Board of Trustees and Scudder Kemper Investments,
Inc. ("Scudder Kemper"), the Kemper Europe Fund's investment adviser, believe
that the Reorganization is in the best interests of the Kemper Europe Fund and
its shareholders.
Scudder Kemper believes, and intends to manage the Scudder Europe Fund,
such that the Reorganization will not result in any material changes to the
investment philosophy or operations of your Fund, since the Scudder Europe Fund
has substantially similar investment objectives and policies as the Kemper
Europe Fund. In addition, the Scudder Europe Fund will have the same investment
adviser, transfer agent and distributor as the Kemper Europe Fund, although
Scudder Investments (U.K.) Limited will not serve as sub-investment adviser to
the Scudder Europe Fund. Moreover, the Scudder Europe Fund will adopt the name
of the Kemper Europe Fund in connection with the Reorganization. The closing of
the Reorganization is expected to occur on or about September 1, 1999. The fees
and expenses to be borne by the Scudder Europe Fund for advisory,
administration, shareholder and other operational services are expected to be
comparable to those charges borne currently by the Kemper Europe Fund, except
that Scudder Europe Fund will incur an annual accounting service fee expected to
equal approximately .10% of that Fund's assets which is not currently paid by
the Kemper Europe Fund. After the Reorganization, however, former shareholders
of Kemper Europe Fund may realize certain economies of scale based on its
greater asset size as shareholders of Scudder Europe Fund that may offset, in
part, the accounting service fee. Moreover, Scudder Kemper has agreed to limit
the total annual operating expenses of Class A, B and C shares of Scudder Europe
Fund to 1.75%, 2.65% and 2.62%, respectively, for the one year period following
the Reorganization.
If shareholders of the Kemper Europe Fund approve the Plan and shareholders
of the Scudder Europe Fund approve the open-ending proposal, upon consummation
of the Reorganization the Kemper Europe Fund will be liquidated. You will become
a shareholder of the Scudder Europe Fund, having received shares of the same
class with an aggregate value equal to the aggregate net asset value of your
investment in the Kemper Europe Fund at the time of the transaction. No sales
charge will be imposed in the transaction. The transaction will, in the opinion
of counsel, be free from federal income taxes to you, the Kemper Europe Fund and
the Scudder Europe Fund. All expenses incurred in connection with the
Reorganization will be borne by the Kemper Europe Fund and the Scudder Europe
Fund based on their relative net assets.
The Meeting will be held on July 20, 1999 to consider the Reorganization.
WE STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU TO REVIEW, COMPLETE AND
RETURN YOUR PROXY PROMPTLY.
Detailed information about the proposed Reorganization is described in the
attached Prospectus/Proxy Statement.
The Board of Trustees of the Kemper Europe Fund has unanimously approved
the Reorganization of the Kemper Europe Fund and recommends that you vote to
approve the Plan.
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On behalf of the Board of Trustees, I thank you for your participation as a
shareholder and urge you to please exercise your right to vote by completing,
dating and signing the enclosed proxy card. A self-addressed, postage-paid
envelope has been enclosed for your convenience.
Please read the full text of the Prospectus/Proxy Statement before you
vote.
If you have any questions regarding the proposed Reorganization, please
feel free to call Shareholder Communications Corporation, who will be pleased to
assist you.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED PROMPTLY.
Sincerely,
Thomas W. Littauer
Chairman
, 1999
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KEMPER EUROPE FUND
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 20, 1999
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Kemper Europe Fund will be held at the offices of Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, New York 10154, on July 20, 1999,
commencing at 9:00 a.m. for the following purposes:
1. To approve the Agreement and Plan of Reorganization dated as of May 28,
1999 (the "Plan") providing: (i) that the Kemper Europe Fund would
transfer to Scudder New Europe Fund, Inc. (the "Scudder Europe Fund")
all of its assets in exchange for Class A, B and C shares of the Scudder
Europe Fund and the assumption by Scudder Europe Fund of all of the
Kemper Europe Fund's liabilities, (ii) that such shares of Scudder
Europe Fund would be distributed to shareholders of Kemper Europe Fund
in liquidation of Kemper Europe Fund, and (iii) that Kemper Europe Fund
would subsequently be terminated.
2. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
THE BOARD OF TRUSTEES OF THE KEMPER EUROPE FUND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE PLAN.
The enclosed proxy is being solicited by the Board of Trustees of the
Kemper Europe Fund. The Board of Trustees of the Kemper Europe Fund has fixed
the close of business on May 25, 1999 as the record date for the determination
of shareholders of the Kemper Europe Fund entitled to notice of and to vote at
the Meeting and any adjournment or adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE URGED TO SIGN AND
RETURN WITHOUT DELAY THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, SO THAT THEIR SHARES MAY BE
REPRESENTED AT THE MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE
EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY, BY
GIVING WRITTEN NOTICE OF REVOCATION TO THE KEMPER EUROPE FUND AT ANY TIME BEFORE
THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE MEETING.
By Order of the Board of Trustees
Philip J. Collora,
Secretary
June , 1999
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF
FURTHER SOLICITATION.
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THE INFORMATION IN THIS PROSPECTUS/PROXY STATEMENT IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS/PROXY STATEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 3, 1999
PROSPECTUS/PROXY STATEMENT
, 1999
ACQUISITION OF THE ASSETS OF
KEMPER EUROPE FUND
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
(800) 621-1048
BY AND IN EXCHANGE FOR SHARES OF
SCUDDER NEW EUROPE FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(212) 326-6200
This Prospectus/Proxy Statement is being furnished to shareholders of
Kemper Europe Fund in connection with a proposed Agreement and Plan of
Reorganization (the "Plan") to be submitted to shareholders of the Kemper Europe
Fund for consideration at a Special Meeting of Shareholders to be held on July
20, 1999 at 9:00 a.m. (the "Meeting"), at the offices of Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, New York, 10154, or any
adjournment or adjournments thereof.
Scudder New Europe Fund, Inc. (the "Scudder Europe Fund") is a closed-end
nondiversified registered investment company. The shareholders of the Scudder
Europe Fund are currently considering a proposal to convert that Fund to an
open-end investment company. The Reorganization (as described below) is
contingent upon such approval by the Scudder Europe Fund shareholders. All
descriptions of the Scudder Europe Fund herein are of the Fund in open-end form
unless otherwise stated. Although the Scudder Europe Fund, as a business entity,
will be the surviving company after the Reorganization, it will change its name
to Kemper Europe Fund, Inc., and it intends to operate very much like the Kemper
Europe Fund in which you currently own shares.
Kemper Europe Fund is registered as a diversified open-end investment
company and its investment objective is long-term capital growth. Scudder Europe
Fund's investment objective is long-term capital appreciation, and, like the
Kemper Europe Fund, seeks to achieve its investment objective by investing
primarily in the equity securities of European companies. Scudder Europe Fund is
a nondiversified investment company and, therefore, may invest a greater
proportion of its assets in the securities of a smaller number of issuers. As a
result, the Scudder Europe Fund may be subject to greater risks with respect to
its portfolio than a more broadly diversified fund. Still, Scudder Europe Fund
held positions in 80 issuers and no single issuer constituted more than 5.8% of
that Fund's assets as of March 31, 1999.
The investment objectives, policies and risks of the Scudder Europe Fund
are substantially similar to those of the Kemper Europe Fund except for those
differences described under "Comparison of Investment Objectives and Policies"
in this Prospectus/Proxy Statement. The investment adviser, transfer agent and
independent auditors for the Scudder Europe Fund will be the same as those of
the Kemper Europe Fund, although Scudder Investments (U.K.) Limited will not
serve as sub-adviser to the Scudder Europe Fund. The distributor of shares of
the Scudder Europe Fund will be Kemper Distributors, Inc., which has been the
distributor for the Kemper Europe Fund. As stated above, upon consummation of
the Reorganization, the
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Scudder Europe Fund will also adopt the Kemper Europe Fund's name and the Fund
will be distributed as part of the Kemper family of funds.
The Plan provides for all of the assets of the Kemper Europe Fund to be
acquired by the Scudder Europe Fund in exchange for shares of the Scudder Europe
Fund and the assumption by the Scudder Europe Fund of all of the liabilities of
the Kemper Europe Fund, (hereinafter referred to as the "Reorganization").
Shares of the Scudder Europe Fund would be distributed to shareholders of the
Kemper Europe Fund in liquidation of the Kemper Europe Fund and thereafter the
Kemper Europe Fund would be terminated. As a result of the proposed
Reorganization, each shareholder of the Kemper Europe Fund will receive that
number of shares of the Scudder Europe Fund having an aggregate net asset value
equal to the aggregate value of such shareholder's shares of the Kemper Europe
Fund immediately prior to the Reorganization. All expenses of the Reorganization
(including the cost of preparing, printing and mailing the proxy card and proxy
statement and related solicitation costs for the Scudder Europe Fund's annual
meeting of stockholders) will be borne by the Scudder Europe Fund and the Kemper
Europe Fund based on their relative net assets. No sales charge will be imposed
on the shares of the Scudder Europe Fund received by the shareholders of the
Kemper Europe Fund. This transaction is structured to be tax-free for federal
income tax purposes to shareholders and to both the Scudder Europe Fund and the
Kemper Europe Fund.
The shares of common stock of the Scudder Europe Fund are currently listed
on the New York Stock Exchange (the "NYSE") under the symbol NEF. If the
Reorganization is approved, the Scudder Europe Fund will no longer be listed on
the NYSE. Reports, proxy materials and other information concerning the Scudder
Europe Fund may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Scudder Europe Fund
that a prospective investor should know before voting. This Prospectus/Proxy
Statement is expected to first be sent to shareholders on or about ,
1999. A Statement of Additional Information dated , 1999, relating
to this Prospectus/Proxy Statement and the Reorganization, has been filed with
the Securities and Exchange Commission (the "SEC") and is incorporated by
reference into this Prospectus/Proxy Statement. A copy of such Statement of
Additional Information and additional information relating to the Scudder Europe
Fund is available upon written or oral request and without charge by writing to
the Scudder Europe Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling 1-800-349-4281.
The following documents, which have been filed with the SEC, are
incorporated herein in their entirety by reference.
1. The Preliminary Prospectus of the Scudder Europe Fund, dated June ,
1999.
2. The current Prospectus of the Kemper Europe Fund, dated March 1, 1999.
This may be obtained without charge by writing to the address on the
cover page of this Prospectus/Proxy Statement or by calling (800)
621-1048.
3. The Annual Report of the Kemper Europe Fund for the fiscal year ended
November 30, 1998.
4. The Annual Report of the Scudder Europe Fund for the fiscal year ended
October 31, 1998.
Accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of the
Plan for the proposed Reorganization.
The Securities and Exchange Commission has not approved or disapproved
these Securities or passed upon the adequacy or accuracy of this
Prospectus/Proxy Statement. Any representation to the contrary is a criminal
offense.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus/Proxy Statement
and in the materials expressly incorporated herein by reference and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Kemper Europe Fund or the Scudder Europe Fund.
2
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TABLE OF CONTENTS
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VOTING INFORMATION.......................................... 4
SUMMARY..................................................... 5
RISK FACTORS................................................ 9
REASONS FOR THE REORGANIZATION.............................. 9
FEE AND EXPENSES............................................ 11
PERFORMANCE................................................. 16
INFORMATION ABOUT THE REORGANIZATION........................ 17
PRINCIPAL SHAREHOLDERS...................................... 21
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES............ 21
INVESTMENT RESTRICTIONS..................................... 26
RISK FACTORS................................................ 28
MANAGEMENT OF THE FUNDS..................................... 31
INTEREST OF CERTAIN PERSONS IN THE REORGANIZATION........... 31
INFORMATION ON SHAREHOLDERS' RIGHTS......................... 32
ADDITIONAL INFORMATION...................................... 34
OTHER BUSINESS.............................................. 34
FINANCIAL STATEMENTS AND EXPERTS............................ 35
LEGAL PROCEEDINGS........................................... 35
LEGAL MATTERS............................................... 35
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION............ A-1
</TABLE>
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VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of the Kemper Europe Fund to be
used at the Special Meeting of Shareholders to be held at 9:00 a.m. on July 20,
1999, at the offices of Scudder Kemper, 345 Park Avenue, New York, New York
10054, and at any adjournment or adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and proxy card, is first being
mailed to shareholders of the Kemper Europe Fund on or about , 1999.
Only shareholders of record as of the close of business on May 25, 1999 (the
"Record Date") will be entitled to notice of, and to vote at, the Meeting or any
adjournment thereof. As of the Record Date, the Kemper Europe Fund had 4,488,330
shares outstanding and entitled to vote, which consisted of 2,156,330,
2,013,385, and 318,715, Class A, Class B and Class C shares, respectively. The
holders of one-third of the shares of the Kemper Europe Fund outstanding at the
close of business on the Record Date present in person or represented by proxy
will constitute a quorum for the Meeting of the Kemper Europe Fund. For purposes
of determining a quorum for transacting business at the Meeting, abstentions and
broker "non-votes" (that is, proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owner or other
persons entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be treated as shares
that are present, but which have not been voted and, therefore are counted for
purposes of determining a quorum. For purposes of obtaining the requisite
approval of the Plan, however, abstentions and broker non-votes will have the
effect of a "NO" vote. If the enclosed proxy is properly executed and returned
in time to be voted at the Meeting, the proxies named therein will vote the
shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR approval of the Plan and FOR
approval of any other matters deemed appropriate. A proxy may be revoked at any
time on or before the Meeting by written notice to the Secretary of the Kemper
Europe Fund.
Shareholder Communications Corporation ("SCC") has been engaged to assist
in the solicitation of proxies. The cost of SCC's services is estimated at
$25,000 plus expenses. As the Special Meeting date approaches, certain
shareholders of the Kemper Europe Fund may receive a telephone call from a
representative of SCC if their votes have not yet been received. Authorization
to permit SCC to execute proxies may be obtained by telephonic or electronically
transmitted instructions from shareholders of the Kemper Europe Fund. Proxies
that are obtained telephonically will be recorded in accordance with the
procedures set forth below.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), and the number of shares owned,
and to confirm that the shareholder has received the proxy materials in the
mail. If the information solicited agrees with the information provided to SCC,
then the SCC representative has the responsibility to explain the process, read
the Proposal on the proxy card, and ask for the shareholder's instructions on
the Proposal. The SCC representative, although he or she is permitted to answer
questions about the process, is not permitted to recommend to the shareholder
how to vote, other than to read any recommendation set forth in the Proxy
Statement. SCC will record the shareholder's instructions on the card. Within 72
hours, the shareholder will be sent a letter or mailgram to confirm his or her
vote and asking the shareholder to call SCC immediately if his or her
instructions are not correctly reflected in the confirmation.
Article IX, Section 1 of the Kemper Europe Fund's Declaration of Trust
requires the affirmative vote of the shareholders of more than fifty percent
(50%) of the votes entitled to be cast on the matter, in order for the Trustees
to "sell, convey or transfer the assets of the [Fund] or the assets belonging to
any one or more series of the [Fund], to another trust, partnership, association
or corporation." Approval of the Plan, therefore, will require the affirmative
vote of a majority of the votes entitled to be cast by the shareholders of the
Kemper Europe Fund, voting in the aggregate without regard to class, in person
or by proxy, if a quorum is present. Shareholders of the Kemper Europe Fund are
entitled to one vote for each share. Implementing the Reorganization is
contingent on the approval of the shareholders of the Scudder Europe Fund to
convert that Fund to an open-end investment company.
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<PAGE> 10
Proxy solicitations will be made primarily by mail, but proxy solicitations
also may be made by telephone, telegraph or personal interviews conducted by
officers and employees of Scudder Kemper and its affiliates and/or by
Shareholder Communications Corporation. All expenses of the Reorganization,
including the costs of the proxy solicitation and the preparation of enclosures
to the Prospectus/Proxy Statement, reimbursement of expenses of forwarding
solicitation material to beneficial owners of shares of the Kemper Europe Fund,
expenses incurred in connection with the preparation of this Prospectus/Proxy
Statement and the cost of preparing, printing and mailing the proxy card and
proxy statement and related solicitation costs for Scudder Europe Fund's annual
meeting of stockholders (approximately $600,000) will be borne by the Scudder
Europe Fund and the Kemper Europe Fund based on their relative net assets. Based
upon this allocation, it is currently estimated that Scudder Europe Fund would
bear 83% and Kemper Europe Fund would bear 17% of these expenses. It is
anticipated that banks, brokerage houses and other institutions, nominees and
fiduciaries will be requested to forward proxy materials to beneficial owners
and to obtain authorization for the execution of proxies. Each Fund may, upon
request, reimburse banks, brokerage houses and other institutions, nominees and
fiduciaries for their expenses in forwarding proxy materials to beneficial
owners.
In the event that a quorum necessary for the Meeting is not present or
sufficient votes to approve the Reorganization of the Kemper Europe Fund are not
received by July 20, 1999, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares of the Kemper Europe Fund present in person or by proxy
and entitled to vote at the Meeting. The persons named as proxies will vote upon
a decision to adjourn the Meeting with respect to the Kemper Europe Fund after
consideration of the best interests of all shareholders of the Kemper Europe
Fund.
PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
This summary of certain information contained in the Prospectus/Proxy
Statement is qualified by reference to the more complete information contained
elsewhere in the Prospectus/Proxy Statement, the Statement of Additional
Information the Preliminary Prospectus and Statement of Additional Information
of the Scudder Europe Fund, the Prospectus and Statement of Additional
Information of the Kemper Europe Fund and the Plan attached to this
Prospectus/Proxy Statement as Exhibit A.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of the Kemper Europe Fund to the Scudder Europe Fund in exchange for
shares of the Scudder Europe Fund and its assumption of all of the liabilities
of the Kemper Europe Fund. The Plan also calls for the distribution of shares of
the Scudder Europe Fund to the Kemper Europe Fund's shareholders in liquidation
of the Kemper Europe Fund (the "Reorganization"). As a result of the
Reorganization, each shareholder of the Kemper Europe Fund will become the owner
of that number of full and fractional shares of the same class of the Scudder
Europe Fund having an aggregate net asset value equal to the aggregate value of
the shareholder's shares of the Kemper Europe Fund as of the close of business
on the date that the Kemper Europe Fund's assets are exchanged for shares of the
Scudder Europe Fund. HOLDERS OF CLASS A, B AND C SHARES OF THE KEMPER EUROPE
FUND WILL BECOME HOLDERS OF THE CORRESPONDING CLASS OF SHARES OF THE SCUDDER
EUROPE FUND. THE EXISTING SHAREHOLDERS OF THE SCUDDER EUROPE FUND WILL RECEIVE
CLASS M SHARES WHICH WILL CONVERT TO CLASS A SHARES ONE YEAR AFTER THE
REORGANIZATION. See "Information About the Reorganization -- Plan of
Reorganization."
For the reasons set forth below under "Reasons for the Reorganization," the
Board of Trustees of the Kemper Europe Fund, including the Trustees of the
Kemper Europe Fund who are not "interested persons" (the "Independent
Trustees"), as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), has unanimously concluded that the Reorganization
would be in the best interests of the shareholders of the Kemper Europe Fund and
that the interests of the Kemper Europe Fund's existing shareholders will not be
diluted as a result of the transaction contemplated by the Reorganization. The
Board
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<PAGE> 11
therefore has submitted the Plan for approval by the Kemper Europe Fund's
shareholders. The Board of Directors of the Scudder Europe Fund has also reached
similar conclusions and approved the Reorganization with respect to the Scudder
Europe Fund.
Approval of the Reorganization of the Kemper Europe Fund will require the
affirmative vote of a majority of the votes entitled to be cast by the
shareholders of the Kemper Europe Fund. The Reorganization is contingent upon a
number of things, including the approval of the shareholders of the Scudder
Europe Fund of a proposal to convert that Fund to an open-end investment
company. See "Voting Information."
TAX CONSEQUENCES. Prior to completion of the Reorganization, the Kemper
Europe Fund and the Scudder Europe Fund will have received an opinion of counsel
that, upon the closing of the Reorganization and the transfer of the assets of
the Kemper Europe Fund, no gain or loss will be recognized by the Kemper Europe
Fund or its shareholders for federal income tax purposes. The holding period and
aggregate tax basis of the Scudder Europe Fund's shares received by a Kemper
Europe Fund shareholder will be the same as the holding period and aggregate tax
basis of the shares of the Kemper Europe Fund previously held by such
shareholder. In addition, the holding period and tax basis of the assets of the
Kemper Europe Fund in the hands of the Scudder Europe Fund as a result of the
Reorganization will be the same as in the hands of the Kemper Europe Fund
immediately prior to the Reorganization.
If the Scudder Europe Fund experiences net redemptions after converting to
open-end status, the Scudder Europe Fund would be required to sell portfolio
securities. The portfolio activity that may be necessitated by redemption
requests following conversion could result in the realization of significant
capital gains by the Scudder Europe Fund, in addition to those historically
incurred in the ordinary course of the Fund's investment activity, which would
be distributed to stockholders. Such distributions would be taxable to the
stockholders who receive them and, accordingly, the actions of redeeming
stockholders may have adverse tax consequences for the Scudder Europe Fund and
its remaining stockholders. The Scudder Europe Fund may employ the equalization
method of tax accounting, which would reduce the portion of realized capital
gains required to be paid to remaining shareholders as taxable distributions.
See "Potential Tax Consequences." In an attempt to minimize adverse income tax
consequences for non-redeeming shareholders in the first year of operation as an
open-end fund and to discourage short-term trading in a vehicle intended for
long-term investment, the Scudder Europe Fund would pay in-kind redemptions
sought by Class M shareholders to the extent those redemptions exceed $500,000.
Exchanges of Class M shares for shares of other Kemper Mutual Funds would be
limited to transactions that would not result in in-kind redemptions. The
Scudder Europe Fund would also impose a 2% fee on all redemptions (including
redemptions paid-in-kind and exchanges) of Class M shares held during the first
year after the Fund's conversion to open-end status.
INVESTMENT OBJECTIVES AND POLICIES. The Scudder Europe Fund's investment
objective is long-term capital appreciation, which it seeks to achieve by
investing primarily in the equity securities of European companies. The Scudder
Europe Fund has substantially similar investment objectives, investment
policies, limitations and risks as the Kemper Europe Fund, except that it is a
non-diversified fund (Kemper Europe Fund is diversified). In pursuing its
objective, each Fund invests primarily in European equity securities believed to
have potential for capital growth. In addition, each Fund invests principally in
developed countries, but also has the flexibility to invest in emerging markets.
In choosing investments for Scudder Europe Fund, Scudder Kemper focuses on
European companies that (i) generate or apply new technologies, distribution
systems or services; (ii) expect to benefit from changing consumer demands or
lifestyles; (iii) have prospects for above-average earnings growth; or (iv) are
undervalued due to market misperception, temporary negative developments or
limited investor familiarity. In the case of Scudder Europe Fund, a stock is
typically sold when, in the opinion of the portfolio manager, (i) the stock has
reached its fair market value and its appreciation is limited; (ii) a company's
fundamentals have deteriorated; (iii) the portfolio management team loses
confidence in company management; (iv) the Fund's portfolio is too heavily
weighted in a particular company, country or sector; or (v) more attractive
alternatives are available in other companies or sectors. In choosing
investments for Kemper Europe Fund, Scudder Kemper focuses on European companies
that have (i) strong earnings growth; (ii) clean balance sheets; (iii) strong
management; and (iv) increasing revenue. In the case of Kemper Europe Fund, a
stock is
6
<PAGE> 12
typically sold when, in the opinion of the portfolio manager, (i) the stock has
reached a predetermined value; (ii) the company's fundamentals have
deteriorated; and (iii) the company deviates from a previously demonstrated
business plan.
You will find a more detailed discussion of the investment objectives,
investment policies and the types of investments that can be made by each Fund
(e.g., debt securities, small companies, temporary defensive practices,
derivatives, convertible securities and illiquid securities) under "Comparison
of Investment Objectives and Policies" below.
FEES AND OTHER CHARGES. The fees and expenses to be borne by the Scudder
Europe Fund for advisory, administration, shareholder and other operational
services are expected to be comparable to those charges borne currently by the
Kemper Europe Fund, except that the Scudder Europe Fund will incur an annual
accounting service fee that is based on the actual services provided, but is
expected to equal approximately .10% of average daily net assets, which is not
currently paid by the Kemper Europe Fund. The Scudder Europe Fund may, however,
realize certain economies of scale based on its greater asset size that may
offset, in part, the accounting service fee. Scudder Kemper has also agreed to
limit the total annual operating expenses of Class A, B and C shares of Scudder
Europe Fund to 1.75%, 2.65% and 2.62%, respectively, for the one year period
following the Reorganization.
PURCHASE AND REDEMPTION PROCEDURES AND DISTRIBUTION ARRANGEMENTS. Upon
consummation of the Reorganization, the Scudder Europe Fund will adopt the same
distribution structure as the Kemper Europe Fund and will be distributed as part
of the Kemper family of funds. Therefore, the purchase and redemption procedures
and distribution arrangements available to shareholders of the Scudder Europe
Fund will be identical to those available to shareholders of the Kemper Europe
Fund. All shares of the Scudder Europe Fund will be sold at net asset value,
subject to any applicable sales charge. Class A shares of the Scudder Europe
Fund are subject to a maximum sales charge of 5.75%. Class B and C shares are
subject to contingent deferred sales charges and a 12b-1 distribution fee of
.75%. Class M shares represent the initial shares of the Scudder Europe Fund and
are no longer offered. The Scudder Europe Fund will also pay in-kind redemptions
sought by Class M shareholders to the extent those redemptions exceed $500,000.
Class M shares are subject to a 2% fee on all redemptions (including redemptions
in-kind) and exchanges. The purpose of the redemption fee is to offset certain
expenses incurred to meet redemptions and to discourage short-term trading in a
vehicle intended for long-term investment. Class M shares are not subject to a
contingent deferred sales charge or a 12b-1 distribution fee, and will convert
to Class A shares one year after the Reorganization. All share classes are also
subject to an administrative service fee of up to .25%.
EXCHANGE PRIVILEGES. The exchange privileges available to shareholders of
the Scudder Europe Fund are substantially identical to those available to
shareholders of the Kemper Europe Fund. Shareholders of the Scudder Europe Fund
may exchange at net asset value all or a portion of their shares for shares of
the same class of certain other mutual funds in the Kemper family of funds at
their respective net asset values, subject to any applicable contingent deferred
sales charge or redemption fee. Shareholders of Class M shares may exchange
their shares for Class A shares of a corresponding Kemper Mutual Fund. As stated
above, a 2% fee will apply to any exchanges of Class M shares and exchanges of
Class M shares would be limited to an amount that would not trigger an in-kind
redemption. Exchanges may be effected by mail or by telephone. 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 may not be
exchanged thereafter until they have been owned for 15 days. In addition, shares
of a Kemper Mutual Fund with a value of $1,000,000 or less (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") if, in the investment manager's judgment, the
exchange activity may have an adverse effect on the Fund. In particular, a
pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Fund and therefore may be subject to the 15-Day Hold Policy.
Currently, exchanges may be made among the following Kemper Mutual Funds: Kemper
Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small
Capitalization Equity Fund, Kemper Income and Capital Preservation Fund, Kemper
Municipal Bond Fund, Kemper Strategic Income Fund, Kemper High Yield Series,
Kemper U.S. Government Securities Fund, Kemper International Fund, Kemper State
Tax-Free Income Series, Kemper Blue
7
<PAGE> 13
Chip Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are
subject to a limited offering period), Kemper Intermediate Municipal Bond Fund,
Kemper Cash Reserves Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate
Government Fund, Kemper Value Series, Inc., Kemper Value Plus Growth Fund,
Kemper Horizon Fund, Kemper Europe Fund, Inc., Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper Equity
Trust, Kemper Income Trust, Kemper Funds Trust and Kemper Securities Trust.
The exchange privilege is available to shareholders residing in any state
in which the Scudder Europe Fund's shares being acquired may legally be sold.
When an investor effects an exchange of shares, the exchange is treated for
federal income tax purposes as a redemption. Therefore, the investor may realize
a taxable gain or loss in connection with the exchange. See "Selling and
Exchanging" in the accompanying Preliminary Prospectus of the Scudder Europe
Fund.
DIVIDENDS. The Scudder Europe Fund and the Kemper Europe Fund distribute
substantially all of their net investment income and net realized capital gains,
if any, to shareholders. All distributions are reinvested in the form of
additional full and fractional shares unless a shareholder elects otherwise. The
Scudder Europe Fund and the Kemper Europe Fund declare and pay dividends, if
any, from net investment income annually. Net realized short-term capital gains
(and long-term capital gains) of the Scudder Europe Fund, like the Kemper Europe
Fund, will be distributed at least annually. See "Distributions and Taxes" in
the accompanying Preliminary Prospectus of the Scudder Europe Fund.
SHAREHOLDER VOTING RIGHTS. The Scudder Europe Fund is currently registered
with the Securities and Exchange Commission as a closed-end management
investment company, but will convert to open-end status upon the approval of its
shareholders. The Kemper Europe Fund is registered as an open-end management
investment company. The Scudder Europe Fund is a Maryland corporation, having a
Board of Directors. The Kemper Europe Fund is organized as a Massachusetts
business trust, having a Board of Trustees. Although the organizational form of
each Fund differs, shareholders of both Scudder Europe Fund and Kemper Europe
Fund are expected to have similar voting rights if certain amendments to the
Scudder Europe Fund's Articles of Incorporation (the "Charter") are approved by
its shareholders. See "Information on Shareholders' Rights." For example,
one-third of the outstanding shares of the Kemper Europe Fund constitute a
quorum for shareholder voting purposes. The Scudder Europe Fund has proposed an
amendment to its Charter reducing the quorum requirement from the current
majority of outstanding shares to one-third of its outstanding shares. Approval
of this Charter amendment would be included in the approval of the open-ending
proposal by the shareholders of the Scudder Europe Fund. As an open-end fund,
the Kemper Europe Fund does not hold a meeting of shareholders annually, except
as required by the 1940 Act or other applicable law. As a closed-end fund,
however, the Board of Directors of the Scudder Europe Fund is currently divided
into three classes and each Director currently serves for a term of three years.
Annual meetings of shareholders of the Scudder Europe Fund are therefore
required to elect Directors as terms expire. The Scudder Europe Fund has
proposed an amendment to its Charter to eliminate the classified Board structure
and the approval of such amendment would permit the Scudder Europe Fund to
dispense with annual shareholders meetings, except when required by law to hold
such meetings. By not having to hold annual shareholders' meetings, the Scudder
Europe Fund would save the costs of preparing proxy materials and soliciting
shareholders' votes on the usual proposals contained therein. If the
shareholders of the Scudder Europe Fund, however, do not approve this Charter
amendment, Fund will continue to be required to hold annual meetings for the
purpose of electing Directors and therefore will continue to incur the costs
relating to such meetings (approximately $50,000 to $60,000). Approval of this
Charter amendment requires the affirmative vote of 75% of the votes entitled to
be cast by shareholders of the Scudder Europe Fund. The open-ending of the
Scudder Europe Fund is not contingent upon the approval of this amendment to the
Charter.
In addition, under the laws of the State of Maryland and the Commonwealth
of Massachusetts, shareholders do not have appraisal rights in connection with a
combination or acquisition of the assets of a fund by another entity.
Shareholders of the Kemper Europe Fund may, however, redeem their shares at net
asset value prior to the date of the Reorganization (subject only to certain
restrictions as set forth in the 1940 Act). See "Information on Shareholders'
Rights -- Voting Rights."
8
<PAGE> 14
RISK FACTORS
Due to the fact that the investment objectives, policies and restrictions
of the Scudder Europe Fund are substantially similar to those of the Kemper
Europe Fund, the investment risks are similar. There are, however, some
distinctions in the investment program of the Scudder Europe Fund and the Kemper
Europe Fund. For example, (i) up to 20% of the Scudder Europe Fund's assets may
be held in cash and short and medium term high grade debt to maintain liquidity,
which may prevent Scudder Europe Fund from achieving its goal, while the Kemper
Europe Fund has no such stated policy; (ii) unlike the Kemper Europe Fund, the
Scudder Europe Fund is authorized to invest in when-issued securities,
non-investment grade debt securities (i.e., "junk bonds"), swaps, caps, floors
and collars, which investments may be more speculative and may require greater
skill on the part of the investment manager; (iii) the Scudder Europe Fund is
classified as non-diversified which may subject the Fund to greater risks than
the Kemper Europe Fund which is classified as diversified for purposes of the
1940 Act; and (iv) Scudder Europe Fund is not limited in the amount of its
assets that may be invested in emerging markets which involve higher levels of
risk, while Kemper Europe Fund may not invest more than 25% of its total assets
in emerging markets. You will find a more detailed discussion of the risk
factors relating to the conversion of Scudder Europe Fund to an open-end
investment company, as well as a more detailed comparison of the principal risk
factors of investing in each Fund (e.g., foreign securities risk, emerging
markets risk, European securities risk, lower rated securities and liquidity
risks and risks of derivative instruments) under "Risk Factors" below.
Because the Scudder Europe Fund is converting from a closed-end to an
open-end investment company, it is possible that a meaningful number of
shareholders in that Fund may redeem their shares immediately or soon after the
Reorganization. Other closed-end funds that have converted to open-end form have
experienced redemptions that exceed sales after conversion, and, in some
instances, net redemptions have been substantial. If such redemptions occur, the
Scudder Europe Fund could be adversely affected because of lost economies of
scale and portfolio management disruption. A decrease in net assets could result
in less diversification or in smaller portfolio positions in its investments,
which could adversely affect the Scudder Europe Fund's total return performance.
In addition, as a result of any decrease in size resulting from redemptions, the
Scudder Europe Fund could experience a further increase in its expense ratio. A
higher expense ratio would lower the Scudder Europe Fund's total return
performance.
As stated above, the Scudder Europe Fund is currently registered as a
closed-end fund and intends to convert to open-end status subject to the
approval of its stockholders at a July 20, 1999 annual meeting. The
Reorganization is contingent upon the approval of the open-ending proposal by
Scudder Europe Fund shareholders. In connection with the Scudder Europe Fund's
open-ending proposal, that Fund is also proposing certain further amendments to
its Charter for approval by its stockholders. The open-ending proposal is not
conditioned upon the approval of all of those further changes. However, if all
of the changes are not approved, the Scudder Europe Fund will retain certain
characteristics more typically associated with a closed-end fund. See
"Information on Shareholders' Rights."
REASONS FOR THE REORGANIZATION
The Reorganization has been proposed by Scudder Kemper as a means of
combining the Kemper Europe Fund with a fund managed by Scudder Kemper with
compatible investment objectives, policies, restrictions and risks. Scudder
Kemper informed the Board of the Kemper Europe Fund that the investment
portfolios of the Scudder Europe Fund and the Kemper Europe Fund are compatible
and that the Reorganization, if approved, offers a number of potential benefits
to both the Kemper Europe Fund and the Scudder Europe Fund. Foremost, Scudder
Kemper believes that the Scudder Europe Fund should be more viable than the
Kemper Europe Fund. By combining with a fund with a solid performance history,
the Kemper Europe Fund may be able to overcome its inability to achieve desired
increases in asset size. At only $72 million in net assets (as of March 31,
1999), the Kemper Europe Fund is well below its first breakpoint in management
fees, which is at $250 million. (At $250 million, management fees are reduced
from .75% to .72% and at $1 billion they are reduced to .70%) and its
non-variable expenses are spread over that relatively small asset base. Unless
significant redemptions offset the assets gained in the Reorganization, the
immediately greater asset size
9
<PAGE> 15
should allow the Scudder Europe Fund to achieve some economies of scale. These
economies of scale, however, may be offset (in whole or in part) by the
imposition of an accounting service fee of approximately .10%, which is not
currently paid by the Kemper Europe Fund. Kemper Distributors, Inc. ("KDI"),
though, informed the Kemper Europe Fund Board that more assets as well as the
strong track record of the Scudder Europe Fund's portfolio managers could give
the Scudder Europe Fund greater market appeal. These changes, in turn, might
provide an improved basis for support from the brokerage community. As a result,
the Scudder Europe Fund may be better positioned for further growth and further
economies of scale.
Moreover, as a stand-alone open-end fund, Scudder Kemper informed the Board
that Scudder Kemper would likely offer the Scudder Europe Fund in an environment
where it might otherwise compete for investors and investment opportunities with
Kemper Europe Fund. As separate entities, investors might be confused by the
existence of two funds with similar objectives and policies with the same
investment manager and with shares offered in the same marketing channels.
Combination of the Funds will avoid this concern, although Scudder Europe Fund
will proceed with open-ending (subject to shareholder approval) even if the
Reorganization is not approved by the shareholders of Kemper Europe Fund. The
Board of Trustees of the Kemper Europe Fund has determined that it is in the
best interest of the Kemper Europe Fund to effect the Reorganization. In
reaching this conclusion, the Board considered a number of factors, including
the following:
1. the terms and conditions of the Reorganization;
2. the investment objectives and policies of the Scudder Europe Fund in
relation to those of the Kemper Europe Fund;
3. the compatibility of the investment portfolios of the Funds;
4. the investment adviser, transfer agent, distributor and independent
auditors for the Scudder Europe Fund would be the same as those of the
Kemper Europe Fund;
5. the federal tax consequences of the Reorganization to the Kemper Europe
Fund, the Scudder Europe Fund and the shareholders of each, and that a
legal opinion will be rendered that no recognition of income, gain or
loss for federal income tax purposes will occur as a result of the
Reorganization to any of them;
6. the Scudder Europe Fund will adopt the Kemper Europe Fund's lower
management fee schedule;
7. no sales charge will be imposed in connection with the Reorganization;
8. the performance history of the Funds and that the Reorganization may
provide shareholders of the Kemper Europe Fund with a more viable
investment vehicle that has a longer and better performance record; and
9. that the Reorganization may increase economic efficiencies of the
combined entity and better position it for further growth.
In considering the Reorganization, however, the Board of Trustees took
specific note of the Kemper Europe Fund's pro-rata share of the expenses to be
incurred in connection with the Reorganization, the fact that the Scudder Europe
Fund would incur an accounting service fee of approximately .10% which is not
currently paid by the Kemper Europe Fund, and that Scudder Kemper has agreed to
limit total operating expenses to 1.75%, 2.65% and 2.62% for the Class A, B and
C shares of Scudder Europe Fund, respectively, for the one year period following
the Reorganization. These expense limitations are currently in effect for Kemper
Europe Fund. The Board also considered that because the Scudder Europe Fund is
converting from a closed-end to an open-end investment company, a significant
number of shareholders may redeem their shares immediately or soon after the
Reorganization and that if such redemptions occur, the Scudder Europe Fund could
be adversely affected because of lost economies of scale and portfolio
management disruption. The Kemper Europe Fund Board noted with approval that in
an attempt to minimize subsequent adverse income tax consequences for
non-redeeming shareholders in the first year of operation as an open-end fund,
the Scudder Europe Fund will pay in-kind redemptions sought by Class M
shareholders (those shareholders who
10
<PAGE> 16
previously held the Scudder Europe Fund's closed-end fund shares) to the extent
those redemptions exceed $500,000. In addition, the Scudder Europe Fund will
impose a 2% fee on all redemptions (including redemptions in-kind) and exchanges
of Class M shares during the first year after the Reorganization. The Kemper
Europe Fund Board observed that redemptions in-kind would minimize adverse tax
consequences to continuing shareholders and that a redemption fee would help to
offset certain expenses and also to discourage short-term trading in a vehicle
intended for long-term investment.
In light of the foregoing, the Board of Trustees of the Kemper Europe Fund,
including the Independent Trustees, has determined that it is in the best
interest of the Kemper Europe Fund and its shareholders to effect the
Reorganization. The Board of Trustees has also determined that the
Reorganization would not result in a dilution of the interests of the Kemper
Europe Fund's existing shareholders.
The Board of Directors of the Scudder Europe Fund has also determined that
it is advantageous to the Scudder Europe Fund to effect the Reorganization. The
Board of Directors of the Scudder Europe Fund also considered the terms and
conditions of the Reorganization and representations that the Reorganization
would be effected as a tax-free Reorganization. Accordingly, the Board of
Directors of the Scudder Europe Fund, including all of the Independent
Directors, has determined that the Reorganization is in the best interests of
the Scudder Europe Fund's shareholders and that the interests of the existing
Scudder Europe Fund's shareholders would not be diluted as a result of the
Reorganization.
FEES AND EXPENSES
Pursuant to its investment advisory agreement with Scudder Kemper, the
Kemper Europe Fund pays Scudder Kemper a (graduated) monthly investment
management fee at the following annual rate:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT
AVERAGE DAILY NET ASSETS OF THE KEMPER FUND FEE RATES
- ------------------------------------------- -----------------
<S> <C>
$0 - $250 million........................................... 0.75%
$250 million - $1 billion................................... 0.72
$1 billion - $2.5 billion................................... 0.70
$2.5 billion - $5 billion................................... 0.68
$5 billion - $7.5 billion................................... 0.65
$7.5 billion - $10 billion.................................. 0.64
$10 billion - $12.5 billion................................. 0.63
Over $12.5 billion.......................................... 0.62
</TABLE>
In connection with the Reorganization, the Board of Directors of Scudder
Europe Fund has recommended that shareholders of that Fund approve the
management fee schedule of the Kemper Europe Fund as described above pursuant to
an advisory agreement substantially similar to the advisory agreement currently
in effect between Scudder Kemper and the Kemper Europe Fund. Scudder Kemper has
indicated, however, that it will contractually reduce its fees so that its
advisory fees do not exceed this lower level in the event that shareholders of
Scudder Europe Fund approve the proposal to open-end, but do not approve the
proposed new advisory agreement. Based on the combination of the current assets
of the two Funds, the management fee rate to be paid by the combined entity will
be lower than that currently in effect for the Kemper Europe Fund, although
there can be no assurance that the current assets will not decline substantially
following the Reorganization.
Currently, Scudder Investments (UK) Limited, a subsidiary of Scudder
Kemper, receives a monthly fee at the annual rate of .35% from Scudder Kemper
for sub-advisory services provided to the Kemper Europe Fund. The Scudder Europe
Fund has no current intention to engage any sub-adviser following the
Reorganization and the fees paid to Scudder Kemper will not be redistributed to
any affiliated or unaffiliated sub-adviser.
For the fiscal year ended November 30, 1998, the investment management fees
charged to the Kemper Europe Fund totaled $349,000. The entire amount of these
investment management fees, however, were waived by Scudder Kemper.
11
<PAGE> 17
The Scudder Europe Fund also retains Scudder Kemper to manage its daily
investment and business affairs subject to the policies established by its Board
of Directors. As a closed-end fund, the Scudder Europe Fund pays advisory fees
ranging from 1.25% to 1.10% based on its current assets. For the fiscal year
ending October 31, 1999, the estimated management fees to be paid by the
reorganized Scudder Europe Fund to Scudder Kemper (based on the lower management
fee schedule as set forth above) are $3,200,000, assuming that the net assets of
the two Funds are combined and the resulting Fund experiences neither net sales
nor net redemptions.
After giving effect to the proposed Reorganization, the expense ratio of
the Scudder Europe Fund is projected to be approximately 1.85% for Class A
shares, 3.14% for Class B shares, 2.62% for Class C shares and 1.42% for Class M
shares. The actual expense ratios for the Scudder Europe Fund for the current
and future fiscal years, if the Reorganization is consummated, may be higher or
lower than this projection, depending upon the Scudder Europe Fund's
performance, general stock market and economic conditions, net asset levels and
other factors. However, Scudder Kemper has agreed to limit the total annual
operating expenses to 1.75%, 2.65% and 2.62% for the Class A, B and C shares of
the Scudder Europe Fund, respectively, for the one year period following the
Reorganization.
Set forth below is a comparison of each Fund's annual operating expenses
and shareholder transaction expenses on a current basis and those expenses that
would apply to shareholders holding Class A, B, C and M shares of Scudder Europe
Fund following the Reorganization on a pro forma (estimated) basis for the
fiscal year ending October 31, 1999. Pro forma expense information is also
provided for Scudder Europe Fund following the Reorganization assuming 50%
redemptions.
FEE TABLES
CURRENT
(UNAUDITED)
<TABLE>
<CAPTION>
KEMPER EUROPE FUND
----------------------------- SCUDDER
CLASS A CLASS B CLASS C EUROPE FUND
------- ------- ------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES: (FEES PAID DIRECTLY FROM YOUR INVESTMENT).
Maximum Sales Charge (Load) Imposed on Purchases (as
a % of offering price)............................ 5.75% None None None
Maximum Deferred Sales Charge (Load) (as a % of
redemption proceeds).............................. None None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions........................... None 4.00% 1.00% None
Redemption Fee (as a % of amount redeemed, if
applicable)....................................... None None None None
Exchange Fee........................................ None None None None
ANNUAL FUND OPERATING EXPENSES: (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS).
Management Fee...................................... 0.75% 0.75% 0.75% 1.15%
12b-1 Fees.......................................... None 0.75% 0.75% None
Other Expenses...................................... 1.61% 2.64% 1.48% 0.26%
---- ---- ---- ----
Total Annual Fund Operating Expenses(1)............. 2.36% 4.14% 2.98% 1.41%
Expense reimbursement............................... 0.61% 1.49% 0.36% None
---- ---- ---- ----
Net Annual Operating Expenses(2).................... 1.75% 2.65% 2.62% 1.41%
</TABLE>
12
<PAGE> 18
PROFORMA AFTER REORGANIZATION
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES: (FEES PAID DIRECTLY FROM YOUR INVESTMENT).
Maximum Sales Charge (Load) Imposed on Purchases (as a %
of offering price).................................... 5.75% None None None
Maximum Deferred Sales Charge (Load) (as a % of
redemption proceeds).................................. None(3) 4% 1% None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions............................... None None None None
Redemption Fee (as % of amount redeemed, if
applicable)........................................... None None None 2%(4)
Exchange Fee............................................ None None None 2%(4)
</TABLE>
ANNUAL FUND OPERATING EXPENSES:
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS).
<TABLE>
<S> <C> <C> <C> <C>
Management Fee.......................................... 0.74% 0.74% 0.74% 0.74%
Distribution (12b-1) Fees............................... None 0.75% 0.75% None
Other Expenses(5)....................................... 1.11% 1.65% 1.13% 0.68%
Total Annual Fund Operating Expenses.................... 1.85% 3.14% 2.62% 1.42%
Expense Reimbursement................................... 0.10% 0.49% None None
Net Annual Operating Expenses(6)........................ 1.75% 2.65% 2.62% 1.42%
</TABLE>
PROFORMA AFTER REORGANIZATION ASSUMING 50% REDEMPTIONS
(UNAUDITED)
SHAREHOLDER FEES: (FEES PAID DIRECTLY FROM YOUR INVESTMENT).
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a %
of offering price).................................... 5.75% None None None
Maximum Deferred Sales Charge (Load) (as a % of
redemption proceeds).................................. None(3) 4% 1% None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions............................... None None None None
Redemption Fee (as % of amount redeemed, if
applicable)........................................... None None None 2%(4)
Exchange Fee............................................ None None None 2%(4)
</TABLE>
13
<PAGE> 19
Annual fund operating expenses:
(expenses that are deducted from fund assets).
<TABLE>
<S> <C> <C> <C> <C>
Management Fee.......................................... 0.74% 0.74% 0.74% 0.74%
Distribution (12b-1) Fees............................... None 0.75% 0.75% None
Other Expenses(7)....................................... 1.13% 1.72% 1.16% 0.71%
Total Annual Fund Operating Expenses.................... 1.87% 3.21% 2.65% 1.45%
Expense Reimbursement................................... 0.12% 0.56% 0.03% None
Net Annual Operating Expenses(6)........................ 1.75% 2.65% 2.62% 1.45%
</TABLE>
- ---------------
(1) This information is based on historical data as of October 31, 1998.
(2) Reflects current expense limitations for Class A, B and C shares of Kemper
Europe Fund, respectively. Under the prior expense limitations in place as
of October 31, 1998, total net annual operating expenses were 1.61%, 2.70%
and 2.18% for the Class A, B and C Shares of Kemper Europe Fund,
respectively.
(3) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
(4) A 2% redemption fee, which will be retained by the Open-End Fund, is imposed
on all redemptions (including redemptions paid in-kind) and exchanges of
Class M shares for a period of one year from the date of the Reorganization.
(5) The expense ratios shown above are estimated for the Scudder Europe Fund's
current fiscal year ending October 31, 1999, based on the Fund's proposed
fee schedules and expenses expected to be incurred during its most recent
fiscal year. The actual expenses for each class of shares in future years
may be more or less than the numbers above, depending on a number of
factors, including changes in actual value of the Scudder Europe Fund's
assets represented by each class of shares. "Other Expenses" do not include
extraordinary expenses associated with efforts to restructure the Scudder
Europe Fund. If such expenses had been included, "Other Expenses" would have
been increased to 1.25%, 1.79%, 1.27% and .82% for Class A, B, C and M
shares, respectively, and "Total Annual Fund Operating Expenses" would have
been increased to 1.99%, 3.28%, 2.76% and 1.56% for Class A, B, C and M
shares, respectively.
(6) Pursuant to their respective agreements with the Fund, the investment
manager, the underwriter, the administrator, the accounting agent and the
transfer agent have agreed, for the one year period commencing on the date
of the Reorganization, to limit their respective fees and to reimburse other
operating expenses to the extent necessary to limit total operating expenses
of the classes of the Fund to the levels set forth in the table above.
(7) The expense ratios shown above are estimated for the Scudder Europe Fund's
current fiscal year ending October 31, 1999, based on the Fund's proposed
fee schedules and expenses expected to be incurred during its most recent
fiscal year. The actual expenses for each class of shares in future years
may be more or less than the numbers above, depending on a number of
factors, including changes in actual value of the Scudder Europe Fund's
assets represented by each class of shares. "Other Expenses" do not include
extraordinary expenses associated with efforts to restructure the Scudder
Europe Fund. If such expenses had been included, "Other Expenses" would have
been increased to 1.30%, 1.89%, 1.33% and 0.88% for Class A, B, C and M
shares, respectively, and "Total Annual Fund Operating Expenses" would have
been increased to 2.04%, 3.38%, 2.82% and 1.62% for Class A, B, C and M
shares, respectively.
14
<PAGE> 20
EXAMPLE:
These examples illustrate the impact of the above fees and expenses on an
account with an initial investment of $10,000, based on the expenses shown
above. They assume a 5% annual return, the reinvestment of all dividends and
distributions and "annual fund operating expenses" remaining the same each year.
These examples are hypothetical: actual fund expenses and returns vary from year
to year, and may be higher or lower than those shown.
KEMPER EUROPE FUND (CURRENT):
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year.................................................. $ 729 $ 673 $ 321
3 Years................................................. $1,205 $1,440 $ 851
5 Years................................................. $1,713 $2,247 $1,518
10 Years*................................................ $3,143 $3,656 $3,355
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year.................................................. $ 729 $ 273 $ 221
3 Years................................................. $1,205 $1,140 $ 851
5 Years................................................. $1,713 $2,047 $1,518
10 Years*................................................ $3,143 $3,656 $3,355
</TABLE>
SCUDDER EUROPE FUND (CURRENT):
Fees and expenses if you sold shares after:
<TABLE>
<S> <C>
1 Year..................................................... $ 144
3 Years.................................................... $ 446
5 Years.................................................... $ 771
10 Years*................................................... $1,691
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<S> <C>
1 Year...................................................... $ 144
3 Years..................................................... $ 446
5 Years..................................................... $ 771
10 Years*................................................... $1,691
</TABLE>
PROFORMA EXPENSE RATIOS OF SCUDDER EUROPE FUND AFTER REORGANIZATION:
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year**................................................. $ 743 $ 668 $ 365
3 Years.................................................. $1,118 $1,230 $ 814
5 Years.................................................. $1,519 $1,824 $1,390
10 Years*................................................ $2,641 $3,529 $2,954
</TABLE>
15
<PAGE> 21
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year**................................................. $ 743 $ 268 $ 265
3 Years.................................................. $1,118 $ 930 $ 814
5 Years.................................................. $1,519 $1,624 $1,390
10 Years*................................................ $2,641 $3,529 $2,954
</TABLE>
PROFORMA EXPENSE RATIOS OF SCUDDER EUROPE FUND AFTER REORGANIZATION ASSUMING 50%
REDEMPTIONS
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year**................................................. $ 743 $ 668 $ 365
3 Years.................................................. $1,118 $1,241 $ 821
5 Years.................................................. $1,519 $1,845 $1,403
10 Years*................................................ $2,641 $2,925 $2,985
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year**................................................. $ 743 $ 268 $ 265
3 Years.................................................. $1,118 $ 941 $ 821
5 Years.................................................. $1,519 $1,645 $1,403
10 Years*................................................ $2,641 $2,925 $2,985
</TABLE>
- ---------------
* Class B automatically converts into Class A six years after purchase.
** These examples do not include extraordinary expenses associated with efforts
to restructure the Fund.
The foregoing tables are designed to assist the investor in understanding
the various costs and expenses that a shareholder will bear directly or
indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
PERFORMANCE
Set forth below is performance data for periods ending March 31, 1999 based
on each Fund's net asset value. Past performance is not a guarantee of future
results, and it is not possible to predict whether or how investment performance
will be affected by the Reorganization.
<TABLE>
<CAPTION>
SCUDDER EUROPE FUND KEMPER EUROPE FUND(1)
---------------------------- ----------------------------
CUMULATIVE AVERAGE ANNUAL CUMULATIVE AVERAGE ANNUAL
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
One Year................................. 4.73% 4.73% -2.04% -2.04%
Three Years.............................. 90.23% 23.91% N/A N/A
Five Years............................... 147.55% 19.88% N/A N/A
Since inception(1)....................... 181.38% 12.01% 57.00% 16.73%
</TABLE>
- ---------------
(1) Performance information is shown without sales charges for Class A Shares of
the Kemper Europe Fund.
(2) The Scudder Europe Fund commenced operations on February 9, 1990. The Kemper
Europe Fund commenced operations on May 1, 1996.
16
<PAGE> 22
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The following summary of the Plan is
qualified in its entirety by reference to the Plan (Exhibit A hereto). The Plan
provides that the Scudder Europe Fund will acquire all of the assets of the
Kemper Europe Fund in exchange for shares of the Scudder Europe Fund and the
assumption by the Scudder Europe Fund of all of the liabilities of the Kemper
Europe Fund on the closing. The closing date is September 1, 1999, but it may be
changed by the parties.
Prior to the Closing Date, the Kemper Europe Fund will endeavor to
discharge liabilities and obligations. The Scudder Europe Fund shall assume all
other liabilities, expenses, costs, charges and reserves of the Kemper Europe
Fund. The net asset value per share of each class of the Kemper Europe Fund will
be determined by addition of the relevant class' pro rata share of the actual
and accrued liabilities and the liabilities specifically allocated to that class
of shares, and dividing the result by the total number of outstanding shares of
the relevant class. The Kemper Europe Fund and the Scudder Europe Fund will
utilize the procedures set forth in their respective current Prospectuses or
Statements of Additional Information to determine the value of their respective
portfolio securities and to determine the aggregate value of each Fund's
portfolio.
On or as soon after the Closing Date as conveniently practicable, the
Kemper Europe Fund will liquidate and distribute pro rata to shareholders of
record as of the close of business on such Closing Date the shares of the same
class of the Scudder Europe Fund received by the Kemper Europe Fund. Such
liquidation and distribution will be accomplished by the establishment of
accounts in the names of the Kemper Europe Fund's shareholders on the share
records of the Scudder Europe Fund's transfer agent. Each account will represent
the respective pro rata number of shares of the class of shares of the Scudder
Europe Fund due to the Kemper Europe Fund's shareholders. After such
distribution and the winding up of its affairs, the Kemper Europe Fund will be
terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. Notwithstanding approval by the shareholders of the Kemper
Europe Fund and the Scudder Europe Fund, the Plan may be terminated with respect
to the Reorganization at any time at or prior to the Closing Date: (i) by mutual
agreement of the Kemper Europe Fund and the Scudder Europe Fund; (ii) by the
Kemper Europe Fund, in the event the Scudder Europe Fund shall, or the Scudder
Europe Fund, in the event the Kemper Europe Fund shall, materially breach any
representation, warranty or agreement contained in the Plan to be performed at
or prior to the Closing Date; or (iii) if a condition to the Plan expressed to
be precedent to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
Approval of the Plan with respect to the Kemper Europe Fund will require
the affirmative vote of a majority of the votes entitled to be cast by the
shareholders of the Kemper Europe Fund in the aggregate without regard to class,
in person or by proxy, if a quorum is present. The Reorganization is also
subject to a number of conditions, including the approval by the shareholders of
the Scudder Europe Fund to convert that Fund to an open-end investment company
and adoption by the Scudder Europe Fund of the Kemper Europe Fund management fee
schedule. Shareholders of the Kemper Europe Fund are entitled to one vote for
each share. If the Reorganization is not approved by shareholders of the Kemper
Europe Fund, the Board of Trustees will consider other possible courses of
action available to it, including resubmitting the Reorganization proposal to
shareholders.
DESCRIPTION OF THE SCUDDER EUROPE FUND'S SHARES. Shares of the Scudder
Europe Fund will be issued to the Kemper Europe Fund in accordance with the
procedures detailed in the Plan and as described in the Scudder Europe Fund's
Preliminary Prospectus. These procedures are substantially similar to those
currently in place for the Kemper Europe Fund. The Scudder Europe Fund does not
issue share certificates to shareholders.
The Scudder Europe Fund currently has authorized four classes of common
stock, called Class A shares, Class B shares, Class C shares and Class M shares.
The Scudder Europe Fund intends to continuously offer its shares (with the
exception of Class M shares) after the Reorganization. The per share net asset
value of the Class B and Class C shares will generally be lower than that of the
Class A and M shares because of the
17
<PAGE> 23
higher annual expenses borne by the Class B and C Shares. Also, because of the
12b-1 fees to be paid by the Class B and C shares, the total return on the Class
B and C shares can be expected to be lower than the total return on the Class A
and M shares.
Class A shares are offered at net asset value plus a maximum sales charge
of 5.75% of the offering price and are subject to an administrative services fee
of up to 0.25%. Reduced sales charges apply to purchases of $50,000 or more of
Class A shares. Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege (as described in the Scudder Europe Fund's
Preliminary Prospectus) may be subject to a 1% contingent deferred sales charge
if redeemed within one year of purchase and a 0.50% contingent deferred sales
charge if redeemed during the second year of purchase.
Class B shares of the Scudder Europe Fund are offered at net asset value
without an initial sales charge, but are subject to a 0.75% 12b-1 distribution
fee, a contingent deferred sales charge that declines from 4% to zero on certain
redemptions made within six years of purchase and an administrative services fee
of up to 0.25%. Class B shares automatically convert into Class A shares (which
have lower ongoing expenses) six years after purchase.
Class C shares are offered at net asset value without an initial sales
charge, but are subject to a 0.75% 12b-1 distribution fee, a 1% contingent
deferred sales charge on redemptions made within one year of purchase, and an
administrative services fee of up to 0.25%. Class C shares do not convert into
another class.
Class M shares represent the initial shares of the Scudder Europe Fund and
are no longer offered. Class M shares are not subject to a contingent deferred
sales charge or a 12b-1 distribution fee, but are subject to an administrative
services fee of up to 0.25%. Class M shares are subject to a 2% fee on all
redemptions (including redemptions in-kind) and exchanges. The Scudder Europe
Fund will pay in-kind redemptions sought by Class M shareholders to the extent
those redemptions exceed $500,000. Class M shares will automatically convert to
Class A shares one year after the date of the Reorganization. See the
Preliminary Prospectus of the Scudder Europe Fund and "Organization of the Fund"
in the Scudder Europe Fund's Preliminary Statement of Additional Information for
other information with respect to the shares of the Scudder Europe Fund.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of assets of the Kemper
Europe Fund for shares of the Scudder Europe Fund, followed by the distribution
of these shares, is intended to qualify for federal income tax purposes as a
tax-free reorganization under Section 368(a)(l) of the Internal Revenue Code of
1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the Scudder Europe Fund and the Kemper Europe Fund will receive
an opinion from Willkie Farr & Gallagher, counsel to the Scudder Europe Fund, to
the effect that, on the basis of the existing provisions of the Code, U.S.
Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) the transfer of all of the Kemper Europe Fund's assets in exchange for
the Scudder Europe Fund's shares and the assumption by the Scudder
Europe Fund of the liabilities of the Kemper Europe Fund, and the
distribution of the Scudder Europe Fund's shares to the shareholders of
the Kemper Europe Fund in exchange for their shares of the Kemper
Europe Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Scudder Europe Fund and the Kemper
Europe Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Scudder Europe Fund upon the
receipt of the assets of the Kemper Europe Fund solely in exchange for
the Scudder Europe Fund's shares and the assumption by the Scudder
Europe Fund of the liabilities of the Kemper Europe Fund;
(3) no gain or loss will be recognized by the Kemper Europe Fund upon the
transfer of the Kemper Europe Fund's assets to the Scudder Europe Fund
in exchange for the Scudder Europe Fund's shares and the assumption by
the Scudder Europe Fund of the liabilities of the Kemper Europe Fund or
upon the distribution of the Scudder Europe Fund's shares to the Kemper
Europe Fund's shareholders;
18
<PAGE> 24
(4) no gain or loss will be recognized by shareholders of the Kemper Europe
Fund upon the exchange of their shares for shares of the Scudder Europe
Fund or upon the assumption by the Scudder Europe Fund of the
liabilities of the Kemper Europe Fund;
(5) the aggregate tax basis of the shares of the Scudder Europe Fund
received by each shareholder of the Kemper Europe Fund pursuant to the
Reorganization will be the same as the aggregate tax basis of shares of
the Kemper Europe Fund held by such shareholder immediately prior to
the Reorganization, and the holding period of shares of the Scudder
Europe Fund to be received by each shareholder of the Kemper Europe
Fund will include the period during which shares of the Kemper Europe
Fund exchanged therefor were held by such shareholder (provided shares
of the Kemper Europe Fund were held as capital assets on the date of
the Reorganization); and
(6) the tax basis of Kemper Europe Fund's assets acquired by the Scudder
Europe Fund will be the same as the tax basis of such assets to the
Kemper Europe Fund immediately prior to the Reorganization, and the
holding period of the assets of the Kemper Europe Fund in the hands of
the Scudder Europe Fund will include the period during which those
assets were held by the Kemper Europe Fund.
Shareholders of the Kemper Europe Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Kemper Europe Fund should also consult their tax advisors as to state and local
tax consequences, if any, of the Reorganization.
POTENTIAL TAX CONSEQUENCES. If the Scudder Europe Fund experiences net
redemptions after converting to an open-end investment company, the Scudder
Europe Fund would be required to sell portfolio securities. Many of the Scudder
Europe Fund's portfolio securities have appreciated in value since purchased
and, if sold, would result in realization of capital gains. As of February 28,
1999, the unrealized appreciation of the Scudder Europe Fund's portfolio
securities was $134,069,202 (39% of the Fund's portfolio). The portfolio
activity that may be necessitated by redemption requests following conversion
could result in the realization of significant capital gains by the Scudder
Europe Fund, in addition to those historically incurred in the ordinary course
of the Scudder Europe Fund's investment activity, which would be distributed to
stockholders. Such distributions would be taxable to the stockholders who
receive them. As of February 28, 1999, based on a share's net asset value of
$21.19, the Scudder Europe Fund had net undistributed realized short-term
capital gains of $0 per share and net undistributed realized long-term capital
gains of $1.96 per share. Distributed net short-term capital gains are taxable
to recipient stockholders as ordinary income and long-term capital gains are
taxable as capital gains. Accordingly, the actions of redeeming stockholders may
have adverse tax consequences for the Scudder Europe Fund and its remaining
stockholders. The Scudder Europe Fund may employ the equalization method of tax
accounting, which would reduce the portion of realized capital gains required to
be paid to remaining shareholders as taxable distributions. In addition, as
noted above, the Scudder Europe Fund intends to pay in-kind redemptions sought
by Class M Shareholders to the extent those redemptions exceed $500,000 in an
attempt to minimize the adverse tax consequences resulting from redemptions for
non-redeeming stockholders. (The Scudder Europe Fund also will not offer an
exchange privilege to Class M shareholders with respect to transactions that
would trigger an in-kind redemption.) By paying large redemptions in-kind, the
Scudder Europe Fund may avoid having to sell appreciated portfolio securities
and realizing capital gains. Therefore, the Scudder Europe Fund may avoid
distributing capital gains to remaining stockholders of the Scudder Europe Fund
as a consequence of large redemptions.
Even in the absence of conversion, unrealized capital appreciation may be
realized in the future. However, if there are redemptions due to conversion, the
gains will be realized sooner than they would have been under the closed-end
format. A nonredeeming stockholder who receives a capital gain distribution
resulting from sales of portfolio investments necessitated by redemptions in
connection with the Reorganization will realize a smaller gain (or a larger
loss) upon a subsequent redemption of shares as the Fund's distribution of such
capital gains will reduce the net asset value of the stockholder's shares.
19
<PAGE> 25
CAPITALIZATION. The following table sets forth, as of April 30, 1999, (i)
the capitalization of the Kemper Europe Fund, (ii) the capitalization of the
Scudder Europe Fund, and (iii) the pro forma capitalization of the Scudder
Europe Fund as adjusted to give effect to the Reorganization. The capitalization
of the Scudder Europe Fund is likely to be different when the Reorganization is
consummated.
PRO FORMA CAPITALIZATION (UNAUDITED)
The following table sets forth the unaudited capitalization of the Scudder
Europe Fund and the Kemper Europe Fund as of April 30, 1999 as adjusted giving
effect to the Reorganization discussed herein(1).
<TABLE>
<CAPTION>
SCUDDER EUROPE KEMPER EUROPE
FUND FUND PRO FORMA PRO FORMA FOR
(ACTUAL) (ACTUAL) ADJUSTMENTS REORGANIZATION
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net Assets......................... $351,657,237 $67,364,406 $(39,221,388)(2) $379,800,255
Net asset value per share.......... $ 21.56 -- -- $ 19.26(3)(5)
Net asset value per share, Class
A................................ -- $ 14.40 -- $ 19.26(3)
Net asset value per share, Class
B................................ -- $ 14.05 -- $ 19.26(3)
Net asset value per share, Class
C................................ -- $ 14.15 -- $ 19.26(3)
Shares outstanding................. 16,310,537 -- -- 16,310,537(5)
Shares outstanding, Class A(4)..... -- 2,253,099 (610,487) 1,642,612
Shares outstanding, Class B(4)..... -- 2,154,354 (623,381) 1,530,973
Shares outstanding, Class C(4)..... -- 328,918 (93,400) 235,518
</TABLE>
- ---------------
(1) Assumes the Reorganization had been consummated on April 30, 1999, and is
for information purposes only. No assurance can be given as to how many
shares of the Scudder Europe Fund will be received by the shareholders of
the Kemper Europe Fund on the date the Reorganization takes place, and the
foregoing should not be relied upon to reflect the number of shares of the
Scudder Europe Fund that actually will be received on or after such date.
(2) Assumes capital gains distributions, without any reinvestment, of
$37,516,294 and $1,705,094 for the Scudder Europe Fund and the Kemper Europe
Fund, respectively.
(3) Net asset value per share after capital gains distributions, assuming no
reinvestment.
(4) Assumes the issuance of 1,642,612 Class A, 1,530,973 Class B, and 235,518
Class C shares in exchange for the net assets of the Kemper Europe Fund. The
number of shares issued is based on the pro forma net asset value of each
class of Fund shares, net of estimated capital gains distributions on April
30, 1999.
(5) Existing shares of Scudder Europe Fund will be redesignated as Class M
shares.
20
<PAGE> 26
PRINCIPAL SHAREHOLDERS
As of the Record Date, the following persons owned beneficially more than
5% of the outstanding shares of the Kemper Europe Fund:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS CLASS SHARES HELD OWNERSHIP
- ---------------- ----- ----------- ---------
<S> <C> <C> <C>
National Financial Services Corporation*.............. A 191,439 8.87
200 Liberty Street, 4th Floor
New York, NY 10281
Donaldson, Lufkin & Jenrette Securities Corp.,
Inc.*............................................... A 137,903 6.39
P.O. Box 2052
Jersey City, NJ 07303
National Financial Services Corporation*.............. B 182,565 9.06
200 Liberty Street, 4th Floor
New York, NY 10281
Donaldson, Lufkin & Jenrette Securities Corp.,
Inc.*............................................... B 163,943 8.14
P.O. Box 2052
Jersey City, NJ 07303
National Financial Services Corporation*.............. C 27,014 8.47
200 Liberty Street, 4th Floor
New York, NY 10281
National Financial Services Corporation*.............. C 25,579 8.65
200 Liberty Street, 4th Floor
New York, NY 10281
</TABLE>
- ---------------
* Kemper Europe Fund believes that these entities are not the beneficial owners
of shares held of record by them.
All of the officers and Trustees of the Kemper Europe Fund as a group owned
less than 1% of the outstanding voting securities of the Kemper Europe Fund, as
of the Record Date.
To the best of Scudder Europe Fund's knowledge, as of March 31, 1999, no
shareholder held 5% or more of the Fund's shares, with the exception of Lazard
Freres & Co. LLC which held 6.40% of the Fund's shares. All of the officers and
Directors of the Scudder Europe Fund as a group owned less than 1% of the
outstanding voting securities of the Scudder Europe Fund as of March 31, 1999.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
disclosures in the Statement of Additional Information to this Prospectus/Proxy
Statement, the Preliminary Prospectus and Statement of Additional Information of
the Scudder Europe Fund and the Prospectus and Statement of Additional
Information of the Kemper Europe Fund.
INVESTMENT OBJECTIVES. The investment objective of the Scudder Europe Fund
is long-term capital appreciation. The investment objective of the Kemper Europe
Fund is long-term capital growth. There can be no assurance that any Fund will
achieve its investment objective. The investment objective of the Scudder Europe
Fund may not be changed by the Board of Directors without the affirmative vote
of the holders of a majority of the outstanding shares (as defined in the 1940
Act) of the Scudder Europe Fund. The Kemper Europe Fund's investment objective,
however, may be changed without a vote of shareholders.
INVESTMENT POLICIES. In seeking to achieve their investment objectives,
the Scudder Europe Fund and the Kemper Europe Fund are guided by substantially
similar policies that should be considered by the shareholders of the Kemper
Europe Fund.
Both the Scudder Europe Fund and the Kemper Europe Fund seek to achieve
their objectives by investing primarily in equity securities of European
companies ("European Equity Securities"). European Equity Securities include
common stocks, preferred stocks, securities convertible into or exchangeable for
21
<PAGE> 27
common or preferred stocks, equity investments in partnerships, joint ventures
and other forms of non-corporate investments and warrants, options and rights
exercisable for equity securities that are issued by European companies as
defined below.
Each Fund considers an issuer of securities to be a European company if:
(i) it is organized under the laws of a European country and has a principal
office in a European country; (ii) it derives 50% or more of its total revenues
from business in Europe; or (iii) its equity securities are traded principally
on a stock exchange in Europe. Under normal circumstances, the Scudder Europe
Fund will invest at least 65% of its total assets in European Equity Securities.
The Kemper Europe Fund, however, invests at least 85% of its total assets in
European Equity Securities and will also invest at least 65% of its total assets
in European Equity Securities of issuers meeting at least one of the first two
criteria described above. For purposes of the foregoing, each Fund also
considers European Equity Securities to include: (i) shares of closed-end
management investment companies, the assets of which are invested primarily in
European Equity Securities and (ii) depository receipts (such as American
Depository Receipts and European Depository Receipts) where the underlying or
deposited securities are European Equity Securities.
Each Fund invests principally in developed countries, but the Kemper Europe
Fund may invest up to 25% of its total assets in developing or "emerging"
countries. The Scudder Europe Fund may also invest in emerging markets, but no
such limitation is imposed on the amount of assets that may be so invested.
Currently, the developed European countries in which each Fund may invest
(without limit) include: Austria, France, Germany, the Netherlands, Switzerland,
Spain, Italy, Luxembourg, United Kingdom, Ireland, Belgium, Denmark, Sweden,
Norway and Finland. Each Fund may, in the discretion of its investment manager,
invest without limit in other European countries in the future if they become
developed countries. Some examples of emerging European countries in which both
Funds may invest are Portugal, Greece, Turkey, Hungary, Poland and the Czech
Republic.
In pursuing its objective, each Fund invests primarily in European Equity
Securities believed to have potential for capital growth. However, there is no
requirement that each Fund invest exclusively in European Equity Securities.
Subject to the limits described above, each Fund may invest in any other type of
security including, but not limited to, equity securities of non-European
companies, bonds, notes and other debt securities of domestic or foreign
companies (including euro-currency instruments and securities) and obligations
of domestic or foreign governments and their political subdivisions. Currently,
the Kemper Europe Fund does not intend to invest more than 5% of its net assets
in debt securities during the coming year (except for temporary defensive
investments as described below). The Scudder Europe Fund, however, may invest up
to 20% of its total assets in debt securities, including those deemed to be
below investment grade.
Each Fund makes investments in various European countries. Under normal
circumstances, business activities in not less than five different European
countries will be represented in the Kemper Europe Fund's portfolio. The Kemper
Europe Fund may, from time to time, have 25% or more of its assets invested in
any major European industrial or developed country which, in the view of its
investment manager, poses no unique investment risk. Although Scudder Europe
Fund has no such stated policy, it is not precluded from investing 25% or more
of its assets in any major European industrial or developed country as deemed
appropriate by its investment manager. The Scudder Europe Fund intends to
allocate its investments among at least three countries at all times.
NON-DIVERSIFIED. Unlike the Kemper Europe Fund, the Scudder Europe Fund
has elected to operate as a "non-diversified" investment company under the 1940
Act and is permitted to invest a greater proportion of its assets in the
securities of a smaller number of issuers. As a result, the Scudder Europe Fund
may be subject to greater risks with respect to its portfolio than a more
broadly diversified fund. As of March 31, 1999, however, Scudder Europe Fund
held positions in securities issued by 80 issuers and no single issuer
constituted more than 5.8% of the Fund's assets.
PRIVATIZED ENTERPRISES. Both the Scudder Europe Fund and the Kemper Europe
Fund may invest in securities issued by foreign enterprises that have undergone
or are currently undergoing privatization.
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DEPOSITORY RECEIPTS. Both the Scudder Europe Fund and the Kemper Europe
Fund may invest in securities of foreign issuers through sponsored or
unsponsored American, European and Global depository receipts.
DEBT SECURITIES. Both the Scudder Europe Fund and the Kemper Europe Fund
may invest in debt securities. As stated above, the Kemper Europe Fund does not
intend to invest more than 5% of its net assets in debt securities (except for
temporary defensive purposes). The Scudder Europe Fund, however, may invest up
to 20% of its total assets in debt securities, including debt securities rated
below investment grade (i.e., rated below Baa by Moody's Investors Services,
Inc. ("Moody's") or below BBB by Standard & Poor's ("S&P") and unrated
securities of similar quality as determined by the investment manager. These
securities usually entail greater risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk of principal and income, and may be less liquid
than securities in the higher rating categories. The lower the ratings of such
debt securities, the greater their risks. The Scudder Europe Fund may also
purchase bonds rated B or lower by Moody's or S&P, and may invest in securities
which are rated C by Moody's or D by S&P or securities of comparable quality in
its investment manager's judgment. Such securities may be in default with
respect to payment of principal or interest, carry a high degree of risk and are
considered speculative.
SMALL COMPANIES. Both the Scudder Europe Fund and the Kemper Europe Fund
may invest their assets in the securities of companies with small or low market
capitalizations.
TEMPORARY DEFENSIVE PRACTICES. When in the opinion of the investment
manager market conditions warrant, the Scudder Europe Fund and the Kemper Europe
Fund may hold foreign or U.S. debt instruments, as well as cash or cash
equivalents including foreign and domestic money market instruments, short-term
government and corporate obligations, and repurchase agreements without limit
for temporary defensive purposes. The Scudder Europe Fund may also invest up to
20% of its assets in the above instruments to maintain liquidity.
SPECIALIZED INVESTMENTS. The Scudder Europe Fund may also invest in
"Specialized Investments" which consist of equity securities of: (i)
privately-held European companies; (ii) European companies that have recently
made initial public offerings of their shares; (iii) government-owned or
- -controlled companies that are being privatized; (iv) smaller publicly-held
European companies, i.e., any European company having a market capitalization of
less than $500 million (the Board of Directors of the Scudder Europe Fund may,
in the future, reevaluate and increase or decrease the maximum market
capitalization for qualification as a smaller European company); (v) companies
and joint ventures based in Eastern Europe; (vi) private placements and joint
venture participations in European companies that may not be readily marketable;
(vii) pooled investment funds that invest principally in securities in which the
Fund may invest, which are considered investment companies for purposes of the
1940 Act restrictions described below; and (viii) European companies with
private market values perceived by the investment manager to be substantially in
excess of their publicly-traded values. The Kemper Europe Fund is not prohibited
from entering into "Specialized Investments", but any such investments would
constitute a small portion of its investment portfolio. Scudder Europe Fund has
no present intention of investing a significant amount of its assets in
"Specialized Investments."
CONVERTIBLE SECURITIES. Both the Scudder Europe Fund and the Kemper Europe
Fund may invest in convertible securities which are bonds, notes, debentures,
preferred stocks, and other securities which are convertible into common stocks.
Investments in convertible securities can provide income through interest and
dividend payment and/or an opportunity for capital appreciation by virtue of
their conversion or exchange features. The convertible securities in which each
Fund may invest 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.
REPURCHASE AGREEMENTS. Both the Scudder Europe Fund and the Kemper Europe
Fund may enter into repurchase agreements with member banks of the Federal
Reserve System, any foreign bank or with any domestic or foreign broker-dealer
which is recognized as a reporting government securities dealer if the
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creditworthiness of the bank or broker-dealer has been determined by the
investment manager to be at least as high as that of other obligations the Funds
may purchase. The Kemper Europe Fund, however, does not intend to invest more
than 5% of its net assets in repurchase agreements. Scudder Europe Fund is not
limited in the amount of its assets that may be invested in repurchase
agreements, although it has no current intention of investing a significant
amount of its assets in such instruments.
BORROWING. Both the Scudder Europe Fund and the Kemper Europe Fund may not
borrow money, except as permitted under the 1940 Act. The Scudder Europe Fund
will borrow only when the investment manager believes that borrowing will
benefit the Scudder Europe Fund after taking into account considerations such as
the costs of the borrowing. The Scudder Europe Fund does not expect to borrow
for investment purposes, to increase return or leverage the portfolio.
ILLIQUID SECURITIES. Both the Scudder Europe Fund and the Kemper Europe
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, as amended (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. Both the Scudder
Europe Fund and the Kemper Europe Fund may not invest more than 15% of their
respective net assets in illiquid securities.
WHEN-ISSUED SECURITIES. Unlike the Kemper Europe Fund, the Scudder Europe
Fund may from time to time purchase equity and debt securities on a
"when-issued" or "forward delivery" basis. The price of such securities, which
may be expressed in yield terms, is fixed at the time the commitment to purchase
is made, but delivery and payment for the 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 Scudder Europe Fund to the issuer and no
interest accrues to the Scudder Europe Fund. To the extent that assets of the
Scudder Europe Fund are held in cash pending the settlement of a purchase of
securities, the Scudder Europe Fund would earn no income; however, it is the
Scudder Europe Fund's intention to be fully invested to the extent practicable.
While when-issued or forward delivery securities may be sold prior to the
settlement date, the Scudder Europe 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 Scudder Europe 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. The market value of the when-issued or forward delivery securities
may be more or less than the purchase price. The Scudder Europe 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. Consistent with the requirements of the
1940 Act, both the Scudder Europe Fund and the Kemper Europe Fund may lend their
portfolio securities. The Scudder Europe Fund may not lend its portfolio
securities in an amount that would exceed 25% of its total assets and the Kemper
Europe Fund may not lend its portfolio securities in an amount that would exceed
33 1/3% of the value of its total assets.
SHORT SALES AGAINST-THE-BOX. Both the Scudder Europe Fund and the Kemper
Europe Fund may make short sales against-the-box for the purpose of, but not
limited to, deferring realization of loss when deemed advantageous for federal
income tax purposes. A short sale "against-the-box" is a short sale in which a
Fund owns enough shares of the security involved to cover the borrowed
securities, if necessary. Each Fund may engage in such short sales only to the
extent that not more than 10% of the Fund's total assets (determined at the time
of the short sale) is held as collateral for such sales. Each Fund currently
does not intend, however, to engage in such short sales to the extent that more
than 5% of its net assets will be held as collateral therefor during the current
year.
STRATEGIC TRANSACTIONS. No more than 5% of the Scudder Europe Fund's
assets will be committed to the following transactions if entered into for
non-hedging purposes. The Kemper Europe Fund has no such
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limitation, and to do so with respect to futures contracts and related options
would subject Kemper Europe Fund to regulation by the Commodities Futures
Trading Commission as a commodity pool.
FINANCIAL FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund may enter into
financial futures contracts for the future delivery of a financial instrument
and may purchase and write call and put options on financial futures contracts.
Transactions involving financial futures and options thereon may be entered into
by the Funds only for hedging purposes and not for speculation.
OPTIONS ON SECURITIES. Both Funds may purchase exchange-listed and
over-the-counter ("OTC") call options on securities. In addition, both Funds may
write (sell) exchange-listed and OTC "covered" call options on securities as
long as they own the underlying securities subject to the option or meet asset
segregation requirements to the extent required by applicable regulation in
connection with the optioned securities. The Scudder Europe Fund may purchase
and sell exchange-listed and OTC put options on securities (whether or not it
holds the securities in its portfolio), but will not sell put options if, as a
result, more than 50% of its total assets would be required to be segregated to
cover the potential obligations under such put options. The Kemper Europe Fund
may write exchange-listed and OTC "covered" put options on securities provided
that, as long as the Fund is obligated as a writer of a put option, it will own
an option to sell the underlying securities subject to the option, having an
exercise price equal to or greater than the exercise price of the "covered"
option, or it will deposit and maintain in a segregated account eligible
securities having a value equal to or greater than the exercise price of the
option.
OTC Options. The Scudder Europe 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 ("NSRO") or are determined
to be of equivalent credit quality by the investment manager. The Kemper Europe
Fund will only engage in OTC options transactions with dealers approved by the
investment manager pursuant to procedures adopted by its Board of Trustees. The
Scudder Europe 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 Scudder Europe Fund also expects generally to enter into OTC options
that have cash settlement provisions, although it is not required to do so. The
Kemper Europe Fund anticipates entering into agreements with dealers to which it
sells OTC options whereby it would have the absolute right to repurchase the OTC
options from the dealer at any time at a price no greater than a price
established under the agreement.
Options on Indices. Both Funds may purchase and sell options on securities
and other financial indices. The Kemper Europe Fund may only enter into these
transactions for hedging purposes and not for speculation.
Foreign Currency Options. Both Funds may engage in foreign currency
options transactions, however the Scudder Europe Fund may only do so for hedging
purposes. In addition, the Scudder Europe Fund may engage in these transactions
only 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 an NSRO or (except
for OTC currency options) are determined to be of equivalent quality by the
investment manager.
Foreign Currency Futures Transactions. Both Funds may engage in foreign
currency futures transactions for hedging purposes only.
Forward Foreign Currency Exchange Contracts. Both Funds may engage in
forward foreign currency transactions. The Scudder Europe Fund may only do so
for hedging purposes. The Kemper Europe may engage in such transactions when the
investment manager believes that it is in the best interest of the Fund to do
so, but it will not speculate in foreign currency exchange.
Swaps, Caps, Floors and Collars. Unlike the Kemper Europe Fund, the
Scudder Europe Fund may enter into interest rate, currency and index swaps and
purchase and sell 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
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<PAGE> 31
technique or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Scudder Europe Fund intends to use
these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream that it may be obligated to pay.
Combined Transactions. The Scudder Europe Fund may also 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 instead of a single
transaction, or as part of a single or combined strategy when in the option of
the investment manager it is in the best interests of the Fund to do so.
Eurodollar Instruments. The Scudder Europe Fund may make investments in
Eurodollar instruments which 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. The Fund may 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.
Derivatives. Both the Scudder Europe Fund and the Kemper Europe Fund may,
but are not required to, utilize various other investment strategies as
described above to hedge various market risks (such as interest rates, currency
exchange rates and broad or specific equity or fixed income market movements),
to manage the effective maturity or duration of the fixed-income securities in
their portfolios, or to enhance potential gain. These strategies may be executed
through the use of derivative contracts. Such strategies are generally accepted
as part of modern portfolio management and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory changes
occur.
INVESTMENT RESTRICTIONS
The investment restrictions of the Scudder Europe Fund and the Kemper
Europe Fund are substantially similar, but not identical. The following
discussion of fundamental and nonfundamental restrictions is based upon and
qualified entirely by the disclosures in the Statement of Additional Information
for this Prospectus/ Proxy Statement, Preliminary Prospectus and Statement of
Additional Information of the Scudder Europe Fund and the Prospectus and
Statement of Additional Information of the Kemper Europe Fund. Fundamental
policies may be changed only with the approval of holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of a Fund, whereas
nonfundamental policies may be changed by a Fund's Board.
FUNDAMENTAL POLICIES
The Scudder Europe Fund may not purchase securities on margin or make short
sales of securities, except such short-terms credits as may be necessary or
routine for clearance of transactions and the maintenance of margin with respect
to options and financial futures transactions. The Kemper Europe Fund has a
similar restriction, except that it is classified as a non-fundamental policy.
Both Funds are permitted to make short sales against-the-box.
Neither the Scudder Europe Fund nor the Kemper Europe Fund may issue senior
securities or borrow money except that the Funds may borrow money as permitted
under the 1940 Act, as interpreted or modified by the regulatory authority
having jurisdiction from time to time. The Scudder Europe Fund is currently
prohibited from pledging its assets, but has proposed a Charter amendment to
permit the Fund to pledge its assets to secure permitted borrowings. However,
there is no assurance that the shareholders of the Scudder Europe Fund will
approve this change. As a nonfundamental policy, the Kemper Europe Fund may
pledge up to 15% of its total assets to secure borrowings. For the purposes of
these investment restrictions, collateral arrangements with respect to the
writing of options or the purchase or sale of futures contracts are not deemed a
pledge of assets or the issuance of a senior security. Further, neither Fund may
make loans, except that each Fund may lend its portfolio securities consistent
with the 1940 Act limitations. The Scudder Europe Fund may lend its portfolio
securities in an amount up to 25% of its total assets, but as a nonfundamental
policy currently intends to limit securities lending to 5% of its total assets.
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Also, neither the Scudder Europe Fund nor the Kemper Europe Fund may invest
more than 25% of the total value of their assets in a particular industry or act
as underwriter except to the extent that, in connection with the disposition of
portfolio securities, a Fund may be deemed to be an underwriter under applicable
securities laws.
In addition, neither Fund may buy or sell commodities or commodity
contracts or real estate or interests in real estate, although they may purchase
and sell securities that are secured by real estate or commodities and
securities of companies that invest or deal in real estate or commodities, may
purchase and sell futures contracts and related options on stock indices and
currencies, may enter into forward currency exchange contracts, may write
options on stocks and may purchase and sell options on currencies and stock
indexes. The Kemper Europe Fund also reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership of securities.
NONFUNDAMENTAL POLICIES
The Scudder Europe Fund may not 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 Scudder Europe Fund's Preliminary Prospectus and
Statement of Additional Information which may be deemed to be borrowings. In
addition, the Scudder Europe Fund may not enter into either of reverse
repurchase agreements or dollar rolls in an amount greater than 5% of its total
assets.
The Scudder Europe Fund may not purchase options, unless the aggregate
premiums paid on all such options held by the Scudder Europe 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. Although authorized to do so, the portfolio managers of the
Scudder Europe Fund have no current intention to utilize these strategies to a
significant extent.
The Scudder Europe Fund may not 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 Scudder Europe Fund and the premiums paid for such options on
futures contracts does not exceed 5% of the fair market value of the Scudder
Europe 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. The Kemper Europe Fund may not write or sell put or call
options, combinations thereof or similar options on more than 25% of its net
assets; nor may it purchase put or call options if more than 5% of its net
assets would be invested in premiums on put and call options, combinations
thereof or similar options; however, it may buy or sell options on financial
futures contracts.
The Scudder Europe Fund may not 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 Scudder Europe Fund's total assets (for this
purpose, warrants acquired in units or attached to securities will be deemed to
have no value). Although the Scudder Europe Fund may lend its portfolio
securities in an amount up to 25% of its total assets, it currently intends as a
nonfundamental policy to limit securities lending to 5% of its total assets.
Also, the Scudder Europe Fund may not participate on a joint and several basis
in any trading account in securities.
Neither the Scudder Europe Fund nor the Kemper Europe Fund may (i) invest
for the purpose of exercising control or management of another issuer; (ii)
invest more than 15% of their respective net assets in illiquid securities; or
(iii) purchase more than 10% of any class of voting securities of any issuer.
Finally, the Kemper Europe Fund may not purchase securities of other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization, or by purchase in the open market of securities
of closed-end investment companies where no underwriter or dealer's commission
or profit, other than customary broker's commission, is involved and only if
immediately thereafter not more than (i) 3% of the total outstanding voting
stock of such company is owned by the Fund, (ii) 5% of the Fund's total assets
would be invested in any one such company, and (iii) 10% of the Fund's total
assets would be invested in such securities.
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RISK FACTORS
CONVERSION OF SCUDDER EUROPE FUND TO OPEN-END FORM. Shareholders of
Scudder Europe Fund are being asked to vote on a number of proposals. Approval
of the open-ending proposal by the shareholders of the Scudder Europe Fund is a
condition to the Reorganization. The other proposals are factors to be
considered by Kemper Europe Fund shareholders, but are not essential to the
Reorganization. These factors include: (i) the election of the Board of
Directors, (ii) the ratification of the selection of the independent auditors,
(iii) the approval of certain further amendments to the Fund's Articles of
Incorporation to reflect provisions that are consistent with articles of
incorporation for an open-end fund and (iv) the approval of a new Investment
Advisory Agreement with Scudder Kemper providing for, among other things, an
advisory fee rate identical to that currently in place for Kemper Europe Fund to
take effect if the open-ending provision is approved. As stated above, Scudder
Kemper has indicated that it will contractually reduce its fees so that its
advisory fees do not exceed the level currently paid by Kemper Europe Fund in
the event that shareholders of Scudder Europe Fund approve the proposal to
open-end, but do not approve the proposed new Investment Advisory Agreement.
Conversion to an open-end investment company could result in immediate
redemptions of Scudder Europe Fund shares, which could be substantial, and,
consequently, result in a marked reduction in the Fund's size. Conversion to an
open-end investment company may create an incentive for stockholders to
capitalize on the elimination of the Scudder Europe Fund's historical discount
by redeeming their shares. In addition, market professionals and other investors
who view closed-end funds as arbitrage opportunities could have taken or could
take sizable positions in shares of the Scudder Europe Fund prior to conversion
for the purpose of profiting through redemption immediately following an
open-ending. This arbitrage phenomenon could serve to increase the percentage of
Scudder Europe Fund shares subject to redemption requests. Other closed-end
funds that have converted to open-end form have experienced redemptions that
exceed sales after conversion, and, in some instances, net redemptions have been
substantial. The Scudder Europe Fund bears this risk. A decrease in net assets
could result in less diversification or in smaller portfolio positions in its
investments, which could adversely affect total return performance. In addition,
as a result of any decrease in size resulting from redemptions, the Scudder
Europe Fund could experience a further increase in its expense ratio. It is
estimated that if the Scudder Europe Fund's net assets decrease by 50% from the
present size of $374,049,172 as of December 31, 1998 due to redemption requests,
for example, the Scudder Europe Fund's expense ratio would be approximately
1.87%, 3.16%, 2.62% and 1.59% for Class A, B, C and M shares. A higher expense
ratio would lower the Scudder Europe Fund's total return performance. Scudder
Kemper, however, has agreed to limit the total annual operating expenses of
Class A, B and C shares to 1.75%, 2.65% and 2.62% for the one year period
following the Reorganization.
Scudder Kemper, and its affiliate KDI, believe that the Scudder Europe Fund
can be successfully marketed as an open-end fund to attract new assets. As a
result, to the extent the Scudder Europe Fund is subject to net redemptions in
connection with the conversion to open-end form, Scudder Kemper and KDI believe
that the Scudder Europe Fund ultimately may be able to increase its net assets.
To mitigate the attendant costs of redemptions, the Scudder Europe Fund
will impose a fee of 2% on redemptions and exchanges of Class M shares (those
shares previously held by shareholders of the Scudder Europe Fund in closed-end
form) for a one year period following the Reorganization. The purpose of this
fee is to discourage short-term trading in a vehicle intended for long-term
investment and to restrict the ability of short-term traders to cause the Fund
and its non-redeeming stockholders to bear undue transaction and other expenses
forced by the redemption of others. To minimize the tax burden on remaining
shareholders from redemptions, the Scudder Europe Fund will also pay in-kind
redemptions sought by Class M stockholders to the extent those redemptions
exceed $500,000. In-kind redemptions by Class M shareholders are also subject to
a 2% redemption fee and will result in the recognition by the redeeming
shareholder of gain or loss for federal income tax purposes based upon the
difference between the fair market value of the securities received and that
shareholder's basis in the shares redeemed. Although significant net redemptions
could cause the Scudder Europe Fund to become too small to be considered
economically viable, redemptions at such level are not presently anticipated.
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<PAGE> 34
Because of their substantially similar investment policies, the Scudder
Europe Fund and the Kemper Europe Fund are exposed to similar risks. The
following summarizes principal risk factors of each Fund:
STOCK MARKET. Both the Scudder Europe Fund and the Kemper Europe Fund
invest primarily in equity securities. As a result, each Fund's returns and net
asset value will go up and down. Stock market movements will affect each Fund's
share price on a daily basis. Declines in value are possible both in the overall
stock market or in the types of securities held by a Fund.
PORTFOLIO STRATEGY. The portfolio manager's skill in choosing appropriate
investments for both Funds will determine in large part each Fund's ability to
achieve its investment objective.
FOREIGN SECURITIES. Investing in foreign securities involves other
considerations including limited information, higher brokerage costs, different
accounting standards and thinner trading markets as compared to U.S. markets. In
addition, investing in foreign securities involves special risks including
changes in foreign currency exchange rates and political and economic
instability. Some countries may also restrict a Fund's access to investments or
offer terms that are less advantageous than those for local investors. This
could limit the attractive investment opportunities available to a Fund. Some
countries may also have less developed securities markets (and related
transaction, registration and custody practices).
EUROPEAN SECURITIES. Each Fund's performance will be affected by
political, social and economic factors affecting issuers in European countries,
including: growth of GDP or GNP, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position, as well as interest
and monetary exchange rates among European countries.
EMERGING MARKETS. Both Funds have the ability to invest in emerging
markets. Eastern European countries and certain Southern European countries are
considered to be emerging markets. Investing in emerging markets involves higher
levels of risk, including increased currency, information, liquidity, market,
political and valuation risk. Deficiencies in regulatory oversight, market
infrastructure, shareholder protections and company laws could expose the fund
to operational and other risks as well. Some countries may have restrictions
that could limit a Fund's access to attractive opportunities. Additionally,
emerging markets often face serious problems (such as high external debt,
inflation and unemployment) that could subject a Fund to increased volatility or
substantial declines in value.
NONDIVERSIFIED STATUS. The Scudder Europe Fund is considered a
nondiversified investment company under the 1940 Act and is permitted to invest
a greater proportion of its assets in the securities of a smaller number of
issuers. As a result, the Scudder Europe Fund may be subject to greater risks
with respect to its portfolio securities than a fund that is more broadly
diversified, such as the Kemper Europe Fund.
LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that the fund would like. A Fund
may have to lower the price, sell other securities instead or forego an
investment opportunity. Any of these could have a negative effect on fund
management or performance.
LOWER RATED SECURITIES. These securities carry a higher risk that the
issuer will be unable to pay principal and interest when due, and the market to
sell such securities may be limited. This risk may be more pronounced for the
Scudder Europe Fund since it may invest up to 20% of its assets in such
securities.
RISKS OF DERIVATIVE INSTRUMENTS. The use of these instruments requires
special skills, knowledge and investment techniques that differ from those
required for normal portfolio management. The success of a Fund in selecting
these instruments for its portfolio depends on the skill of the investment
manager in predicting the movement of interest rates, the value of particular
instruments and other economic variables. There is no assurance that the
investment manager will accurately predict these movements.
EXPOSURE RISK. The risk associated with techniques that increase a Fund's
exposure to a security, index or its investment portfolio. Exposure is a Fund's
maximum potential gain or loss from an investment. Certain investments (such as
options and futures) may have the effect of magnifying declines as well as
increases in a Fund's net asset value. Losses from writing options and entering
into futures can be unlimited.
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YEAR 2000 READINESS. Like other mutual funds and financial and business
organizations worldwide, both Funds could be adversely affected if computer
systems on which they rely, which primarily include those used by the investment
manager, its affiliates or other service providers, are unable to process
correctly date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to address successfully the Year
2000 Issue could result in interruptions to and other material adverse effects
on each Fund's business and operations, such as problems with calculating net
asset value and difficulties in implementing a Fund's purchase and redemption
procedures. The investment manager has commenced a review of the Year 2000 Issue
as it may affect each Fund and is taking steps it believes are reasonably
designed to address the Year 2000 issue, although there can be no assurances
that these steps will be sufficient. In addition, there can be no assurances
that the Year 2000 Issue will not have an adverse effect on the issuers whose
securities are held by the Funds or on global markets or economies generally.
EURO CONVERSION. The introduction of a new European currency, the Euro,
may result in uncertainties for European securities and the operations of both
Funds. The Euro was introduced on January 1, 1999 by eleven European countries
that are members of the European Economic and Monetary Union (EMU). The
introduction of the Euro will require the redenomination of European debt and
equity securities over a period of time, which may result in various accounting
differences and/or tax treatments. Additional questions are raised by the fact
that certain other European Union members, including the United Kingdom, did not
officially implement the Euro on January 1, 1999.
The investment manager is actively working to address Euro-related issues
and understands that other key service providers are taking similar steps. At
this time, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on a Fund's holdings is negative, a
Fund's performance could be hurt.
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MANAGEMENT OF THE FUNDS
As stated above, if approved by the shareholders of the Scudder Europe
Fund, that Fund will have the same investment advisory agreement in place and
will be governed by the same directors and officers as the Kemper Europe Fund
upon the Reorganization. Scudder Kemper will provide investment advisory
services to the Scudder Europe Fund under an advisory agreement substantially
similar to the advisory agreement currently in effect between Scudder Kemper and
the Kemper Europe Fund. The specific persons at Scudder Kemper who are
responsible for the day-to-day management of the Scudder Europe Fund are
described in the Preliminary Prospectus of the Scudder Europe Fund which
accompanies this Prospectus/Proxy Statement.
In addition, (1) Scudder Fund Accounting Corporation, a subsidiary of
Scudder Kemper, will provide accounting services, (2) KDI will provide
administration and distribution services, and Investors Fiduciary Trust Company
("IFTC") will provide transfer agency and dividend paying services through its
agreement with Kemper Services Company, an affiliate of Scudder Kemper, all
pursuant to agreements substantially similar to those currently in effect
between such service providers and the Kemper Europe Fund. With the exception of
a new accounting service fee of approximately .10%, THE ADVISORY FEES,
ADMINISTRATIVE FEES AND DISTRIBUTION FEES PAYABLE UNDER THE NEW AGREEMENTS FOR
THE REORGANIZED SCUDDER EUROPE FUND IN THE AGGREGATE WOULD BE THE SAME AS THOSE
CURRENTLY IN EFFECT FOR KEMPER EUROPE FUND. Unlike the Kemper Europe Fund,
however, Brown Brothers Harriman & Co. ("BBH") will provide custodial services
for all cash and securities of the Scudder Europe Fund. BBH currently provides
custodial services to the Scudder Europe Fund as well as to other funds in the
Kemper family. THE FEES PAYABLE FOR SUCH CUSTODIAL SERVICES WILL BE NO HIGHER
AFTER THE REORGANIZATION THAN THOSE CURRENTLY PAID BY THE KEMPER EUROPE FUND. In
addition, Ernst & Young, LLP, the current independent auditors for the Kemper
Europe Fund, is proposed to serve in that capacity for the Scudder Europe Fund.
The shareholders of the Scudder Europe Fund are being asked to ratify the
selection of Ernst & Young LLP as independent auditors for that Fund for the
purpose of obtaining certain efficiencies by having the same auditors as other
funds in the Kemper family of funds. Ratification of the selection of Ernst &
Young LLP requires the affirmative vote of a majority of the votes cast by the
shareholders of Scudder Europe Fund at the Fund's annual meeting.
INTEREST OF CERTAIN PERSONS IN THE REORGANIZATION
Scudder Kemper may be deemed to have an interest in the Plan and the
Reorganization because it provides investment advisory services to the Scudder
Europe Fund and the Kemper Europe Fund. Scudder Kemper receives compensation
from the Scudder Europe Fund and the Kemper Europe Fund for services it provides
pursuant to investment advisory agreements. The terms and provisions of these
arrangements are described in each Fund's Prospectus and Statement of Additional
Information. Future growth of assets of the Scudder Europe Fund, if any, can be
expected to increase the total amount of fees payable to Scudder Kemper and its
affiliates. Further, as a result of the Reorganization, Scudder Investments
(U.K.) Limited, a subsidiary of Scudder Kemper, will not serve as the
sub-adviser to the Scudder Europe Fund as it currently does for the Kemper
Europe Fund. Therefore, Scudder Kemper will retain the amount it had previously
paid to the affiliated sub-adviser in connection with the services provided in
connection with the management of the Kemper Europe Fund. No fee or expense of
the Scudder Europe Fund will increase, however, as a result of the absence of
the above sub-advisory arrangement. Further, Scudder Kemper has agreed to adopt
the lower advisory fees currently paid by the Kemper Europe Fund.
Affiliates of Scudder Kemper (i.e., KDI, Scudder Fund Accounting
Corporation and Kemper Services Company) may also be deemed to have an interest
in the Plan and the Reorganization because of the services they provide to the
Kemper Europe Fund and will continue to provide to the Scudder Europe Fund.
Further, a fee of approximately .10% will be paid to Scudder Fund Accounting
Corporation for services which is not currently paid by the Kemper Europe Fund.
With the exception of this new accounting fee, however, these service providers
have agreed to charge the same fees to the Scudder Europe Fund as those
currently in effect for the Kemper Europe Fund.
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INFORMATION ON SHAREHOLDERS' RIGHTS
The following discussion, as it pertains to the Scudder Europe Fund,
relates to the Fund in open-end form, and assumes that certain amendments to the
Scudder Europe Fund's Charter will be approved by its shareholders. The
open-ending proposal of the Scudder Europe Fund is not conditioned upon the
approval of all of those changes (certain of which require the affirmative vote
of 75% of the votes entitled to be cast by stockholders of the Scudder Europe
Fund). However, if all of those changes are not approved, the Scudder Europe
Fund will retain certain characteristics more typically associated with a
closed-end fund. Those specific characteristics are discussed in the relevant
sections below.
GENERAL. The Scudder Europe Fund is a Maryland corporation that was
incorporated on November 22, 1989 and is governed by its Articles of
Incorporation, By-Laws and Board of Directors. The Kemper Europe Fund is a
Massachusetts business trust organized on June 12, 1995 and is governed by its
Declaration of Trust, By-Laws and Board of Trustees. Each Fund is also governed
by applicable state and federal law. The Kemper Europe Fund may issue an
unlimited number of shares of beneficial interest in one or more series or
portfolios, all having no par value, which may be divided by the Board of
Trustees into classes of shares. The Scudder Europe Fund has an authorized
capital of 500,000,000 shares of common stock with a par value of $.001 per
share. The Board of Directors of the Scudder Europe Fund has the power to
increase the authorized amount of capital stock and to classify unissued shares
for the purposes of creating new series or classes. In both the Kemper Europe
Fund and the Scudder Europe Fund, shares represent interests in the assets of
the relevant Fund and have identical voting, dividend, liquidation and other
rights on the same terms and conditions, unless specified otherwise in the
Fund's governing documents. Expenses related to the distribution of each class
of shares of each Fund are borne solely by such class and each class of shares
has exclusive voting rights with respect to provisions of any 12b-1 distribution
plan. Shares of each Fund are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive rights. Class B shares
of each Fund automatically convert to Class A shares six years after purchase.
Class M shares of the Scudder Europe Fund will convert to Class A shares one
year after the Reorganization.
The Kemper Europe Fund is not required to hold annual shareholder meetings
and does not intend to do so unless required by the 1940 Act or other applicable
law. The Kemper Europe Fund will hold special meetings as required or deemed
desirable for such purposes as electing Trustees, changing fundamental policies
or approving an investment management agreement. Kemper Europe Fund Trustees
serve until the next meeting of shareholders, if any, called for the purpose of
electing Trustees and until the election and qualification of a successor or
until such Trustee sooner dies, resigns, retires or is removed by a majority
vote of the shares entitled to vote (as described below) or a majority of the
Trustees. In accordance with the 1940 Act: (a) the Kemper Europe Fund will hold
a shareholder meeting for the election of Trustees at such time as less than a
majority of the Trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
Trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Currently, the Scudder Europe Fund's Charter provides that the Board of
Directors will be divided into three classes. According to the relevant
provision of the Scudder Europe Fund's Charter, the term of office of the first
class expired on the date of the second annual meeting of stockholders, the term
of office of the second class expired on the date of the third annual meeting of
stockholders and the term of office of the third class expired on the date of
the fourth annual meeting of stockholders. Upon the expiration of the term of
the office of each class, the Directors in such class are elected for a term of
three years to succeed the Directors whose terms of office expire. In connection
with the open-ending proposal, the shareholders of the Scudder Europe Fund are
being asked to approve an amendment to the Charter to declassify the Board of
Directors. Elimination of this Charter provision will permit the Scudder Europe
Fund to dispense with annual stockholders meetings, except when required by law
to hold such meetings. There is no assurance, however, that this Charter
amendment will be approved by the Scudder Europe Fund shareholders. If the
amendment is not approved, that Fund will be required to continue to hold annual
meetings to elect Directors and incur the related costs of the proxy
solicitation process (approximately $50,000 to $60,000).
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Subject to each Fund's governing documents, shareholders may remove
Directors and Trustees from office at a meeting called for that purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding shares. Upon the written request of ten or more
shareholders who have been such for at least six months and who hold shares
constituting at least 1% of the outstanding shares of each Fund stating that
such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
the removal of a Director or Trustee, each Fund has undertaken to disseminate
appropriate materials at the expense of the requesting shareholders.
Each Fund's governing documents provide that the presence at a shareholder
meeting in person or by proxy of at least one-third of the shares entitled to
vote on a matter shall constitute a quorum. Thus, a meeting of shareholders of
each Fund could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of Directors or Trustees and ratification of the
selection of independent auditors. Investors in each Fund are entitled to one
vote for each full share held and fractional votes for fractional shares held.
MULTI-CLASS STRUCTURE. Like the Kemper Europe Fund, the Scudder Europe
Fund will offer Class A, B and C shares upon the Reorganization. Class M Shares
represent the initial shares of the Scudder Europe Fund in closed-end form and
are no longer offered.
BOARD. The By-Laws of the Kemper Europe Fund and of the Scudder Europe
Fund (assuming that the proposed Charter amendment eliminating the classified
Board structure is approved by Scudder Europe Fund shareholders) provide that
the term of office of each Director/Trustee shall be from the time of his or her
election and qualification until the next annual meeting of shareholders and
until his or her successor shall have been elected and shall have qualified. Any
Director/Trustee of the Kemper Europe Fund or the Scudder Europe Fund may be
removed by the vote of at least a majority of the outstanding shares then
entitled to be cast for the election of Directors/Trustees. Vacancies on the
Boards of the Kemper Europe Fund or the Scudder Europe Fund may be filled by the
Directors/Trustees remaining in office. A meeting of shareholders will be
required for the purpose of electing additional Directors/Trustees whenever
fewer than a majority of the Directors/Trustee then in office were elected by
shareholders and to fill vacancies if less than two-thirds of the
Directors/Trustees then holding office have been elected by the shareholders.
As stated above, the Board of Scudder Europe Fund will be comprised of the
same persons currently serving on the Board of the Kemper Europe Fund.
VOTING RIGHTS. The Kemper Europe Fund does not hold a meeting of
shareholders annually, and there normally is no meeting of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders or as otherwise
required by applicable law (see discussion above). If certain Charter amendments
are approved by the shareholders of Scudder Europe Fund as discussed above, that
Fund will also not be required to hold annual meetings of shareholders for the
purpose of electing Directors.
LIQUIDATION OR TERMINATION. In the event of the liquidation or termination
of the Kemper Europe Fund or the Scudder Europe Fund, the shareholders of each
Fund are entitled to receive, when and as declared by the Directors/Trustees,
the excess of the assets over the liabilities belonging to the relevant Fund. In
either case, the assets so distributed to shareholders will be distributed among
the shareholders in proportion to the number of shares of the class held by them
and recorded on the books of the relevant Fund. The net asset value of the
classes of shares would differ due to differences in expense ratios.
LIABILITY OF DIRECTORS/TRUSTEES. The Articles of Incorporation of the
Scudder Europe Fund and the Declaration of Trust of the Kemper Europe Fund
provide that the Directors/Trustees and officers shall not be liable for
monetary damages for breach of fiduciary duty as a Director/Trustee or officer,
except to the extent such exemption is not permitted by law. The Articles of
Incorporation of the Scudder Europe Fund and the Declaration of Trust of the
Kemper Europe Fund provide that the relevant Fund shall indemnify each Director,
Trustee and officer and make advances for the payment of expenses relating to
the matter for which
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<PAGE> 39
indemnification is sought, each to the fullest extent permitted by Maryland or
Massachusetts law and other applicable law.
RIGHTS OF INSPECTION. Maryland law permits any shareholder of the Scudder
Europe Fund or any agent of such shareholders to inspect and copy, during usual
business hours, the By-Laws, minutes of shareholder proceedings, annual
statements of the affairs and voting trust agreements (if any) of the Scudder
Europe Fund on file at its principal office. The Declaration of Trust of the
Kemper Europe Fund permits any shareholder of the Kemper Europe Fund or his
agent to inspect and copy during normal business hours the By-Laws, minutes of
the proceedings of shareholders and annual financial statements of Kemper Europe
Fund (including a balance sheet and financial statements of operations) on file,
at its principal offices.
SHAREHOLDER LIABILITY. Under Maryland law, shareholders of the Scudder
Europe Fund do not have personal liability for corporate acts and obligations.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
fund. The Declaration of Trust for the Kemper Europe Fund, however, disclaims
shareholder liability for acts or obligations of that Fund and requires that
notice of such disclaimer be given in each agreement, obligation, or instrument
entered into or executed by that Fund or its Trustees. Moreover, the Declaration
of Trust provides for indemnification out of the Kemper Europe Fund's property
for all losses and expenses of any shareholder held personally liable for the
obligations of that Fund and that Fund will be covered by insurance which the
Trustees consider adequate to cover foreseeable tort claims. Thus, the risk of a
shareholder of Kemper Europe Fund incurring financial loss on account of
shareholder liability is considered by Scudder Kemper remote and not material,
since it is limited to circumstances in which a disclaimer is inoperative and
the Kemper Europe Fund itself is unable to meet its obligations.
Shares of the Scudder Europe Fund issued to the shareholders of the Kemper
Europe Fund in the Reorganization will be fully paid and nonassessable when
issued, transferable without restrictions and will have no preemptive rights.
The foregoing is only a summary of certain characteristics of the
operations of the Scudder Europe Fund and the Kemper Europe Fund. The foregoing
is not a complete description of the documents cited. Shareholders should refer
to the provisions of the corporate and trust documents and state laws governing
each Fund for a more thorough description.
ADDITIONAL INFORMATION
Both the Scudder Europe Fund and the Kemper Europe Fund are subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act and in accordance therewith file reports and other information including
proxy material, reports and charter documents, with the SEC. These materials can
be inspected and copies obtained at the Public Reference Facilities maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the New York
Regional Office of the SEC at 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services, SEC,
Washington, D.C. 20549 at the prescribed rates. The Preliminary Prospectus and
Statement of Additional Information for the Scudder Europe Fund, along with
related information, may be found on the SEC website as well
(http://www.sec.gov).
OTHER BUSINESS
The Kemper Europe Fund Board of Trustees knows of no other business to be
brought before the Meeting. However, if any other matters come before the
Meeting, proxies that do not contain specific restrictions to the contrary will
be voted on such matters in accordance with the judgment of the persons named in
the enclosed proxy card.
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FINANCIAL STATEMENTS AND EXPERTS
The audited statement of net assets of the Kemper Europe Fund, including
the schedule of portfolio investments, as of November 30, 1998, the related
statements of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the financial
highlights for each of the fiscal periods since 1996 have been incorporated by
reference into this Prospectus/ Proxy Statement in reliance upon the reports of
Ernst & Young LLP, independent auditors, given on the authority of such firm as
experts in accounting and auditing.
The annual report of the Scudder Europe Fund for the fiscal year ended
October 31, 1998 is also incorporated by reference.
LEGAL PROCEEDINGS
The Scudder Europe Fund is a defendant in a class action filed in the
Southern District of New York that also names the Fund's Directors and
investment adviser (Brautigam v. Bratt, et al. No. 98 Civ. 9060 (AKH)). The
complaint alleges breaches of fiduciary duty under sections 36(a) and 48 of the
1940 Act and common law by the defendants in allegedly failing to take adequate
steps to diminish the discount to net asset value at which shares of the Fund
have traded in recent years. The action has been stayed pending a decision in a
similar case on whether such a case may be maintained as a "class action". In
any event, the plaintiff's counsel has acknowledged that the case will become
moot if and when the Fund converts to open-end status, although they have also
expressed an intent to continue to press for a recovery of attorney's fees. In
light of how and when the open-ending proposal was developed by the Board and
the likelihood that it will be approved by its shareholders, the Scudder Europe
Fund has been advised by counsel that it has meritorious defenses to the action
and will oppose any effort by plaintiff to recover attorney's fees. Shareholders
of the Kemper Europe Fund could possibly bear some expenses for this litigation
upon becoming shareholders of the Scudder Europe Fund after the Reorganization.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the Scudder
Europe Fund will be passed upon by Willkie Farr & Gallagher, 787 Seventh Avenue,
New York, New York 10019-6099, counsel to the Scudder Europe Fund. In rendering
such opinion, Willkie Farr & Gallagher may rely on an opinion of Venable,
Baetjer and Howard, LLP as to certain matters under Maryland law.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
A-1
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 28th day of May, 1999, between Scudder New Europe Fund, Inc., a Maryland
corporation, (the "Scudder Fund"), and Kemper Europe Fund, a Massachusetts
business trust (the "Kemper Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
within the meaning of Section 368(a) of the United States Internal Revenue Code
of 1986, as amended (the "Code"). The reorganization of the Kemper Fund (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Kemper Fund in exchange solely for shares of the applicable class
or classes of common stock of the Scudder Fund (the "Scudder Fund Shares"), the
assumption by the Scudder Fund of all of the liabilities of the Kemper Fund, and
the distribution, on or after the Closing Date determined pursuant to paragraph
3.1, of the Scudder Fund Shares to the shareholders of the Kemper Fund in
liquidation of the Kemper Fund, all upon the terms and conditions set forth in
this Agreement.
WHEREAS, the Board of Trustees of the Kemper Fund has determined that the
exchange of all of the assets of the Kemper Fund for Scudder Fund Shares and the
assumption of all of the liabilities of the Kemper Fund by the Scudder Fund is
in the best interests of the Kemper Fund and that the interests of the existing
shareholders of the Kemper Fund would not be diluted as a result of this
transaction; and
WHEREAS, the Board of Directors of the Scudder Fund has determined that the
exchange of all of the assets of the Kemper Fund for Scudder Fund Shares and the
assumption of the Kemper Fund's liabilities by the Scudder Fund is in the best
interests of the Scudder Fund's shareholders and that the interests of the
existing shareholders of the Scudder Fund would not be diluted as a result of
this transaction.
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements set forth herein, the parties hereto covenant and agree as follows:
1. Transfer of Assets of the Kemper Fund in Exchange for Scudder Fund
Shares and Assumption of the Kemper Fund's Liabilities and Liquidation of the
Kemper Fund
1.1. Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the Kemper
Fund agrees to transfer its assets as set forth in paragraph 1.2 to the
Scudder Fund, and the Scudder Fund agrees in exchange therefor: (i) to
deliver to the Kemper Fund the number of Scudder Fund Shares, including
fractional Scudder Fund Shares, of each class of the Scudder Fund
determined by dividing the value of the Kemper Fund's net assets
attributable to each such class of shares, computed in the manner and as of
the time and date set forth in paragraph 2.1, by the offering price of one
Scudder Fund Share of the same class as described in that Fund's then
current prospectus; and (ii) to assume all of the liabilities of the Kemper
Fund. Such transactions shall take place at the closing provided for in
paragraph 3.1 (the "Closing").
1.2.
(a) The assets of the Kemper Fund to be acquired by the Scudder Fund
shall consist of all property including, without limitation, all cash,
securities and dividend or interest receivables that are owned by the
Kemper Fund and any deferred or prepaid expenses shown as an asset on the
books of the Kemper Fund on the closing date provided in paragraph 3.1 (the
"Closing Date").
(b) The liabilities assumed by the Scudder Fund shall include all of
the Kemper Fund's liabilities, debts, obligations, and duties of whatever
kind or nature, whether absolute, accrued, contingent, or otherwise,
whether or not arising in the ordinary course of business, whether or not
determinable at the Closing Date, and whether or not specifically referred
to in this Agreement.
(c) The Kemper Fund has provided the Scudder Fund with a list of all
of the Kemper Fund's assets as of the date of execution of this Agreement
and the Scudder Fund has confirmed that all such assets are of the type in
which the Scudder Fund is permitted to invest and to hold. The Kemper Fund
reserves the right to sell any of these securities but will not, without
the prior approval of the Scudder Fund, acquire any additional securities
other than securities of the type in which the Scudder Fund is permitted to
invest. The Scudder Fund, will, within a reasonable time prior to the
Closing Date, furnish the Kemper Fund with a list of its assets. In the
event that the Kemper Fund holds any investments which the Scudder Fund
identifies as a type which it may not hold, and the Scudder Fund so
requests, the
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Kemper Fund will dispose of such securities prior to the Closing Date. In
addition, if it is determined that the portfolios of the Kemper Fund and
the Scudder Fund, when aggregated, would contain investments exceeding
certain percentage limitations imposed upon the Scudder Fund with respect
to such investments, the Kemper Fund, if requested by the Scudder Fund,
will dispose of and/or reinvest a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing
Date.
1.3. The Kemper Fund will endeavor to discharge all the Kemper Fund's
known liabilities and obligations prior to the Closing Date, other than
those liabilities and obligations which would otherwise be discharged at a
later date in the ordinary course of business.
1.4. As soon as practicable prior to the Closing Date, both the
Scudder Fund and the Kemper Fund will declare and pay to their respective
shareholders of record one or more dividends and/or distributions so that
they will have distributed substantially all of their investment company
taxable income (computed without regard to any deduction for dividends
paid) and realized net capital gain, if any, for the current taxable year
through the Closing Date.
1.5. As soon on or after the Closing Date as is conveniently
practicable (the "Liquidation Date"), the Kemper Fund will liquidate and
distribute pro rata to the Kemper Fund's shareholders of record determined
as of the close of business on the Closing Date (the "Kemper Fund
Shareholders") the Scudder Fund Shares it receives pursuant to paragraph
1.1. Such liquidation and distribution will be accomplished by the transfer
of the Scudder Fund Shares then credited to the account of the Kemper Fund
on the books of the Scudder Fund to open accounts on the share records of
the Scudder Fund in the name of the Kemper Fund's shareholders representing
the respective pro rata number of the Scudder Fund Shares of the particular
class due such shareholders. All issued and outstanding shares of the
Kemper Fund will simultaneously be canceled on the books of the Kemper
Fund, although share certificates representing interests in the Kemper
Fund, if any, will represent a number of Scudder Fund Shares after the
Closing Date as determined in accordance with paragraph 2.2. The Scudder
Fund shall not issue certificates representing the Scudder Fund Shares in
connection with such exchange.
1.6. Ownership of Scudder Fund Shares will be shown on the books of
the Scudder Fund's transfer agent. Shares of the Scudder Fund will be
issued in the manner described in the Scudder Fund's then current
prospectus and statement of additional information.
1.7. Any transfer taxes payable upon issuance of the Scudder Fund
Shares in a name other than the registered holder of the Kemper Fund Shares
on the books of the Kemper Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Scudder Fund
Shares are to be issued and transferred.
1.8. Any reporting responsibility of the Kemper Fund is and shall
remain the responsibility of the Kemper Fund up to and including the
applicable Closing Date and such later dates on which the Kemper Fund is
terminated.
2. Valuation
2.1. The value of the Kemper Fund's assets to be acquired hereunder
shall be the value of such assets computed as of the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") on the applicable
Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in the Kemper Fund's then
current prospectus or statement of additional information, such procedures
having been accepted by the Accounting Service Agent for the Scudder Fund.
2.2. The number of Shares of each class of the Scudder Fund to be
issued (including fractional shares, if any) in exchange for the
corresponding Kemper Fund's net assets shall be determined by dividing the
value of the net assets of the Kemper Fund attributable to each such class
of shares determined using the same valuation procedures referred to in
paragraph 2.1 by the offering price per
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Share of such class of the Scudder Fund, such procedures having been
accepted by the Accounting Service Agent for the Kemper Fund.
2.3. All computations of value shall be made by Scudder Accounting
Corporation in accordance with the regular practice of the Kemper Fund and
Scudder Fund, respectively.
3. Closing and Closing Date
3.1. The Closing Date for the Reorganization shall be September 1,
1999, or such other date as the parties to the Reorganization may agree to
in writing. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of trading on the NYSE on the Closing
Date unless otherwise provided. The Closing shall be held as of 4:00 p.m.,
at the offices of Scudder Kemper Investments, Inc., 345 Park Avenue, New
York, New York, or at such other time and/or place as the parties may
agree.
3.2. The custodian for the Scudder Fund (the "Custodian") shall
deliver at the Closing a certificate of an authorized officer stating that:
(a) the Kemper Fund's portfolio securities, cash and any other assets have
been delivered in proper form to the Scudder Fund on the Closing Date and
(b) all necessary taxes, including all applicable federal and state stock
transfer stamps, if any, have been paid, or provision for payment has been
made, in conjunction with the delivery of portfolio securities.
3.3. In the event that on the Valuation Date (a) the NYSE or another
primary trading market for portfolio securities of the Scudder Fund or the
Kemper Fund shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere shall be disrupted so that accurate appraisal of the value of the
net assets of the Scudder Fund or the Kemper Fund is impracticable, the
applicable Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting
shall have been restored.
3.4. The Kemper Fund shall deliver at the Closing a list of the names
and addresses of the Kemper Fund's shareholders and the number and class of
outstanding Shares owned by each such shareholder immediately prior to the
Closing or provide evidence that such information has been provided to the
Scudder Fund's transfer agent. The Scudder Fund shall issue and deliver a
confirmation evidencing the Scudder Fund Shares to be credited to the
Kemper Fund's account on the Closing Date to the Secretary of the Kemper
Fund or provide evidence satisfactory to the Kemper Fund that the Scudder
Fund Shares have been credited to the Kemper Fund's account on the books of
the Scudder Fund. At the Closing, each party shall deliver to the relevant
other parties such bills of sale, checks, assignments, share certificates,
if any, receipts or other documents as such other party or its counsel may
reasonably request.
4. Representations and Warranties
4.1. The Kemper Fund represents and warrants to the Scudder Fund as
follows:
(a) The Kemper Fund is a business trust duly organized, validly
existing and in good standing under the Commonwealth of Massachusetts;
(b) The Kemper Fund is a registered investment company classified
as a management company of the open-end type and its registration with
the Securities and Exchange Commission (the "Commission") as an
investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"), is in full force and effect;
(c) The Kemper Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a violation of its
Declaration of Trust or By-Laws or any material agreement, indenture,
instrument, contract, lease or other undertaking to which the Kemper
Fund is a party or by which the Kemper Fund or its property is bound or
affected;
(d) There are no contracts or other commitments (other than this
Agreement) of the Kemper Fund which will be terminated with liability to
the Kemper Fund prior to the Closing Date;
(e) Except as previously disclosed to and accepted by the Scudder
Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is
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<PAGE> 45
presently pending or to its knowledge threatened against the Kemper Fund
or any of its properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the conduct
of its business. The Kemper Fund knows of no facts which might form the
basis for the institution of such proceedings and is not party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its business
or its ability to consummate the transaction herein contemplated;
(f) The statements of assets and liabilities of the Kemper Fund for
each of the fiscal years ended November 30 in the period beginning with
commencement of the Kemper Fund and ending November 30, 1998 have been
audited by Ernst & Young LLP, certified public accountants, and are in
accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the
Scudder Fund) fairly reflect the financial condition of the Kemper Fund
as of such dates, and there are no known contingent liabilities of the
Kemper Fund as of such dates not disclosed therein;
(g) Since November 30, 1998, there has not been any material
adverse change in the Kemper Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Kemper Fund of indebtedness
maturing more than one year from the date that such indebtedness was
incurred, except as otherwise disclosed to and accepted by the Scudder
Fund. For the purposes of this subparagraph (g), a decline in net asset
value per share or the total assets of the Kemper Fund in the ordinary
course of business shall not constitute a material adverse change;
(h) At the Closing Date, all federal and other tax returns and
reports of the Kemper Fund required by law to have been filed by such
dates shall have been filed, and all federal and other taxes shall have
been paid so far as due, or provision shall have been made for the
payment thereof and, to the best of the Kemper Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns;
(i) For the fiscal year ended November 30, 1998, the Kemper Fund
has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company; and all of the Kemper
Fund's issued and outstanding shares have been offered and sold in
compliance in all material respects with applicable federal and state
securities laws;
(j) All issued and outstanding shares of each class of the Kemper
Fund are, and at the applicable Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable by the Kemper
Fund, except that shareholders of the Kemper Fund may under certain
circumstances be held personally liable for its obligations. All of the
issued and outstanding shares of the Kemper Fund will, at the time of
Closing, be held by the persons and the amounts set forth in the records
of the transfer agent as provided in paragraph 3.4. The Kemper Fund does
not have outstanding any options, warrants or other rights to subscribe
for or purchase any of the Kemper Fund's shares, nor is there
outstanding any security convertible into any of the Kemper Fund's
shares, except for the conversion feature described in the Kemper Fund's
prospectus;
(k) At the Closing Date, the Kemper Fund will have good and
marketable title to the assets to be transferred to the Scudder Fund
pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Scudder Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Scudder Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
Securities Act of 1933 (the "1933 Act") and the 1940 Act, except those
restrictions as to which the Scudder Fund has received notice and
necessary documentation at or prior to the Closing;
(l) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary actions on the part of the Kemper
Fund's Board of Trustees, and subject to the approval of
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<PAGE> 46
the Kemper Fund's shareholders, this Agreement will constitute a valid
and binding obligation of the Kemper Fund, enforceable in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity
principles;
(m) Insofar as the following relate to the Kemper Fund, the
registration statement filed by the Scudder Fund on Form N-14 relating
to Scudder Fund Shares that will be registered with the Commission
pursuant to this Agreement, which, without limitation, shall include a
proxy statement of the Kemper Fund (the "Proxy Statement") and the
prospectus of the Scudder Fund with respect to the transaction
contemplated by this Agreement, and any supplement or amendment thereto,
and the documents contained or incorporated therein by reference (the
"N-14 Registration Statement"), on the effective date of the N-14
Registration Statement, at the time of any shareholders' meeting
referred to herein, on the Valuation Date and on the Closing Date: (i)
shall comply in all material respects with the provisions of the 1933
Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940
Act and the rules and regulations under those Acts, and (ii) shall not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
representations and warranties in this subsection shall only apply to
statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by the Kemper
Fund for use in the N-14 Registration Statement.
4.2. The Scudder Fund represents and warrants to the Kemper Fund as
follows:
(a) The Scudder Fund is a Maryland corporation, duly organized,
validly existing and in good standing under the laws of the State of
Maryland;
(b) The Scudder Fund is a registered investment company and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect, and as of the Closing Date the Scudder
Fund will be classified as a management company of the open-end type;
(c) The preliminary prospectus and statement of additional
information filed as part of the Scudder Fund registration statement on
Form N-1A on April 28, 1999 (the "Scudder Fund Registration Statement"),
when declared effective by the Commission will conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission under those Acts and
will not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not materially misleading;
(d) At the Closing Date, the Scudder Fund will have good and
marketable title to its assets;
(e) The Scudder Fund is not, and the execution, delivery and
performance of this Agreement will not result in, a violation of its
Charter or By-Laws or any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Scudder Fund is a
party or by which it is bound;
(f) Except as previously disclosed to and accepted by the Kemper
Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or to its
knowledge threatened against the Scudder Fund or any of its properties
or assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business. The
Scudder Fund knows of no facts which might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability
to consummate the transactions contemplated herein;
(g) Since October 30, 1998, there has not been any material adverse
change in the Scudder Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary
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<PAGE> 47
course of business, or any incurrence by the Scudder Fund of
indebtedness maturing more than one year from the date that such
indebtedness was incurred, except as otherwise disclosed to and accepted
by the Kemper Fund. For the purposes of this subparagraph (g), a decline
in net asset value per share or the total assets of the Scudder Fund in
the ordinary course of business shall not constitute a material adverse
change;
(h) At the Closing Date, all federal and other tax returns and
reports of the Scudder Fund required by law then to be filed shall have
been filed, and all federal and other taxes shown as due on said returns
and reports shall have been paid or provision shall have been made for
the payment thereof;
(i) For the fiscal year ended October 31, 1998, the Scudder Fund
has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company; and all of the Scudder
Fund's issued and outstanding shares have been offered and sold in
compliance in all material respects with applicable federal and state
securities laws;
(j) At the date hereof, all issued and outstanding Scudder Fund
Shares are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable, with no personal liability
attaching to the ownership thereof. The Scudder Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any Scudder Fund Shares, nor is there outstanding any security
convertible into any Scudder Fund Shares;
(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary actions on the part of the Scudder
Fund's Board of Directors, and this Agreement constitutes a valid and
binding obligation of the Scudder Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Scudder Fund Shares to be issued and delivered to the
Kemper Fund, for the account of the Kemper Fund's shareholders, pursuant
to the terms of this Agreement, will at the Closing Date have been duly
authorized and when so issued and delivered, will be duly and validly
issued Scudder Fund Shares, and will be fully paid and non-assessable
with no personal liability attaching to the ownership thereof;
(m) The N-14 Registration Statement, on the effective date of the
N-14 Registration Statement, at the time of any shareholders' meeting
referred to herein, on the Valuation Date and on the Closing Date: (i)
shall comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations under
those Acts, and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omission from the N-14
Registration Statement made in reliance upon and in conformity with
information furnished by the Kemper Fund for use in the N-14
Registration Statement;
(n) The Scudder Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
5. Covenants of the Kemper Fund and the Scudder Fund
5.1. The Scudder Fund and the Kemper Fund will operate their
businesses in the ordinary course between the date hereof and the Closing
Date. It is understood that such ordinary course of business will include
the declaration and payment of customary dividends and distributions.
5.2. The Kemper Fund will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other actions
necessary to obtain approval of the transaction contemplated herein.
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<PAGE> 48
5.3. The Scudder Fund will call a meeting of its shareholders to
consider and act upon a proposal to convert the Scudder Fund to open-end
status.
5.4. The Kemper Fund covenants that the Scudder Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.
5.5. The Kemper Fund will assist the Scudder Fund in obtaining such
information as the Scudder Fund reasonably requests concerning the
beneficial ownership of the Kemper Fund's Shares.
5.6. Subject to the provisions of this Agreement, the Scudder Fund
and the Kemper Fund each will take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement.
5.7. The Kemper Fund will provide the Scudder Fund with information
reasonably necessary for the preparation of a prospectus which will include
the Proxy Statement referred to in paragraph 4.1(m), all to be included in
the N-14 Registration Statement, in compliance with the 1933 Act, the 1934
Act and the 1940 Act in connection with the meeting of the Kemper Fund's
shareholders to consider approval of this Agreement and the transactions
contemplated herein.
5.8. The Kemper Fund will provide the Scudder Fund with information
reasonably necessary for the preparation of the Scudder Fund Registration
Statement.
5.9. As promptly as practicable, but in any case within thirty days
of the Closing Date, the Kemper Fund shall furnish the Scudder Fund with a
statement containing information required for purposes of complying with
Rule 24f-2 under the 1940 Act.
5.10. The Scudder Fund agrees to take no action that would adversely
affect the qualification of the Reorganization as a reorganization under
Section 368(a) of the Code. In this regard, the Scudder Fund covenants
that, following the Reorganization, it will (i) continue the historic
business of the Kemper Fund or (ii) use a significant portion of the Kemper
Fund's historic business assets in a business.
6. Conditions Precedent to Obligations of the Kemper Fund
The obligations of the Kemper Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the Scudder
Fund of all of the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following further conditions:
6.1. All representations and warranties of the Scudder Fund contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the actions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date;
6.2. The shareholders of the Scudder Fund shall have approved
resolutions presented to them necessary to convert the Scudder Fund to
open-end status and shall have taken such other action so that the Scudder
Fund can function substantially as described in the Scudder Fund
Registration Statement on Form N-1A currently on file with the Commission;
6.3. The Scudder Fund shall have delivered to the Kemper Fund a
certificate executed in its name by its President or Vice President and its
Secretary, Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Kemper Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Scudder Fund made in
this Agreement are true and correct at and as of the Closing Date, except
as they may be affected by the transaction contemplated by this Agreement
and as to such other matters as the Kemper Fund shall reasonably request;
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<PAGE> 49
6.4. The Kemper Fund shall have received on the Closing Date a
favorable opinion from Willkie Farr & Gallagher, counsel to the Scudder
Fund, dated as of the Closing Date, in a form reasonably satisfactory to
the Kemper Fund, covering the following points:
That (a) the Scudder Fund is a validly existing corporation and in
good standing under the laws of the State of Maryland, has the corporate
power to own all of its properties and assets and to carry on its
business as a registered investment company; (b) the Agreement has been
duly authorized, executed and delivered by the Scudder Fund and,
assuming due authorization, execution and delivery of the Agreement by
the other party thereto, is a valid and binding obligation of the
Scudder Fund enforceable against the Scudder Fund in accordance with its
terms, subject to the effect of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles;
(c) the Scudder Fund Shares to be issued to the Kemper Fund's
shareholders as provided by this Agreement are duly authorized and upon
such delivery will be validly issued and outstanding and fully paid and
nonassessable with no personal liability attaching to ownership thereof,
and no shareholder of the Scudder Fund has any preemptive rights to
subscription or purchase in respect thereof under the Charter or By-Laws
of the Scudder Fund or to the knowledge of such counsel, otherwise; (d)
the execution and delivery of this Agreement did not, and the
consummation of the transaction contemplated hereby will not, result in
a violation of the Scudder Fund's Charter or By-Laws as they are
proposed to be amended or in a material violation of any provision of
any agreement (known to such counsel) to which the Scudder Fund is a
party or by which it or its property is bound or, to the knowledge of
such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to
which the Scudder Fund is a party or by which it or its property is
bound; (e) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the
United States or state of Maryland is required for the consummation by
the Scudder Fund of the actions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and
such as may be required under state securities laws; (f) the
descriptions in the N-14 Registration Statement of statutes, legal and
governmental proceedings, investigations, orders, decrees or judgments
of any court or governmental body in the United States and contracts and
other documents, if any, are accurate and fairly present the information
required to be shown; (g) such counsel does not know of any legal,
administrative or governmental proceedings, investigation, order, decree
or judgment of any court or governmental body, only insofar as they
relate to the Scudder Fund or its assets or properties, pending,
threatened or otherwise existing on or before the effective date of the
Scudder Fund Registration Statement or the Closing Date, which are
required to be described in the Scudder Fund Registration Statement or
to be filed as exhibits to the Scudder Fund Registration Statement which
are not described and filed as required; (h) the Scudder Fund is
registered as an investment company under the 1940 Act and classified as
a management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force
and effect; (i) the Proxy Statement and the Scudder Fund Registration
Statement (except as to financial and statistical data contained
therein, as to which no opinion need be given) comply as to form in all
material respects with the requirements of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder; and (j) the
Scudder Fund Registration Statement is effective under the 1933 Act and
the 1940 Act and no stop-order suspending its effectiveness or order
pursuant to section 8(e) of the 1940 Act has been issued.
In addition, such counsel also shall state that they have
participated in conferences with officers and other representatives of
the Scudder Fund at which the contents of the N-14 Registration
Statement, the Scudder Fund Registration Statement and related matters
were discussed and, although they are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the N-14 Registration Statement and the Scudder
Fund Registration Statement (except to the extent indicated in paragraph
6 of their above opinion), on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of officers and other
representatives of the Scudder Fund), they do not believe that the
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<PAGE> 50
Proxy Statement and the Scudder Fund Registration Statement as of their
respective dates, as of the date of the Kemper Fund shareholders'
meeting, and as of the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein regarding the Scudder Fund or necessary to make the statements
therein regarding the Scudder Fund, in the light of the circumstances
under which they were made, not misleading. Such opinion may state that
such counsel does not express any opinion or belief as to the financial
statements or other financial data or as to the information relating to
the Kemper Fund, contained in the Proxy Statement, N-14 Registration
Statement or Scudder Fund Registration Statement, and that such opinion
is solely for the benefit of the Kemper Fund, its Trustees and its
officers. Such counsel may rely as to matters governed by the laws of
the state of Maryland on an opinion of Maryland counsel and/or
certificates of officers or directors of the Scudder Fund. Such opinion
also shall include such other matters incident to the transaction
contemplated hereby, as the Kemper Fund may reasonably request.
In this paragraph 6.4, references to the Proxy Statement include and
relate only to the text of such Proxy Statement and not, except as
specifically stated above, to any exhibits or attachments thereto or to any
documents incorporated by reference therein;
6.5. The Board of Directors of the Scudder Fund, including a majority
of the directors who are not "interested persons" of the Scudder Fund (as
defined by the 1940 Act), shall have determined that this Agreement and the
transactions contemplated hereby are in the best interests of the Scudder
Fund and that the interests of the shareholders in the Scudder Fund would
not be diluted as a result of such transactions, and the Scudder Fund shall
have delivered to the Kemper Fund at the applicable Closing, a certificate,
executed by an officer, to the effect that the condition described in this
subparagraph has been satisfied; and
6.6. The Scudder Fund's Investment Advisory Agreement with Scudder
Kemper Investments, Inc. ("Scudder Kemper") shall have been amended to
lower the advisory fees so that the fee payable from the Scudder Fund to
Scudder Kemper thereunder shall be a monthly fee equal to 1/12 of .75 of 1
percent of the average daily net assets of the Fund for such month;
provided that, for any calendar month during which the average of such
values exceeds $250,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $250,000,000 shall be
1/12 of .72 of 1 percent of such portion; provided that, for any calendar
month during which the average of such values exceeds $1,000,000,000, the
fee payable for that month based on the portion of the average of such
values in excess of $1,000,000,000 shall be 1/12 of .70 of 1 percent of
such portion; provided that, for any calendar month during which the
average of such values exceeds $2,500,000,000, the fee payable for that
month based on the portion of the average of such values in excess of
$2,500,000,000 shall be 1/12 of .68 of 1 percent of such portion; provided
that, for any calendar month during which the average of such values
exceeds $5,000,000,000, the fee payable for that month based on the portion
of the average of such values in excess of $5,000,000,000 shall be 1/12 of
.65 of 1 percent of such portion; provided that, for any calendar month
during which the average of such values exceeds $7,500,000,000, the fee
payable for that month based on the portion of the average of such values
in excess of $7,500,000,000 shall be 1/12 of .64 of 1 percent of such
portion; provided that, for any calendar month during which the average of
such values exceeds $10,000,000,000, the fee payable for that month based
on the portion of the average of such values in excess of $10,000,000,000
shall be 1/12 of .63 of 1 percent of such portion; and provided that, for
any calendar month during which the average of such values exceeds
$12,500,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $12,500,000,000 shall be 1/12 of .62 of
1 percent of such portion.
7. Conditions Precedent to Obligations of the Scudder Fund
The obligations of the Scudder Fund to complete the transaction provided
for herein shall be subject, at its election, to the performance by the Kemper
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1. All representations and warranties of the Kemper Fund contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the
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<PAGE> 51
transaction contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
7.2. The Kemper Fund shall have delivered to the Scudder Fund a
statement of the Kemper Fund's assets and liabilities as of the Closing
Date, certified by the Treasurer or Assistant Treasurer of the Kemper Fund;
7.3. The Kemper Fund shall have delivered to the Scudder Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Scudder Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Kemper Fund made in
this Agreement are true and correct at and as of the Closing Date, except
as they may be affected by the transactions contemplated by this Agreement,
and as to such other matters as the Scudder Fund shall reasonably request;
7.4. The Scudder Fund shall have received on the Closing Date a
favorable opinion of Vedder, Price, Kaufman & Kammholz, counsel to the
Kemper Fund, in a form satisfactory to the Secretary of the Scudder Fund,
covering the following points:
That (a) the Kemper Fund is validly existing as a business trust
and in good standing under the laws of the Commonwealth of Massachusetts
and has the statutory power to own all of its properties and assets and
to carry on its business as a registered investment company; (b) the
Agreement has been duly authorized, executed and delivered by the Kemper
Fund and, assuming due authorization, execution and delivery of the
Agreement by the other party hereto, is a valid and binding obligation
of the Kemper Fund enforceable against the Kemper Fund in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and to general
equity principles; (c) the execution and delivery of the Agreement did
not, and the consummation of the transaction contemplated hereby will
not, result in a violation of the Kemper Fund's Declaration of Trust or
By-Laws or a material violation of any provision of any agreement (known
to such counsel) to which the Kemper Fund is a party or by which either
it or its property is bound or, to the knowledge of such counsel, result
in the acceleration of any obligation or the imposition of any penalty,
under any agreement, judgment or decree to which the Kemper Fund is a
party or by which it or its property is bound, (d) to the knowledge of
such counsel, no consent, approval, authorization or order of any court
or governmental authority of the United States or the Commonwealth of
Massachusetts is required for the consummation by the Kemper Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act and the 1940 Act, and such as may be
required under state securities laws; (e) the Proxy Statement (except as
to financial and statistical data contained therein, as to which no
opinion need be given) comply as to form in all material respects with
the requirements of the 1934 Act and the 1940 Act and the rules and
regulations thereunder; (f) such counsel does not know of any legal,
administrative or governmental proceedings, investigation, order, decree
or judgment of any court or governmental body, only insofar as they
relate to the Kemper Fund or its assets or property, pending, threatened
or otherwise existing on or before the effective date of the Scudder
Fund Registration Statement or the Closing Date, which are required to
be described in the Scudder Fund Registration Statement or to be filed
as exhibits to the Scudder Fund Registration Statement which are not
described and filed as required or which materially and adversely affect
the Kemper Fund's business; and (g) the Kemper Fund is registered as an
investment company under the 1940 Act and its registration with the
Commission as an investment company under the 1940 Act is in full force
and effect.
Such counsel also shall state that they have participated in
conferences with officers and other representatives of the Kemper Fund
at which the contents of the Proxy Statement and related matters were
discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Proxy Statement (except to the extent
indicated in paragraph (e) of their above opinion), on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions
of officers and other
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<PAGE> 52
representatives of the Kemper Fund), they do not believe that the Proxy
Statement as of its date, as of the date of the Kemper Fund's
shareholder meeting, and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein regarding the Kemper Fund or necessary in
the light of the circumstances under which they were made, to make the
statements therein regarding the Kemper Fund not misleading.
Such opinion may state that such counsel does not express any
opinion or belief as to the financial statements or other financial
data, or as to the information relating to the Kemper Fund, contained in
the Proxy Statement or the Scudder Fund Registration Statement, and that
such opinion is solely for the benefit of the Kemper Fund and its
directors and officers. Such opinion also shall include such other
matters incident to the transaction contemplated hereby as the Kemper
Fund may reasonably request.
In this paragraph 7.4, references to the Proxy Statement include and
relate only to the text of such Proxy Statement and not to any exhibits or
attachments thereto or to any documents incorporated by reference therein;
7.5. The Scudder Fund shall have received from Ernst & Young LLP a
letter addressed to the Scudder Fund dated as of the effective date of the
N-14 Registration Statement in form and substance satisfactory to the
Scudder Fund, to the effect that:
(a) they are independent public accountants with respect to the
Kemper Fund within the meaning of the 1933 Act and the applicable
regulations thereunder;
(b) in their opinion, the financial statements and financial
highlights of the Kemper Fund included or incorporated by reference in
the N-14 Registration Statement and the Proxy Statement and reported on
by them comply as to form in all material aspects with the applicable
accounting requirements of the 1933 Act and the rules and regulations
thereunder; and
(c) on the basis of limited procedures agreed upon by the Scudder
Fund and the Kemper Fund and described in such letter (but not an
examination in accordance with generally accepted auditing standards),
specified information relating to the Kemper Fund appearing in the N-14
Registration Statement and the Proxy Statement has been obtained from
the accounting records of the Kemper Fund or from schedules prepared by
officers of Kemper Fund having responsibility for financial and
reporting matters and such information is in agreement with such
records, schedules or computations made therefrom;
7.6. The Kemper Fund shall have delivered to the Scudder Fund,
pursuant to paragraph 4.1(f), copies of financial statements of the Kemper
Fund as of and for the fiscal year ended November 30, 1998;
7.7. The Scudder Fund shall have received from Ernst & Young LLP a
letter addressed to the Scudder Fund and dated as of the applicable Closing
Date stating that as of a date no more than three (3) business days prior
to the applicable Closing Date, Ernst & Young LLP performed limited
procedures and that on the basis of those procedures it confirmed the
matters set forth in paragraph 7.5; and
7.8. The Board of Trustees of the Kemper Fund, including a majority
of the trustees who are not "interested persons" of the Kemper Fund (as
defined by the 1940 Act), shall have determined that this Agreement and the
transactions contemplated hereby are in the best interests of the Kemper
Fund and that the interests of the shareholders in the Kemper Fund would
not be diluted as a result of such transactions, and the Kemper Fund shall
have delivered to the Scudder Fund at the applicable Closing, a
certificate, executed by an officer, to the effect that the condition
described in this subparagraph has been satisfied.
8. Further Conditions Precedent to Obligations of the Scudder Fund and the
Kemper Fund
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Scudder Fund, the Kemper Fund shall, and if any
of such conditions do not exist on or before the Closing
A-12
<PAGE> 53
Date with respect to Kemper Fund, the Scudder Fund shall, at their respective
option, not be required to consummate the transaction contemplated by this
Agreement.
8.1. The Agreement and the transaction contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding
Shares of the Kemper Fund in accordance with the provisions of the Kemper
Fund's Declaration of Trust and applicable law and certified reports of the
votes evidencing such approval shall have been delivered to the Scudder
Fund.
8.2. On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those
of the Commission and of state blue sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal
and state authorities) deemed necessary by the Scudder Fund or the Kemper
Fund to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Scudder Fund or
the Kemper Fund, provided that either party hereto may for itself waive any
of such conditions.
8.4. The N-14 Registration Statement and the Scudder Fund
Registration Statement shall each have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5. The parties shall have received a favorable opinion of Willkie
Farr & Gallagher, addressed to, and in form and substance satisfactory to,
the Kemper Fund and the Scudder Fund, substantially to the effect that for
federal income tax purposes:
(a) The transfer of all or substantially all of the Kemper Fund's
assets in exchange for the Scudder Fund Shares and the assumption by the
Scudder Fund of liabilities of the Kemper Fund, and the distribution of
such Scudder Fund Shares to shareholders of the Kemper Fund in exchange
for their shares of the Scudder Fund, will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, and the Scudder Fund
and the Kemper Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code; (b) no gain or loss will be
recognized by the Scudder Fund on the receipt of the assets of the
Kemper Fund solely in exchange for the Scudder Fund Shares and the
assumption by the Scudder Fund of liabilities of the Kemper Fund; (c) no
gain or loss will be recognized by the Kemper Fund upon the transfer of
the Kemper Fund's assets to the Scudder Fund in exchange for the Scudder
Fund Shares and the assumption by the Scudder Fund of liabilities of the
Kemper Fund or upon the distribution of the Scudder Fund Shares to the
Kemper Fund's shareholders in exchange for their shares of the Kemper
Fund; (d) no gain or loss will be recognized by shareholders of the
Kemper Fund upon the exchange of their Kemper Fund shares for the
Scudder Fund Shares or upon the assumption by the Scudder Fund of
liabilities of the Kemper Fund; (e) the aggregate tax basis for the
Scudder Fund Shares received by each of the Kemper Fund's shareholders
pursuant to the Reorganization will be the same as the aggregate tax
basis of the Scudder Fund Shares held by such shareholder immediately
prior to the Reorganization, and the holding period of the Scudder Fund
Shares to be received by each Kemper Fund shareholder will include the
period during which the Kemper Fund Shares exchanged therefor were held
by such shareholder (provided that the Kemper Fund Shares were held as
capital assets on the date of the Reorganization); and (f) the tax basis
of the Kemper Fund's assets acquired by the Scudder Fund will be the
same as the tax basis of such assets to the Kemper Fund immediately
prior to the Reorganization, and the holding period of the assets of the
Kemper Fund in the hands of the Scudder Fund will include the period
during which those assets were held by the Kemper Fund.
A-13
<PAGE> 54
Notwithstanding anything herein to the contrary, neither the Scudder
Fund nor the Kemper Fund may waive the conditions set forth in this
paragraph 8.5.
9. Brokerage Fees and Expenses
9.1. The Scudder Fund represents and warrants to the Kemper Fund, and
the Kemper Fund represents and warrants to the Scudder Fund, that there are
no brokers or finders or other entities to receive any payments in
connection with the transaction provided for herein.
9.2. The expenses of entering into and carrying out the provisions of
this Agreement, whether or not consummated, shall be borne exclusively by
the Scudder Fund and the Kemper Fund and shall be allocated based upon the
relative net assets of the Scudder Fund and the Kemper Fund as of May 28,
1999.
10. Entire Agreement; Survival of Warranties
10.1. The Scudder Fund and the Kemper Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement among the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transaction contemplated
hereunder.
11. Termination
11.1. This Agreement may be terminated at any time at or prior to the
Closing Date by: (1) mutual agreement of the Kemper Fund and the Scudder
Fund; (2) the Kemper Fund in the event the Kemper Fund shall, or the
Scudder Fund in the event the Kemper Fund shall, materially breach any
representation, warranty or agreement contained herein to be performed at
or prior to the Closing Date; or (3) the Kemper Fund or the Scudder Fund in
the event a condition herein expressed to be precedent to the obligations
of the terminating party or parties has not been met and it reasonably
appears that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no
liability for damages on the part of either the Scudder Fund or the Kemper
Fund, or their respective directors, trustees or officers, to the other
party.
12. Amendments
This Agreement may be amended, modified or supplemented in writing in such
manner as may be mutually agreed upon by the authorized officers of the Scudder
Fund and the Kemper Fund; provided, however, that following the meetings of the
Kemper Fund's shareholders called by the Kemper Fund and the Scudder Fund's
shareholders called by the Scudder Fund pursuant to paragraphs 5.2 and 5.3 of
this Agreement, respectively, no such amendment may have the effect of changing
the provisions for determining the number of the Scudder Fund Shares to be
issued to the Kemper Fund's Shareholders under this Agreement to the detriment
of such shareholders without their further approval.
13. Notices
13.1. Any notice, report, statement or demand required or permitted
by any provisions of this Agreement shall be in writing and shall be given
by prepaid telegraph, telecopy or certified mail addressed to the Kemper
Fund at:
222 South Riverside Plaza
Chicago, IL 60606
Attention:
A-14
<PAGE> 55
with a copy to:
David Sturms, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, IL 60601
or to the Scudder Fund at:
345 Park Avenue
New York, NY
Attention: Bruce H. Goldfarb, Esq.
with a copy to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
14. Headings; Counterparts; Governing Law; Assignment; Limitation of
Liability
14.1. The article and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, except for paragraph 14.5, which
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
14.4. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies
under or by reason of this Agreement.
14.5. Consistent with the Kemper Fund's Declaration of Trust, notice
is hereby given and the parties hereto acknowledge and agree that this
instrument is executed on behalf of the Trustees of the Kemper Fund, as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or shareholders of the Kemper Fund
individually but binding only upon the assets and property of the Kemper
Fund.
[Signature page follows]
A-15
<PAGE> 56
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its Chairman of the Board, President or Vice President and
attested to by its Secretary or Assistant Secretary.
Scudder New Europe Fund, Inc.
By: /s/ KATHRYN L. QUIRK
------------------------------------
Name: Kathryn L. Quirk
Title: Vice President
Attest: /s/ BRUCE H. GOLDFARB
----------------------------------
Kemper Europe Fund
By: /s/ PHILIP J. COLLORA
------------------------------------
Name: Philip J. Collora
Title: Vice President
Attest: /s/ ELIZABETH C. WERTH
----------------------------------
A-16
<PAGE> 57
PRELIMINARY PROSPECTUS OF SCUDDER EUROPE FUND
DATED , 1999 IS INCORPORATED BY
REFERENCE TO ITS N-1A REGISTRATION STATEMENT
<PAGE> 58
STATEMENT OF ADDITIONAL INFORMATION DATED , 1999
ACQUISITION OF THE ASSETS OF
KEMPER EUROPE FUND
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
(800) 621-1048
BY AND IN EXCHANGE FOR SHARES OF
SCUDDER NEW EUROPE FUND, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
1-800-349-4281
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Kemper Europe Fund to the Scudder
Europe Fund in exchange for shares of the Scudder Europe Fund and the assumption
by the Scudder Europe Fund of the liabilities of the Kemper Europe Fund,
consists of this cover page and the following described documents, each of which
accompanies this Statement of Additional Information and is incorporated herein
by reference.
1. Preliminary Statement of Additional Information for the Scudder Europe
Fund dated , 1999.
2. Statement of Additional Information for Kemper Europe Fund, dated March
1, 1999.
3. Annual Report of the Scudder Europe Fund for the fiscal year ended
October 31, 1998.
4. Annual Report of the Kemper Europe Fund for the fiscal year ended
November 30, 1998.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement, dated , 1999, relating to the above-referenced matter may
be obtained without charge by calling or writing the Scudder Europe Fund at the
telephone number or address set forth above. This Statement of Additional
Information should be read in conjunction with the Prospectus/Proxy Statement.
<PAGE> 59
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Statements........................................ F2
</TABLE>
F-1
<PAGE> 60
FINANCIAL STATEMENTS
The Scudder Europe Fund's Annual Report for the fiscal year ended October
31, 1998 and the Kemper Europe Fund's Annual Report for the fiscal year ended
November 30, 1998, each including audited financial statements, notes to the
financial statements and report of independent auditors, are incorporated by
reference herein. The Funds will furnish a copy of the Annual Reports by calling
1-800-349-4281.
PRO FORMA FINANCIAL STATEMENTS
The following tables set forth the unaudited pro forma condensed balance
sheet and unaudited pro forma condensed income statement of the Funds as of and
for the period ending April 30, 1999 and as adjusted to give effect to the
Reorganization.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following tables set forth the unaudited pro forma condensed Statement
of Assets and Liabilities as of April 30, 1999 and the unaudited pro forma
condensed Statement of Operations for the twelve month period ended April 30,
1999 for the Scudder Europe Fund and the Kemper Europe Fund as adjusted giving
effect to the Reorganization.
PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER KEMPER
EUROPE EUROPE
FUND FUND PRO FORMA ACQUIRING FUND
(ACTUAL) (ACTUAL) ADJUSTMENTS(1) (AS ADJUSTED)
------------ ----------- -------------- --------------
<S> <C> <C> <C> <C>
Investments, at value.............. $355,074,509 $68,506,739 $423,581,248
Cash and foreign currency, at
value............................ 227 1,311 1,538
Other assets less liabilities...... (3,417,499) (1,143,644) $(39,221,388)(2) (43,782,531)
Net assets......................... $351,657,237 $67,364,406 $(39,221,388) $379,800,255
============ =========== ============ ============
Shares outstanding................. 16,310,537 -- -- 16,310,537
Net asset value per share.......... $ 21.56 -- -- $ 19.26(4)
Shares outstanding................. -- 2,253,099 (610,487)(3) 1,642,612
Net asset value per share, Class A
(and redemption price)........... -- $ 14.40 -- $ 19.26
Shares outstanding................. -- 2,154,354 (623,381)(3) 1,530,973
Net asset value per share, Class B
(subject to contingent deferred
sales charge)................. -- $ 14.05 -- $ 19.26
Shares outstanding................. -- 328,918 (93,400)(3) 235,518
Net asset value per share, Class C
(subject to contingent deferred
sales charge)................. -- $ 14.15 -- $ 19.26
Class A (Maximum offering price)... -- $ 15.28 -- $ 20.44
</TABLE>
- ---------------
(1) See note (1) to Pro Forma Capitalization table contained in the Scudder
Europe Fund's Prospectus/ Proxy Statement as to the time of the
Reorganization.
(2) Assumes capital gains distributions, without any reinvestment, of
$37,516,294 and $1,705,094 for the Scudder Europe Fund and Kemper Europe
Fund, respectively.
(3) See note (4) to Pro Forma Capitalization table contained in the Scudder
Europe Fund's Prospectus/ Proxy Statement. Based on the issuance of
1,642,612 Class A, 1,530,973 Class B, and 235,518 Class C
F-2
<PAGE> 61
additional Scudder Europe Fund shares and the cancellation of Class A, Class
B, and Class C Kemper Europe Fund shares.
(4) Subject to a 2% redemption fee.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE 12 MONTH PERIOD ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCUDDER KEMPER
EUROPE EUROPE
FUND FUND PRO FORMA ACQUIRING FUND
(ACTUAL) (ACTUAL) ADJUSTMENTS (AS ADJUSTED)
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
Investment Income:
Dividend income, net............. $ 5,071,494 $ 795,639 -- $ 5,867,133
Interest income.................. 1,352,996 307,153 -- 1,660,149
------------ ----------- ----------- ------------
Total Investment Income....... 6,424,490 1,102,792 7,527,282
Expenses
Management and Administrative
fees........................ 3,917,674 562,421 $ (273,461)(1) 4,206,634
Reorganization expenses....... 498,427 101,573 (600,000)(2) --
All other expenses............ 1,268,157 1,462,386 (194,608)(1) 2,535,935
------------ ----------- ----------- ------------
Total expenses before
reductions.................... 5,684,258 2,126,380 (1,068,069) 6,742,569
------------ ----------- ----------- ------------
Expense reductions............... -- (644,430) (1,964,826)(3) (2,609,256)
Expenses, net.................... 5,684,258 1,481,950 (3,032,895) 4,133,313
------------ ----------- ----------- ------------
Net investment income (loss)....... 740,232 (379,158) 3,032,895 3,393,969
------------ ----------- ----------- ------------
Net realized and unrealized gain
(loss) on investment
transactions:
Net realized gain (loss) from
investments and foreign
currency related
transactions.................. 56,406,428 (1,076,646) -- 55,329,782
Net unrealized appreciation
(depreciation) of investments
and foreign currency related
transactions.................. (51,083,362) (1,782,401) -- (52,865,763)
------------ ----------- ----------- ------------
5,323,066 (2,859,047) -- 2,464,019
------------ ----------- ----------- ------------
Net increase (decrease) in net
assets from operations........... $ 6,063,298 $(3,238,205) $ 3,032,895 $ 5,857,988
============ =========== =========== ============
</TABLE>
- ---------------
(1) Represents estimated reduction in operating expenses, including management
fee, directors' fees, shareholder services, and audit; and estimated
increase in Class M administrative fees.
(2) Eliminates the effect of non-recurring reorganization related expenses.
(3) Reflects the effect of expense waivers and reimbursements.
F-3
<PAGE> 62
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
KEMPER SCUDDER KEMPER SCUDDER
EUROPE FUND EUROPE FUND COMBINED EUROPE FUND EUROPE FUND COMBINED
SHARES SHARES SHARES VALUE($) VALUE($) VALUE($)
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Repurchase
Agreements 6.51%
Repurchase
agreement with
Chase Manhattan
Bank, 4.750%,
05/03/1999 207,000 -- 207,000 207,000 -- 207,000
Repurchase
Agreement with
Donaldson,
Lufkin and
Jenrette,
4.870%,
05/03/1999 -- 27,371,000 27,371,000 -- 27,371,000 27,371,000
-----------------------------------------
207,000 27,371,000 27,578,000
-----------------------------------------
U. S.
Government
Agency 0.47%
Federal Home
Loan Bank,
4.900%,
05/03/1999 2,000,000 -- 2,000,000 1,999,456 -- 1,999,456
-----------------------------------------
Convertible
Preferred
Stocks 0.35%
Lernout &
Hauspie Speech
Products N.V -- 40,000 40,000 -- 1,460,000 1,460,000
-----------------------------------------
Common
Stocks 92.67%
CROATIA 0.59%
Pliva D.D. (GDR) -- 158,000 158,000 -- 2,504,300 2,504,300
-----------------------------------------
FINLAND 5.70%
JOT Automation
Group OYJ -- 199,400 199,400 -- 6,573,092 6,573,092
Nokia Oyj 14,400 103,400 117,800 1,109,884 7,969,586 9,079,470
Pohjola
Insurance Co.,
Ltd. "B" 14,200 76,000 90,200 672,885 3,601,355 4,274,240
Tieto Corp. "B" -- 106,200 106,200 -- 4,230,150 4,230,150
-----------------------------------------
1,782,769 22,374,183 24,156,952
-----------------------------------------
FRANCE 13.81%
Altran
Technologies,
S.A -- 25,000 25,000 -- 5,943,092 5,943,092
AXA SA 8,240 -- 8,240 1,063,869 -- 1,063,869
Accor S.A 1,700 -- 1,700 448,136 -- 448,136
Air Liquide 3,300 -- 3,300 509,046 -- 509,046
Castorama-
Dubois
Investissements -- 24,700 24,700 -- 5,910,920 5,910,920
Compagnie de
Saint-Gobain 4,220 -- 4,220 724,529 -- 724,529
Dassault
Systemes S.A -- 105,326 105,326 -- 3,875,957 3,875,957
Dexia France -- 31,343 31,343 -- 4,387,797 4,387,797
Elf Aquitaine SA 7,820 27,500 35,320 1,214,546 4,271,102 5,485,648
Etablissements
Economiques du
Casino Guichard-
Perrachon SA -- 37,700 37,700 -- 3,712,335 3,712,335
</TABLE>
F-4
<PAGE> 63
<TABLE>
<CAPTION>
KEMPER SCUDDER KEMPER SCUDDER
EUROPE FUND EUROPE FUND COMBINED EUROPE FUND EUROPE FUND COMBINED
SHARES SHARES SHARES VALUE($) VALUE($) VALUE($)
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Galeries
Lafayette -- 3,300 3,300 -- 3,800,409 3,800,409
Groupe Danone 2,510 -- 2,510 670,941 -- 670,941
Imetal S.A 2,860 -- 2,860 371,975 -- 371,975
Infogrames
Entertainment SA -- 53,960 53,960 -- 4,076,317 4,076,317
Publicis SA -- 28,400 28,400 -- 5,371,076 5,371,076
Rhone-Poulenc
S.A. "A" 16,700 -- 16,700 793,997 -- 793,997
Sanofi SA 3,700 -- 3,700 579,739 -- 579,739
Societe
Industrielle de
Transports
Automobiles SA -- 7,732 7,732 -- 1,609,341 1,609,341
Suez Lyonnaise
des Eaux 4,000 -- 4,000 680,418 -- 680,418
Television
Francaise 3,685 -- 3,685 720,276 -- 720,276
Total S.A. "B" 9,000 -- 9,000 1,232,360 -- 1,232,360
Valeo SA
(Warrants)
expire 08/07/01 -- 39,000 39,000 -- 131,857 131,857
Valeo SA -- 64,444 64,444 -- 5,447,063 5,447,063
Vivendi 4,130 -- 4,130 964,781 -- 964,781
-----------------------------------------
9,974,613 48,537,266 58,511,879
-----------------------------------------
GERMANY 12.41%
Adidas-Salomon
AG -- 20,130 20,130 -- 1,982,210 1,982,210
Allianz AG 4,515 9,500 14,015 1,438,252 3,026,223 4,464,475
Bayer AG 17,600 -- 17,600 747,530 -- 747,530
Bayerische
Vereinsbank AG 34,000 -- 34,000 2,216,430 -- 2,216,430
Douglas Holding
AG -- 63,545 63,545 -- 2,920,523 2,920,523
EM.TV &
Merchandising AG -- 2,720 2,720 -- 2,572,065 2,572,065
Gehe AG 20,000 -- 20,000 919,198 -- 919,198
Hoechst AG 19,900 -- 19,900 942,986 -- 942,986
Mannesmann AG 7,550 34,700 42,250 993,928 4,568,119 5,562,047
Marschollek
Lautenschlaeger
und Partner AG
(pfd) -- 36,610 36,610 -- 20,500,551 20,500,551
Medion AG -- 11,050 11,050 -- 2,270,763 2,270,763
Metro AG 9,000 -- 9,000 650,412 -- 650,412
PrimaCom AG -- 35,000 35,000 -- 1,516,149 1,516,149
Siemens AG 16,800 54,700 71,500 1,242,502 4,045,529 5,288,031
-----------------------------------------
9,151,238 43,402,132 52,553,370
-----------------------------------------
GREECE 3.17%
Alpha Credit
Bank -- 31,400 31,400 -- 2,241,838 2,241,838
Delta
Informatics S.A -- 237,000 237,000 -- 7,806,679 7,806,679
National Bank of
Greece S.A -- 47,500 47,500 -- 3,237,936 3,237,936
National Bank of
Greece
S.A.(Rights) -- 47,500 47,500 -- 137,965 137,965
-----------------------------------------
-- 13,424,418 13,424,418
-----------------------------------------
</TABLE>
F-5
<PAGE> 64
<TABLE>
<CAPTION>
KEMPER SCUDDER KEMPER SCUDDER
EUROPE FUND EUROPE FUND COMBINED EUROPE FUND EUROPE FUND COMBINED
SHARES SHARES SHARES VALUE($) VALUE($) VALUE($)
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HUNGARY 0.80%
Graboplast Rt
(GDR) -- 4 4 -- 5 5
OTP Bank Rt -- 80,500 80,500 -- 3,392,714 3,392,714
-----------------------------------------
-- 3,392,719 3,392,719
-----------------------------------------
IRELAND 1.38%
Bank of Ireland
PLC 53,079 -- 53,079 1,062,732 -- 1,062,732
ESAT Telecom
Group PLC (ADR) -- 97,600 97,600 -- 4,770,200 4,770,200
-----------------------------------------
1,062,732 4,770,200 5,832,932
-----------------------------------------
ITALY 13.17%
Alleanza
Assicurazioni
SpA -- 148,000 148,000 -- 1,774,792 1,774,792
Assicurazioni
Generali 33,000 110,888 143,888 1,284,817 4,317,298 5,602,115
Autogrill SpA -- 602,500 602,500 -- 5,525,438 5,525,438
Banca Carige SpA -- 125,000 125,000 -- 1,156,922 1,156,922
Banca Popolare
di Brescia SpA 22,500 391,000 413,500 773,791 13,446,761 14,220,552
Ente Nazionale
Idrocarburi SpA 123,000 554,000 677,000 809,623 3,646,597 4,456,220
Finmeccanica SpA -- 4,379,800 4,379,800 -- 4,312,808 4,312,808
Gruppo
Editoriale
L'Espresso 56,200 451,600 507,800 822,387 6,608,359 7,430,746
Istituto
Bancario San
Paolo di Torino 69,856 -- 69,856 1,048,050 -- 1,048,050
Mediaset SpA -- 185,000 185,000 -- 1,602,786 1,602,786
Seat Pagine
Gialle SpA 701,000 2,500,000 3,201,000 873,957 3,116,823 3,990,780
Telecom Italia
Mobile SpA 98,000 -- 98,000 583,976 -- 583,976
Telecom Italia
SpA 66,000 317,500 383,500 702,204 3,378,027 4,080,231
-----------------------------------------
6,898,805 48,886,611 55,785,416
-----------------------------------------
NETHERLANDS 9.50%
Aalberts
Industries 28,505 -- 28,505 677,631 -- 677,631
Akzo Nobel NV 12,200 -- 12,200 551,044 -- 551,044
Detron Group NV 30,000 -- 30,000 472,278 -- 472,278
Equant NV 4,200 90,700 94,900 381,182 8,231,716 8,612,898
Getronics NV 32,723 184,449 217,172 1,343,180 7,571,070 8,914,250
ING Groep NV 29,690 -- 29,690 1,828,810 -- 1,828,810
Koninklijke
Ahold NV 37,551 -- 37,551 1,394,559 -- 1,394,559
Koninklijke
Numico 21,266 -- 21,266 799,882 -- 799,882
Nedcon Groep 9,104 -- 9,104 141,878 -- 141,878
Nutreco Holding
NV -- 146,700 146,700 -- 5,944,091 5,944,091
Qiagen NV -- 60,500 60,500 -- 4,431,625 4,431,625
Unique
International NV 28,290 -- 28,290 754,717 -- 754,717
</TABLE>
F-6
<PAGE> 65
<TABLE>
<CAPTION>
KEMPER SCUDDER KEMPER SCUDDER
EUROPE FUND EUROPE FUND COMBINED EUROPE FUND EUROPE FUND COMBINED
SHARES SHARES SHARES VALUE($) VALUE($) VALUE($)
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United Pan-
Europe
Communications
NV -- 72,800 72,800 -- 3,765,078 3,765,078
Vedior NV CVA 85,844 -- 85,844 1,931,877 -- 1,931,877
-----------------------------------------
10,277,038 29,943,580 40,220,618
-----------------------------------------
POLAND 0.62%
ITI Group S.A -- 10,524 10,524 -- 2,620,476 2,620,476
-----------------------------------------
PORTUGAL 4.52%
Banco Comercial
Portugues 25,000 -- 25,000 704,983 -- 704,983
BPI - SGPS SA,
(Registered) -- 152,900 152,900 -- 4,119,434 4,119,434
Brisa-Auto
Estradas de
Portugal, SA -- 86,500 86,500 -- 3,664,801 3,664,801
Jeronimo Martins
SA -- 192,996 192,996 -- 6,351,792 6,351,792
Jeronimo
Martins, SA
"New" -- 64,332 64,332 -- 2,059,490 2,059,490
Telecel-
Comunicacoes
Pessoais, S.A -- 16,950 16,950 -- 2,265,427 2,265,427
-----------------------------------------
704,983 18,460,944 19,165,927
-----------------------------------------
SPAIN 6.40%
Aldeasa SA -- 68,100 68,100 -- 2,079,385 2,079,385
Argentaria SA 41,000 -- 41,000 964,271 -- 964,271
Baron de Ley, SA -- 158,000 158,000 -- 5,442,076 5,442,076
Compania
Telefonica
Nacional de
Espana SA 37,334 33,381 70,715 1,749,396 1,564,166 3,313,562
Compania
Telefonica
Nacional de
Espana SA (ADR) -- 21,441 21,441 -- 2,988,339 2,988,339
Cortefiel, SA -- 185,100 185,100 -- 5,084,751 5,084,751
Metrovacesa, S.A -- 99,200 99,200 -- 2,164,321 2,164,321
TelePizza, SA -- 787,680 787,680 -- 4,993,338 4,993,338
Compania
Telefonica
Nacional de
Espana SA
(Rights) 37,334 33,381 70,715 34,712 31,036 65,748
-----------------------------------------
2,748,379 24,347,412 27,095,791
-----------------------------------------
SWEDEN 0.27%
Gambro AB 39,750 -- 39,750 412,247 -- 412,247
Industri-
Matematik
International
Corp 12,540 -- 12,540 23,512 -- 23,512
Securitas AB 46,500 -- 46,500 688,930 -- 688,930
-----------------------------------------
1,124,689 -- 1,124,689
-----------------------------------------
SWITZERLAND 3.11%
Adecco SA
(Bearer) -- 11,539 11,539 -- 5,816,013 5,816,013
Baloise Holding
Ltd.
(Registered) -- 4,330 4,330 -- 3,541,876 3,541,876
</TABLE>
F-7
<PAGE> 66
<TABLE>
<CAPTION>
KEMPER SCUDDER KEMPER SCUDDER
EUROPE FUND EUROPE FUND COMBINED EUROPE FUND EUROPE FUND COMBINED
SHARES SHARES SHARES VALUE($) VALUE($) VALUE($)
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Novartis AG
(Registered) 638 -- 638 933,771 -- 933,771
Roche Holdings
AG (PC) 60 -- 60 705,512 -- 705,512
TeleLarm Care AB 545 -- 545 6,363 -- 6,363
UBS AG-
Registered 6,440 -- 6,440 2,186,485 -- 2,186,485
-----------------------------------------
3,832,131 9,357,889 13,190,020
-----------------------------------------
UNITED
KINGDOM 17.22%
Aegis Group PLC -- 3,417,000 3,417,000 -- 7,392,904 7,392,904
AstraZeneca
Group PLC 14,938 -- 14,938 582,506 -- 582,506
Avis Europe PLC -- 1,213,000 1,213,000 -- 5,131,736 5,131,736
BOC Group PLC 50,500 -- 50,500 797,720 -- 797,720
BP Amoco PLC 90,190 -- 90,190 1,711,938 -- 1,711,938
Barclays PLC 30,000 -- 30,000 954,543 -- 954,543
Bodycote
International
PLC 45,000 173,000 218,000 698,534 2,685,475 3,384,009
British Telecom
PLC 131,186 -- 131,186 2,190,446 -- 2,190,446
Capita Group PLC -- 130,700 130,700 -- 1,379,200 1,379,200
Cobham PLC -- 396,000 396,000 -- 6,083,399 6,083,399
Compass Group
PLC 52,350 540,000 592,350 538,945 5,559,318 6,098,263
Dixon Group PLC 39,600 121,500 161,100 844,828 2,592,086 3,436,914
Flextech PLC -- 479,119 479,119 -- 6,907,722 6,907,722
Glaxo Wellcome
PLC 43,650 -- 43,650 1,293,367 -- 1,293,367
Hays PLC 62,720 -- 62,720 696,150 -- 696,150
Marks & Spencer,
PLC 125,000 -- 125,000 857,082 -- 857,082
National
Westminster Bank
PLC 63,225 -- 63,225 1,520,470 -- 1,520,470
Orange PLC 69,270 -- 69,270 935,992 -- 935,992
Reed
International
PLC 109,562 -- 109,562 996,645 -- 996,645
Rentokil
Intitial PLC 205,500 -- 205,500 1,205,743 -- 1,205,743
Select
Appointments
Holdings PLC 63,542 200,000 263,542 809,532 2,548,021 3,357,553
Serco Group PLC -- 265,000 265,000 -- 5,882,646 5,882,646
SmithKline
Beecham PLC 50,145 -- 50,145 663,051 -- 663,051
Taylor Nelson
Sofres PLC -- 3,191,000 3,191,000 -- 8,058,872 8,058,872
Unilever PLC 69,793 -- 69,793 620,286 -- 620,286
Vodafone Group
PLC 44,799 -- 44,799 825,128 -- 825,128
-----------------------------------------
18,742,906 54,221,379 72,964,285
-----------------------------------------
Common Stocks Total $66,300,283 $326,243,509 $392,543,792
-----------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $66,172,546, $221,989,028, and $288,161,574,
respectively) $68,506,739 $355,074,509 $423,581,248
=========================================
</TABLE>
F-8
<PAGE> 67
PRELIMINARY STATEMENT OF ADDITIONAL
INFORMATION OF THE SCUDDER EUROPE FUND
DATED , 1999
IS INCORPORATED BY REFERENCE
TO ITS N-1A REGISTRATION STATEMENT
<PAGE> 68
THE ANNUAL REPORT, PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION OF THE KEMPER EUROPE
FUND ARE INCORPORATED BY REFERENCE TO THE
MOST RECENT FILINGS THEREOF BY THE KEMPER EUROPE FUND
<PAGE> 69
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
A policy of insurance covering Scudder Kemper Investments, Inc., its
affiliates including Scudder Investor Services, Inc., and all of the registered
investment companies advised by Scudder Kemper Investments, Inc. insures the
Registrant's directors and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent act, error or
accidental omission in the scope of their duties.
Article Twelfth of Registrant's Articles of Incorporation state as follows:
TWELFTH: Indemnification
To the fullest extent that limitations on the liability of directors and
officers are permitted by the Maryland General Corporation Law, no director or
officer of the Corporation shall have any liability to the Corporation or to its
stockholders for damages. The limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and may do so to such further extent as is consistent with law. The
Board of Directors may by By-Law, resolution or agreement make further provision
for indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Maryland General Corporation Law.
No provision of these Articles of Incorporation shall be effective to
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. References to the Maryland General Corporation Law in this Article
TWELFTH are to that law as from time to time amended. No amendment to the
Corporation's Articles of Incorporation shall affect any right of any person
under this Article TWELFTH based on any event, omission or proceeding prior to
the amendment.
Article X of Registrant's Amended and Restated By-Laws states as follows:
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.1. Indemnification of Directors, Officers and Members of the
Advisory Board. To the maximum extent permitted by the Investment Company Act
of 1940, the Securities Act of 1933 (as such statutes are now or hereinafter in
force) and by Maryland law in effect from time to time, the Corporation shall
indemnify, and shall pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to, (i) any individual who is a present or former
Director, officer or member of the Advisory Board of the Corporation or (ii) any
individual who serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director or
officer of such corporation or other enterprise or as a partner or trustee of
such partnership, joint venture, trust, employee benefit plan or other
enterprise at the request of the Corporation. The Corporation may, with the
approval of its Board of Directors, provide such indemnification and advancement
of expenses to a person who served a predecessor of the Corporation in any of
the capacities described in (i) or (ii) above and to any employee or agent of
the Corporation or a predecessor of the Corporation. Indemnification or
advancement shall be made only as authorized for a specific proceeding upon (i)
a determination that indemnification of or advancement to such person is proper
in the circumstances because he has met the applicable standard of conduct for
indemnification or applicable requirement for advancement and (ii) such other
authorizations and determinations as may be required by law
C-1
<PAGE> 70
to be made by (A) the Board of Directors of the Corporation by the vote of a
majority of a quorum consisting of Directors who are neither "interested
persons" of the Corporation as defined in the Investment Company Act of 1940 nor
parties to such proceeding or, if such quorum cannot be obtained, by a majority
vote of a committee of the Board of Directors consisting solely of two or more
such Directors who are duly designated to act in the matter by a majority vote
of the full Board of Directors; or (B) independent legal counsel in a written
opinion, which counsel shall be selected in accordance with such procedures as
may be required by law, provided, however, that such counsel shall make only
such determinations and authorizations as are permitted by law to be made by
independent counsel; or (C) the stockholders of the Corporation acting in
accordance with the Articles of Incorporation and these By-Laws and applicable
law.
Neither the amendment nor repeal of this Article X nor the adoption or
amendment of any other provision of these By-Laws or the Articles of
Incorporation inconsistent with this Article X, shall apply to or affect in any
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption. [MGCL Sec. 2-418]
Section 10.2. Insurance of Officers, Directors, Members of the Advisory Board,
Employees and Agents. To the maximum extent permitted by the Investment Company
Act of 1940, the Securities Act of 1933 (as such statutes are now or hereinafter
in force) and by Maryland law in effect from time to time, the Corporation may
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, member of the Advisory Board, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in or arising out of his
position. [MGCL Sec. 2-419(k)]
C-2
<PAGE> 71
ITEM 16. EXHIBITS
References are to Registrant's Registration Statement on Form N-1A as filed
with the Securities and Exchange Commission on April 28, 1999 (the "N-1A
Registration Statement").
<TABLE>
<S> <C>
(1) Registrant's Articles of Incorporation and related
amendments are incorporated by reference to the N-1A
Registration Statement.
(2) By-Laws and related amendments of the Registrant are
incorporated by reference to the N-1A Registration
Statement.
(4) Form of Plan of Reorganization (included as Exhibit A to
Registrant's Prospectus/Proxy Statement contained in Part A
of this Registration Statement).
(6) Form of Investment Advisory Agreement for Scudder Kemper
Investments, Inc. is incorporated by reference to the N-1A
Registration Statement.
(7) Form of Underwriting and Distribution Services Agreement is
incorporated by reference to the N-14 Registration
Statement.
(9) Form of Custodian Agreement is incorporated by reference to
the N-1A Registration Statement.
(10)(a) Form of Distribution Plan for Class B shares pursuant to
Rule 12b-1 under the 1940 Act is incorporated by reference
to the N-1A Registration Statement.
(10)(b) Form of Distribution Plan for Class C shares pursuant to
Rule 12b-1 under the 1940 Act as incorporated by reference
to the N-1A Registration Statement.
(10)(c) Form of Administrative Services Agreement is incorporated by
reference to the N-1A Registration Statement.
(10)(d) Form of 18f-3 Plan is incorporated by reference to the N-1A
Registration Statement.
(11)(a) (a) Opinion and Consent of Willkie Farr & Gallagher, counsel
to Registrant, with respect to validity of shares.
(11)(b) Opinion of Venable, Baetjer and Howard, L.L.P., Maryland
counsel to Registrant, with respect to validity of shares.
(12) Form of Opinion and Consent of Willkie Farr & Gallagher with
respect to tax matters.
(13)(a) Form of Transfer Agency Agreement is incorporated by
reference to the N-1A Registration Statement.
(13)(b) Form of Fund Accounting Services Agreement is incorporated
by reference to the N-1A Registration Statement.
(14) Consent of Ernst & Young LLP
(17) (a) Form of Proxy Card.
(b) Preliminary Prospectus of Scudder New Europe Fund, Inc.
as filed with the Securities and Exchange Commission on
April 28, 1999.
(c) Preliminary Statement of Additional Information of
Scudder New Europe Fund, Inc. as filed with the Securities
and Exchange Commission on April 28, 1999.
(d) Annual Report of Scudder New Europe Fund, Inc. for the
fiscal year ended October 31, 1998.
(e) Prospectus of Kemper Europe Fund dated March 1, 1999.
(f) Statement of Additional Information of Kemper Europe
Fund dated March 1, 1999.
(g) Annual Report of Kemper Europe Fund for the fiscal year
ended November 30, 1998.
</TABLE>
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c],
C-3
<PAGE> 72
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-4
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, this amendment to the
Registration Statement on Form N-14 has been signed on behalf of the Registrant,
in the City of New York and State of New York, on the 3rd day of June, 1999.
Scudder New Europe Fund, Inc.
By: /s/ NICHOLAS BRATT
------------------------------------
Nicholas Bratt
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- --------------
<C> <S> <C>
Chairman and Director June 3, 1999
- -------------------------------------
Daniel Pierce*
Director June 3, 1999
- -------------------------------------
Paul Bancroft III*
Director June 3, 1999
- -------------------------------------
Mary Johnston Evans*
Director June 3, 1999
- -------------------------------------
Richard Hunt*
Director June 3, 1999
- -------------------------------------
William H. Luers*
Director June 3, 1999
- -------------------------------------
Wilson Nolen*
Director June 3, 1999
- -------------------------------------
Ladislas O. Rice*
/s/ JOHN R. HEBBLE Treasurer (Principal Financial and June 3, 1999
- ------------------------------------- Accounting Officer)
John R. Hebble
By: /s/ CAROLINE PEARSON
- -------------------------------------
Caroline Pearson, as attorney-in-
fact
</TABLE>
* Caroline Pearson signs this document pursuant to powers of attorney filed with
the Registrant's Registration Statement on Form N-14, as filed with the
Securities and Exchange Commission on April 28, 1999.
C-5
<PAGE> 74
EXHIBIT INDEX
References are to Registrant's Registration Statement on Form N-1A as filed
with the Securities and Exchange Commission on April 28, 1999 (the "N-1A
Registration Statement").
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
(1) Registrant's Articles of Incorporation and related
amendments are incorporated by reference to the N-1A
Registration Statement.
(2) By-Laws and related amendments of the Registrant are
incorporated by reference to the N-1A Registration
Statement.
(4) Form of Plan of Reorganization (included as Exhibit A to
Registrant's Prospectus/Proxy Statement contained in Part A
of this Registration Statement).
(6) Form of Investment Advisory Agreement for Scudder Kemper
Investments, Inc. is incorporated by reference to the N-1A
Registration Statement.
(7) Form of Underwriting and Distribution Services Agreement is
incorporated by reference to the N-14 Registration
Statement.
(9) Form of Custodian Agreement is incorporated by reference to
the N-1A Registration Statement.
(10)(a) Form of Distribution Plan for Class B shares pursuant to
Rule 12b-1 under the 1940 Act is incorporated by reference
to the N-1A Registration Statement.
(10)(b) Form of Distribution Plan for Class C shares pursuant to
Rule 12b-1 under the 1940 Act as incorporated by reference
to the N-1A Registration Statement.
(10)(c) Form of Administrative Services Agreement is incorporated by
reference to the N-1A Registration Statement.
(10)(d) Form of 18f-3 Plan is incorporated by reference to the N-1A
Registration Statement.
(11)(a) (a) Opinion and Consent of Willkie Farr & Gallagher, counsel
to Registrant, with respect to validity of shares.
(11)(b) Opinion of Venable, Baetjer and Howard, L.L.P., Maryland
counsel to Registrant, with respect to validity of shares.
(12) Form of Opinion and Consent of Willkie Farr & Gallagher with
respect to tax matters.
(13)(a) Form of Transfer Agency Agreement is incorporated by
reference to the N-1A Registration Statement.
(13)(b) Form of Fund Accounting Services Agreement is incorporated
by reference to the N-1A Registration Statement.
(14) Consent of Ernst & Young LLP
(17) (a) Form of Proxy Card.
(b) Preliminary Prospectus of Scudder New Europe Fund, Inc.
as filed with the Securities and Exchange Commission on
April 28, 1999.
(c) Preliminary Statement of Additional Information of
Scudder New Europe Fund, Inc. as filed with the Securities
and Exchange Commission on April 28, 1999.
(d) Annual Report of Scudder New Europe Fund, Inc. for the
fiscal year ended October 31, 1998.
(e) Prospectus of Kemper Europe Fund dated March 1, 1999.
(f) Statement of Additional Information of Kemper Europe
Fund dated March 1, 1999.
(g) Annual Report of Kemper Europe Fund for the fiscal year
ended November 30, 1998.
</TABLE>
C-6
<PAGE> 1
EXHIBIT 11(a)
June 3, 1999
Scudder New Europe Fund, Inc.
345 Park Avenue
New York, New York 10154
Ladies and Gentlemen:
We have acted as counsel to Scudder New Europe Fund, Inc., a Maryland
corporation (the "Scudder Europe Fund"), in connection with its proposed
acquisition of all of the assets and liabilities of Kemper Europe Fund, a
Massachusetts business trust, in exchange for Class A, Class B and Class C
Shares of the Scudder Europe Fund, par value $0.001 per share (the "Shares"),
pursuant to an Agreement and Plan of Reorganization executed by the Scudder
Europe Fund and by the Kemper Europe Fund dated as of May 28, 1999 (the "Plan").
We have examined the Scudder Europe Fund's Registration Statement on Form N-14
under the Securities Act of 1933, as amended, substantially in the form in which
it is to become effective (the "Registration Statement"), the Scudder Europe
Fund's Articles of Incorporation and Bylaws, as amended and restated as of the
date hereof, and the Plan.
We have also examined and relied upon other documents and certificates with
respect to factual matters as we have deemed necessary to render the opinions
expressed herein. We have assumed, without independent verification, the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with originals of all documents submitted to us
as copies. We have further assumed that the Plan constitutes the legal, valid
and binding obligation of the Kemper Europe Fund, enforceable against the Kemper
Europe Fund in accordance with its terms. As to matters of Maryland law, we have
relied solely on the opinion of Venable, Baetjer and Howard, LLP with respect to
the matters addressed therein, which is satisfactory to us in form and scope and
a copy of which is annexed hereto.
<PAGE> 2
Scudder New Europe Fund, Inc.
June 3, 1999
Page 2
Anything in this opinion to the contrary notwithstanding, we render or imply no
opinion with respect to compliance with any applicable securities or anti-fraud
statutes, rules, regulations or other similar laws of any state (including
Maryland) or the United States of America. In rendering the opinions herein, we
assume that there will be no material changes in the facts and conditions on
which we base such opinions between the date hereof and the time of issuance of
Scudder Europe Fund's Shares pursuant to the Plan.
Based upon the foregoing, we are of the opinion that:
1. Scudder Europe Fund is a corporation validly existing and in good
standing under the laws of the State of Maryland.
2. When issued pursuant to the Plan and in the manner described in
the Registration Statement, the shares so issued will constitute validly issued
shares, fully paid and nonassessable, under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to us in the Registration Statement
and to the filing of this opinion as an exhibit to any application made by or on
behalf of Scudder Europe Fund or any distributor or dealer in connection with
the registration or qualification of Scudder Europe Fund or the Shares under the
securities laws of any state or other jurisdiction.
This opinion is furnished by us as counsel to Scudder Europe Fund, is solely for
the benefit of Scudder Europe Fund and its Board of Directors in connection with
the above described acquisition of assets and may not be relied upon for any
other purpose or by any other person.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
EXHIBIT 11(b)
June 3, 1999
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Re: Scudder New Europe Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel to Scudder New Europe
Fund, Inc., a Maryland corporation (the "Scudder Fund"), in connection with the
proposed (i) conversion of the Scudder Fund from a closed-end fund to an
open-end fund (the "Conversion") under the Investment Company Act of 1940, as
amended, and (ii) its related acquisition of all of the assets and liabilities
of the Kemper Europe Fund, a Massachusetts business trust (the "Kemper Fund"),
in exchange for Class A, Class B and Class C Common Stock shares of the Scudder
Fund, par value $0.001 per share (the "Shares"), pursuant to an Agreement and
Plan of Reorganization, dated May 28, 1999, between the Scudder Fund and the
Kemper Fund (the "Agreement"). The proposed reorganization with the Kemper Fund
contemplated by the Agreement is referred to herein as the "Reorganization."
This opinion relates only to the Shares to be issued in the Reorganization.
We have examined the Prospectus/Proxy Statement (the
"Prospectus/Proxy Statement") contained in the Scudder Fund's Registration
Statement on Form N-14 under the Securities Act of 1933 (the "Registration
Statement"), substantially in the form in which it is to become effective, the
Scudder Fund's Charter and Bylaws, and the Agreement, as well as the Scudder
Fund's proxy statement with respect to the Conversion on Schedule 14(a) under
the Securities Exchange Act of 1934, substantially in the form in which it will
be mailed to the Scudder Fund's stockholders. We have further examined and
relied upon a certificate of the Maryland State Department of Assessments and
Taxation to the effect that the Scudder Fund is duly incorporated and
existing under the laws of the State of Maryland and is in good standing and
duly authorized to transact business in the State of Maryland. We have also
examined and relied upon such corporate records of the Scudder Fund, a
certificate of the Assistant Secretary of the Scudder Fund with respect to
relevant actions of its Board of
<PAGE> 2
Willkie Farr & Gallagher
June 3, 1999
Page 2
Directors and certain factual and other matters, and such other documents as we
have deemed necessary to render the opinion expressed herein.
We have assumed, without independent verification, the genuineness
of all signatures on documents submitted to us, the authenticity of all
documents submitted to us as originals, and the conformity with originals of all
documents submitted to us as copies. We have further assumed that, upon its
execution and delivery, the Agreement will constitute the legal, valid and
binding obligation of the Kemper Fund, enforceable against the Kemper Fund in
accordance with its terms. We have also assumed that the Conversion will have
been consummated in accordance with law before the Shares are issued pursuant to
the Agreement.
Based upon the foregoing and subject to the qualifications set forth
below, we are of the opinion that:
1. The Scudder Fund is a corporation validly existing and in good
standing under the laws of the State of Maryland.
2. When issued pursuant to the Agreement and in the manner described
in the Prospectus/Proxy Statement, the Shares so issued will constitute validly
issued shares, fully paid and nonassessable, under the laws of the State of
Maryland.
This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as the authorization and issuance
of stock. It does not extend to the securities or "blue sky" laws of Maryland,
to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to
the Scudder Fund that is to be filed as an exhibit to the Registration
Statement. We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement. We do not thereby admit that we are
"experts" as that term is used in the Securities Act of 1933, as amended, and
the regulations thereunder. This opinion may not be relied upon by any other
person or used for any other purpose without our prior written consent.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
<PAGE> 1
_____________, 1999
Kemper Europe Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Scudder New Europe Fund, Inc.
345 Park Avenue
New York, New York 10154
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to (a) the Kemper Europe Fund (the "Acquired Fund"), (b) Scudder
New Europe Fund, Inc. (the "Acquiring Fund"), and (c) holders of shares of
beneficial interest in the Acquired Fund (the "Acquired Fund Shareholders") when
the holders of Class A, Class B and Class C shares in the Acquired Fund receive
Class A, Class B and Class C shares, respectively, of the Acquiring Fund (all
such shares of the Acquiring Fund referred to hereinafter as the "Acquiring Fund
Shares"), in liquidation of their interests in the Acquired Fund pursuant to an
acquisition by the Acquiring Fund of all or substantially all of the assets of
the Acquired Fund in exchange for the Acquiring Fund Shares and the assumption
by the Acquiring Fund of substantially all of the liabilities of the Acquired
Fund and the subsequent liquidation of the Acquired Fund and distribution in
liquidation of the Acquiring Fund Shares to the Acquired Fund Shareholders (the
"Reorganization").
We have reviewed such documents and materials as we have considered necessary
for the purpose of rendering this opinion. In rendering this opinion, we assume
that such documents as yet unexecuted will, when executed, conform in all
material respects to the proposed forms of such documents that we have examined.
In addition, we assume the genuineness of all signatures, the capacity of each
party executing a document so to execute that document, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as certified or photostat copies.
We have made inquiry as to the underlying facts which we considered to be
relevant to the conclusions set forth in this letter. The opinions expressed in
this letter are based upon certain factual statements relating to the Acquired
Fund and the Acquiring Fund set forth in the Registration Statement on Form N-14
(the "Registration Statement") filed by the Acquiring Fund with the Securities
and Exchange Commission and the representations to be made in letters from the
Acquired Fund and
<PAGE> 2
the Acquiring Fund addressed to us for our use in rendering this opinion. We
have no reason to believe that these representations and facts will not be
valid, but we have not attempted and will not attempt to verify independently
any of these representations and facts, and this opinion is based upon the
assumption that each of them is accurate. Capitalized terms used herein and not
otherwise defined shall have the meaning given them in the Registration
Statement.
The conclusions expressed herein are based upon the Internal Revenue Code of
1986 (the "Code"), Treasury regulations issued thereunder, published rulings and
procedures of the Internal Revenue Service and judicial decisions, all as in
effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the Acquiring
Fund of substantially all of the liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the
Code, and the Acquired Fund and the Acquiring Fund are each a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by any Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for Acquiring Fund Shares
and the assumption by the Acquiring Fund of substantially all of the liabilities
of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of substantially
all of the liabilities of the Acquired Fund or upon the distribution (whether
actual or constructive) of Acquiring Fund Shares to Acquired Fund Shareholders;
(4) no gain or loss will be recognized by Acquired Fund Shareholders
upon the exchange of their shares of the Acquired Fund for Acquiring Fund Shares
and the assumption by the Acquiring Fund of certain scheduled liabilities of the
Acquired Fund;
(5) the aggregate tax basis of Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of the Acquired Fund surrendered in exchange
therefor, and the holding period of the Acquiring Fund Shares to be received by
each Acquired Fund Shareholder will include the period during which the shares
of the Acquired Fund exchanged therefor were held by such Acquired Fund
Shareholder (provided the shares of
-2-
<PAGE> 3
the Acquired Fund were held as capital assets on the date of the
Reorganization); and
(6) the tax basis of the Acquired Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement or in the Prospectus/Proxy Statement constituting
a part thereof.
Very truly yours,
-3-
<PAGE> 1
EXHIBIT 14
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements
and Experts" and to the incorporation by reference of our report dated January
19, 1999 for Kemper Europe Fund in the Registration Statement (Form N-14) and
related Prospectus/Proxy Statement of Scudder New Europe Fund, Inc. filed with
the Securities and Exchange Commission in this Pre-Effective Amendment No. 1 to
the Registration Statement under the Securities Act of 1933 (Registration No.
33-32430).
ERNST & YOUNG LLP
Chicago, Illinois
June 3, 1999
<PAGE> 1
Exhibit 17
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
..............................................................................
..............................................................................
KEMPER EUROPE FUND
PROXY SOLICITED BY THE BOARD OF TRUSTEES
The undersigned holder of shares of Kemper Europe Fund (the "Fund"), hereby
appoints Kathryn L. Quirk, Philip J. Collora, Maureen E. Kane and Caroline
Pearson attorneys and proxies for the undersigned with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the Fund that the undersigned is entitled to
vote at the Special Meeting of Shareholders of the Fund to be held at the
offices of Scudder Kemper Investments, Inc., 345 Park Avenue, New York, New York
10154, at 9:00 a.m, and any adjournment or adjournments thereof. The undersigned
hereby acknowledges receipt of the Notice of Special Meeting and the
Prospectus/Proxy Statement dated June __, 1999 and hereby instructs said
attorneys and proxies to vote said shares as indicated herein. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting. A majority of the proxies present and acting
at the Meeting in person or by substitute (or, if only one shall be so present,
then that one) shall have and may exercise all of the power and authority of
said proxies hereunder. The undersigned hereby revokes any proxy previously
given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Note: Please sign exactly as your name appears on this Proxy.
If joint owners, EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee, guardian or
corporate officer, please give your full title.
Date:
----------------------------------------------
----------------------------------------------
Signature(s) (Title(s), if applicable)
<PAGE> 2
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
...............................................................................
...............................................................................
Please indicate your vote by an "X" in the appropriate box below. This proxy, if
properly executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" APPROVAL OF
THE PROPOSAL.
1. To approve the Agreement and Plan of Reorganization dated as of
May 28, 1999 (the "Plan") providing (i) that the Kemper Europe Fund would
transfer to Scudder New Europe Fund, Inc. (the "Scudder Europe Fund") all
of its assets in exchange for Class A, B and C Shares of the Scudder
Europe Fund and the assumption by Scudder Europe Fund of all of the Kemper
Europe Fund's liabilities, (ii) that such shares of the Scudder Europe Fund
would be distributed to shareholders of Kemper Europe Fund in liquidation
of Kemper Europe Fund and (iii) that Kemper Europe Fund would subsequently
be terminated.
FOR / / AGAINST/ / ABSTAIN / /
2. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
<PAGE> 1
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 28, 1999
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD
, 1999
PROSPECTUS
Mutual funds:
- are not FDIC-insured
- have no bank guarantees
- may lose value
KEMPER EUROPE FUND
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND SUMMARY................................................ 1
Investment Objective and Principal Strategies............. 1
PRINCIPAL RISK FACTORS...................................... 1
Past Performance.......................................... 1
Fee and Expense Information............................... 3
Example................................................... 5
ABOUT THE FUND.............................................. 5
Principal Investment Strategies........................... 5
Other Investments......................................... 6
Risk Management Strategies................................ 6
Main Risks -- Generally................................... 6
Types of Investment Risk.................................. 6
Investment Manager........................................ 7
Portfolio Management...................................... 8
ABOUT YOUR INVESTMENT....................................... 9
Choosing a Share Class.................................... 9
Rule 12b-1 Plan........................................... 10
Special Features.......................................... 10
Buying Shares............................................. 11
Class A Shares............................................ 11
NAV Purchases............................................. 11
Selling and Exchanging Shares............................. 14
Distributions and Taxes................................... 15
Transaction Information................................... 16
FINANCIAL HIGHLIGHTS........................................ 18
</TABLE>
THE FUND WAS A CLOSED-END FUND LISTED ON THE NEW YORK STOCK EXCHANGE. THE
SHAREHOLDERS OF THE FUND HAVE APPROVED A PROPOSAL TO CONVERT THE FUND TO
OPEN-END STATUS -- TO BECOME A MUTUAL FUND. THE CONVERSION OF THE FUND TO AN
OPEN-END INVESTMENT COMPANY IS EXPECTED TO OCCUR AS OF THE DATE OF THIS
PROSPECTUS. THIS PROSPECTUS PERTAINS TO THE FUND AS AN OPEN-END INVESTMENT
COMPANY.
i
<PAGE> 3
FUND SUMMARY
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
The fund seeks long-term capital appreciation. Except as otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
The fund seeks to achieve its investment objective by investing primarily
in equity securities of European companies that in the opinion of the fund's
investment manager, are likely to benefit from economic, political, structural
and technological changes and developments in Western, Southern and Eastern
Europe.
PRINCIPAL RISK FACTORS
There are market and investment risks with any security and the value of an
investment in the fund will fluctuate over time and it is possible to lose money
invested in the fund. The principal risks of investing in the fund are:
- STOCK MARKET. The fund's returns and net asset value will go up and
down. Stock market movements will affect the fund's share price on a
daily basis. Declines in value are possible both in the overall stock
market or in the types of securities held by the fund.
- PORTFOLIO STRATEGY. The portfolio manager's skill in choosing
appropriate investments for the fund will determine in large part the
fund's ability to achieve its investment objective.
- FOREIGN SECURITIES. Investing in foreign securities involves other
considerations including limited information, higher brokerage costs,
different accounting standards and thinner trading markets as compared to
U.S. markets. In addition, investing in foreign securities, and to a
greater extent emerging markets, involves special risks including changes
in foreign currency exchange rates and political and economic
instability.
- EUROPEAN SECURITIES. The fund's performance will be affected by
political, social and economic factors affecting issuers in European
countries, including: growth of GDP or GNP, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position,
as well as interest and monetary exchange rates among European countries.
- EMERGING MARKETS. Eastern European countries and certain Southern
European countries are considered to be emerging markets. Investing in
emerging markets involves higher levels of risk, including increased
currency, information, liquidity, market, political and valuation risk.
Deficiencies in regulatory oversight, market infrastructure, shareholder
protections and company laws could expose the fund to operational and
other risks as well. Some countries may have restrictions that could
limit the fund's access to attractive opportunities. Additionally,
emerging markets often face serious problems (such as high external debt,
inflation and unemployment) that could subject the fund to increased
volatility or substantial declines in value.
- NON-DIVERSIFIED STATUS. The fund is considered a non-diversified
investment company under the Investment Company Act of 1940, as amended
(1940 Act), and is permitted to invest a greater proportion of its assets
in the securities of a smaller number of issuers than a diversified fund.
As a result, the fund may be subject to greater volatility with respect
to its portfolio securities than a fund that is more broadly diversified.
PAST PERFORMANCE
The chart and table below provide some indication of the risks of investing
in the fund by illustrating how the fund has performed and comparing this
information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.
The fund currently offers three classes of shares. Because Classes A, B and
C had not commenced operations as of December 31, 1998, the performance
information set forth below is for Class M shares only.
1
<PAGE> 4
Class M shares are no longer offered by the fund, are expected to be outstanding
for one year from the date of this prospectus and will automatically convert to
Class A shares one year after that date. The other share classes would have
substantially similar returns because the shares are invested in the same
portfolio of securities and the annual returns would differ only to the extent
that Class A, B and C do not have the same expenses.
TOTAL RETURNS FOR YEARS ENDED DECEMBER 31:
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURNS
--------------------------
<S> <C>
'1989' N/A
'1990' N/A
'1991' 3.06
'1992' -9.59
'1993' 25.62
'1994' -0.27
'1995' 18.97
'1996' 34.38
'1997' 20.03
'1998' 34.39
</TABLE>
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 27.41% (1st Quarter 1998), and the fund's lowest return for
a calendar quarter was 16.81% (3rd Quarter)*
- ---------------
* During this period, the fund operated as a closed-end investment company,
without daily sales and redemptions.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
MSCI
EUROPE
FOR PERIODS ENDED DECEMBER 31, 1998 CLASS M INDEX*
----------------------------------- ------- ------
<S> <C> <C>
One Year.................................................... 34.39% 28.53%
Five Year................................................... 20.80% 19.09%
Ten Years................................................... N/A N/A
Since Inception**........................................... 12.45% 14.47%
</TABLE>
- ---------------
* The Morgan Stanley Capital International Europe Index is an unmanaged index
that is generally representative of the equity securities of the European
markets. Index returns assume reinvestment of dividends and unlike the fund's
returns, do not reflect any fees, expenses or sales charges.
** Inception date for Class M Shares is February 16, 1990.
2
<PAGE> 5
FEE AND EXPENSE INFORMATION
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying Shares and
Special Features sections of this prospectus.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES: FEES PAID DIRECTLY FROM YOUR
INVESTMENT.
Maximum Sales Charge (Load) Imposed on Purchases (as a %
of offering price).................................... 5.75% None None None
Maximum Deferred Sales Charge (Load) (as a % of
redemption proceeds).................................. None(1) 4% 1% None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions............................... None None None None
Redemption Fee (as % of amount redeemed, if
applicable)........................................... None None None 2%(2)
Exchange Fee............................................ None None None 2%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS M
------- ------- ------- -------
<S> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES: (ESTIMATED AS A
PERCENTAGE OF AVERAGE NET ASSETS).
Management Fee.......................................... .74 .74 .74 .74
Distribution (12b-1) Fees............................... None .75 .75 None
Other Expenses.......................................... 1.01 1.16 1.13 .68
Total Annual Fund Operating Expenses(3)(4).............. 1.75 2.65 2.62 1.42
==== ==== ==== ====
</TABLE>
- ---------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
(2) A 2% redemption fee, which is retained by the fund, is imposed on all
redemptions (including redemptions paid in-kind) and exchanges of Class M
shares for a period of one year from the date of this prospectus.
(3) The fund was reorganized from a closed-end fund to an open-end fund in
September 1999. The fees and expenses of open-end funds are, in many cases,
higher than those of closed-end funds. Accordingly, the expense ratios shown
above are estimated for the fund's current fiscal year ending October 31,
1999, based on the fund's current fee schedule and expenses incurred by the
fund during its most recent fiscal year. The actual expenses for each class
of shares in future years may be more or less than the numbers in the tables
above, depending on a number of factors, including changes in actual value
of the fund's assets represented by each class of shares.
(4) Pursuant to their respective agreements with the fund, the investment
manager, the underwriter, the administrator, the accounting agent and the
transfer agent have agreed, for the one year period commencing on the date
of this prospectus, to limit their respective fees and to reimburse other
operating expenses, to the extent necessary to limit total operating
expenses of the classes of the fund to the levels set forth in the table
above. Without taking into effect these expense caps, for the Class A, Class
B, Class C and Class M shares of the fund: management fees are estimated to
be .74% (all classes); 12b-1 fees are estimated to be None, .75%, .75% and
None, respectively; Other Expenses are estimated to be 1.11%, 1.65%, 1.13%
and .68%, respectively; and total operating expenses are estimated to be
1.85%, 3.14%, 2.62% and 1.42%, respectively.
EXAMPLE
This example is to help you compare the cost of investing in the fund with
the cost of investing in other mutual funds.
3
<PAGE> 6
This example illustrates the impact of the above fees and expenses on an
account with an initial investment of $10,000, based on the expenses shown
above. It assumes a 5% annual return, the reinvestment of all dividends and
distributions and "annual fund operating expenses" remaining the same each year.
The example is hypothetical: actual fund expenses and return vary from year to
year, and may be higher or lower than those shown.
FEES AND EXPENSES IF YOU SOLD SHARES AFTER:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year................................................... $ 746 $ 717 $ 347
3 Years.................................................. $1,106 $1,269 $ 761
5 Years.................................................. $1,489 $1,845 $1,301
10 Years................................................. $2,559 $2,845 $2,776
</TABLE>
FEES AND EXPENSES IF YOU DID NOT SELL YOUR SHARES:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
1 Year................................................... $ 746 $ 317 $ 247
3 Years.................................................. $1,106 $ 969 $ 761
5 Years.................................................. $1,489 $1,645 $1,301
10 Years................................................. $2,559 $2,845 $2,776
</TABLE>
4
<PAGE> 7
ABOUT THE FUND
OPEN-ENDING AND REORGANIZATION
The fund began operations on February 9, 1990 as a closed-end management
investment company. On July 20, 1999, the fund's shareholders approved the
conversion of the fund to an open-end investment company. As a result of a
reorganization, with Kemper Europe Fund, the fund changed its name to "Kemper
Europe Fund, Inc." and issued newly designated Class A, Class B and Class C
shares to the shareholders of Kemper Europe Fund and Class M shares to its
existing shareholders. Class M shares will automatically convert to Class A
shares one year after the date of this prospectus.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the fund will invest at least 65% of its total
assets in equity securities of European companies and intends to allocate its
investments among at least three countries at all times. The fund considers an
issuer of securities to be a European company if:
- the company is organized under the laws of a European country and has a
principal office in a European country; or
- the company derives 50% or more of its total revenues from business in
Europe; or
- the company's equity securities are traded principally in European
securities markets.
Equity securities that may be purchased by the fund include:
- common and preferred stocks;
- depository receipts;
- debt securities convertible into common stock;
- common stock purchase warrants and rights; and
- joint venture interests and general and limited partnership interests.
The fund will invest in established markets and companies with large
capitalizations as well as newer markets and smaller companies, and the portion
of the fund's assets invested in each will vary from time to time. The fund
expects, however, to invest the majority of its assets in the more established
and liquid markets of Western and Southern Europe. These countries include:
Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Ireland, Italy,
Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland and the United
Kingdom.
To enhance return, the fund may also pursue investment opportunities in the
less wealthy nations of Southern Europe, currently Greece, Portugal and Turkey,
and the former Communist countries once part of the Soviet Union. The fund may
invest in other European countries if opportunities arise. To a lesser extent,
the fund may also invest in "Specialized Investments" which include equity
securities of:
- privately-held and small European companies;
- companies and joint ventures based in Eastern Europe;
- European companies that have recently made initial public offerings of
their shares; and
- European companies that, in the public market, are selling at a
significant discount to their "private market value" (i.e., the value the
fund's investment manager believes informed investors would be willing to
pay to acquire such companies).
In choosing investments, the fund's investment manager will focus on
European companies that:
- generate or apply new technologies, distribution systems or services;
- expect to benefit from changing consumer demands or lifestyles;
5
<PAGE> 8
- have prospects for above-average earnings growth; or
- are undervalued due to market misperception, temporary negative
developments, limited investor familiarity or other factors.
In addition to the above, the fund's investment manager will also consider
other factors in selecting portfolio investments for the fund.
OTHER INVESTMENTS
The fund may invest up to 20% of its total assets in European debt
securities. Within this 20% limit, the fund may invest in debt securities which
are rated below Baa by Moody's Investors Service, Inc. or below BBB by Standard
& Poor's or unrated securities of comparable quality as determined by the
investment manager. Below-investment grade securities are commonly referred to
as "junk bonds."
The fund may invest in when-issued securities, illiquid and restricted
securities and convertible securities and may enter into repurchase agreements
and reverse repurchase agreements. The fund may also invest in investment
companies that invest primarily in equity securities of European companies.
To a limited extent, the fund may engage in other investment practices.
RISK MANAGEMENT STRATEGIES
The fund may use certain derivatives (investments whose value is based on
indices or other securities) to protect against or otherwise cushion price
declines in the value of the fund's portfolio, to manage the effective maturity
or duration of fixed-income securities in the fund's portfolio or to enhance
potential gain. These instruments include:
- options on securities, equity and fixed-income indices and other
financial instruments;
- financial futures and related options;
- interest rate transactions (i.e., swaps, caps, floors and collars); and
- currency transactions (i.e., currency forward contracts, currency futures
contracts, currency swaps and options on currencies and currency
futures).
The fund is not obligated to pursue any hedging strategy. In addition,
hedging practices may not be available, may be too costly to be used effectively
or may be unable to be used for other reasons. The fund is limited to 5% of net
assets for initial margin and premium amounts on futures positions considered
speculative by the Commodities Futures Trading Commission.
Under unusual circumstances, the fund may invest up to 100% of its assets
in short and medium term high-grade debt securities, cash and cash equivalents
for temporary defensive purposes and up to 20% to maintain liquidity. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goal during a defensive period.
MAIN RISKS -- GENERALLY
Foreign investments, particularly investments in emerging markets, carry
added risks due to inadequate or inaccurate financial information about
companies, potential political disturbances and fluctuations in currency
exchange rates. In addition, the investment manager's choice of countries,
market sectors or specific investments may not perform as well as expected, and
the fund could underperform its peers or lose money.
TYPES OF INVESTMENT RISK
ACCESS RISK. The risk that some countries may restrict the fund's access
to investments or offer terms that are less advantageous than those for local
investors. This could limit the attractive investment opportunities available to
the fund.
6
<PAGE> 9
CORRELATION RISK. The risk that the relationships between markets are not
contemplated in the investment decision-making process. Incomplete correlation,
or inaccurately forecasted correlation, can result in unanticipated risks.
CREDIT RISK. The risk that the issuer of a security, or the counterparty
to a contract, will default or otherwise become unable to honor a financial
obligation.
EXPOSURE RISK. The risk associated with techniques that increase the
fund's exposure to a security, index or its investment portfolio. Exposure is
the fund's maximum potential gain or loss from an investment. Certain
investments (such as options and futures) may have the effect of magnifying
declines as well as increases in the fund's net asset value. Losses from writing
options and entering into futures can be unlimited.
INTEREST RATE RISK. Changes in interest rates may cause a decline in an
investment's market value. With bonds and other fixed income securities, a rise
in interest rates typically causes a fall in values, while a fall in interest
rates typically causes a rise in values.
LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that the fund would like. The fund
may have to lower the price, sell other securities instead or forego an
investment opportunity. Any of these could have a negative effect on fund
management or performance.
LOWER RATED SECURITIES. These securities carry a higher risk that the
issuer will be unable to pay principal and interest when due, and the market to
sell such securities may be limited.
OPERATIONAL RISK. The risk that some countries may have less developed
securities markets (and related transaction, registration and custody
practices). Related to this factor is the concern that reliance on computer
systems not Year 2000 compliant could severely hamper a marketplace's ability to
handle securities transactions.
RISKS OF DERIVATIVE INSTRUMENTS. The use of these instruments requires
special skills, knowledge and investment techniques that differ from those
required for normal portfolio management. The success of the fund in selecting
these instruments for its portfolio depends on the skill of the investment
manager in predicting the movement of interest rates, the value of particular
instruments and other economic variables. There is no assurance that the
investment manager will accurately predict these movements.
TRADING LIMIT AND TRADING HALT RISK. Exchanges on which options and
futures contracts are traded have established limits on how much an option or
futures contract may decline over various time periods within a day. If an
option or futures contract's price declines more than the established limits, no
trading may occur at prices outside that limit. If a trading limit is reached
before the close of a trading day, the fund may not be able to purchase or sell
options or futures contracts at advantageous prices or at all. In such an event,
the fund also may be required to use a "fair-value" method to price its
outstanding contracts.
VALUATION RISK. The risk that the fund has valued certain of its
securities at a higher price that it can sell them for.
INVESTMENT MANAGER
The fund retains the investment management firm of Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, New York, to manage its daily
investment and business affairs subject to the policies established by the
fund's Board. Scudder Kemper Investments, Inc. actively manages the fund's
investments. Professional management can be an important advantage for investors
who do not have the time or expertise to invest directly in individual
securities. Scudder Kemper Investments, Inc. is one of the largest and most
experienced investment management organizations worldwide, managing more than
$280 billion in assets globally for mutual fund investors, retirement and
pension plans, institutional and corporate clients, and private family and
individual accounts.
7
<PAGE> 10
The fund pays the investment manager a (graduated) monthly investment
management fee at the following rate:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT
AVERAGE DAILY NET ASSETS OF THE FUND FEE RATES
- ------------------------------------ -----------------
<S> <C>
$0 -- $250 million....................................... 0.75%
$250 million -- $1 billion............................... 0.72
$1 billion -- $2.5 billion............................... 0.70
$2.5 billion -- $5 billion............................... 0.68
$5 billion -- $7.5 billion............................... 0.65
$7.5 billion -- $10 billion.............................. 0.64
$10 billion -- $12.5 billion............................. 0.63
Over $12.5 billion....................................... 0.62
</TABLE>
For the fiscal year ended October 31, 1998, the investment manager received
an investment management fee of $4,151,077, which was based upon the fund's
prior (higher) investment management fee schedule.
PORTFOLIO MANAGEMENT
The fund is managed by a team of investment professionals who each play an
important role in the fund's management process. Team members work together to
develop investment strategies and select securities for the fund's portfolio.
They are supported by the investment manager's large staff of economists,
research analysts, traders and other investment specialists who work in the
investment manager's offices across the United States and abroad. The investment
manager believes its team approach benefits fund investors by bringing together
many disciplines and leveraging its extensive resources.
The following investment professionals are associated with the fund:
<TABLE>
<CAPTION>
JOINED
NAME & TITLE THE FUND BACKGROUND
- ------------ -------- ----------
<S> <C> <C>
Carol L. Franklin 19 Joined Scudder Kemper in 1981 as a portfolio manager.
Lead Portfolio Manager She is a member of the firm's Global Equity Group and
is a portfolio manager for other affiliated
international mutual funds. She began her investment
career in 1975. Prior to joining Scudder Kemper, she
worked for an unaffiliated investment management
company.
Joan R. Gregory 19 Joined Scudder Kemper in 1992. She is a member of the
Portfolio Manager firm's Global Equity Group and is on the portfolio
management teams for other affiliated international
mutual funds. She began her investment career in 1989.
Prior to joining Scudder Kemper, she worked in the
international investment department at a bank.
Marc Slendebroek 19 Joined Scudder Kemper in 1994 as a European equity
Portfolio Manager analyst. He is an International Portfolio Manager at
Scudder Investments, UK Ltd., an affiliated investment
management company. He began his investment career in
1990. Prior to joining Scudder Kemper, he worked for an
unaffiliated investment management company responsible
for the Dutch equity research product.
</TABLE>
YEAR 2000 READINESS
Like other mutual funds and financial and business organizations worldwide,
the fund could be adversely affected if computer systems on which it relies,
which primarily include those used by the investment manager, its affiliates or
other service providers, are unable to process correctly date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to address successfully the Year 2000 Issue could result in
interruptions to and other material adverse effects on the fund's business and
operations, such as problems with calculating net asset value and difficulties
in implementing the fund's
8
<PAGE> 11
purchase and redemption procedures. The investment manager has commenced a
review of the Year 2000 Issue as it may affect the fund and is taking steps it
believes are reasonably designed to address the Year 2000 issue, although there
can be no assurances that these steps will be sufficient. In addition, there can
be no assurances that the Year 2000 Issue will not have an adverse effect on the
issuers whose securities are held by the fund or on global markets or economies
generally.
EURO CONVERSION
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operations of the fund. The Euro
was introduced on January 1, 1999, by eleven European countries that are members
of the European Economic and Monetary Union (EMU). The introduction of the Euro
will require the redenomination of European debt and equity securities over a
period of time, which may result in various accounting differences and/or tax
treatments. Additional questions are raised by the fact that certain other EMU
members, including the United Kingdom, did not officially implement the Euro on
January 1, 1999.
The investment manager is actively working to address Euro-related issues
and understands that other key service providers are taking similar steps. At
this time, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on the fund's holdings is negative, the
fund's performance could be hurt.
ABOUT YOUR INVESTMENT
CHOOSING A SHARE CLASS
The fund provides investors with the option of purchasing shares in the
following ways:
CLASS A SHARES............. Offered at net asset value plus a maximum sales
charge of 5.75% of the offering price.
Reduced sales charges apply to purchases of $50,000
or more. Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege
may be subject to a 1% contingent deferred sales
charge if redeemed within one year of purchase and
a 0.50% contingent deferred sales charge if
redeemed during the second year of purchase.
CLASS B SHARES............. Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee and a contingent deferred sales
charge that declines from 4% to zero on certain
redemptions made within six years of purchase.
Class B shares automatically convert into Class A
shares (which have lower ongoing expenses) six
years after purchase.
CLASS C SHARES............. Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee and a 1% contingent deferred sales
charge on redemptions made within one year of
purchase. Class C shares do not convert into
another class.
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 one year
after the date of this prospectus.
When placing purchase orders, investors must specify whether the order is
for Class A, Class B or Class C shares. Each class of shares represents
interests in the same portfolio of investments of the fund.
9
<PAGE> 12
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. For more information about these sales
arrangements, consult your financial representative or Kemper Distributors, Inc.
Be aware that financial services firms may receive different compensation
depending upon which class of shares they sell.
RULE 12b-1 PLAN
The fund has adopted a plan under Rule 12b-1 that provides for fees payable
as an expense of the Class B shares and the Class C shares that are used by the
principal underwriter to pay for distribution and services for those classes.
Rule 12b-1 fees are not imposed on Class A or Class M shares. Because fees are
paid out of fund assets on an ongoing basis, they will, over time, increase the
cost of investment and may cost more than other types of sales charges.
Long-term shareholders may pay more than the economic equivalent of the maximum
initial sales charges permitted by the National Association of Securities
Dealers, although Kemper Distributors, Inc. believes that it is unlikely, in the
case of Class B shares, because of the automatic conversion feature of the
shares.
SPECIAL FEATURES
CLASS A SHARES -- COMBINED PURCHASES. The fund's Class A shares may be
purchased at the rate applicable to the discount bracket attained by combining
concurrent investments in Class A shares of most Kemper Funds.
CLASS A SHARES -- LETTER OF INTENT. The same reduced sales charges for
Class A shares also apply to the aggregate amount of purchases made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by Kemper Distributors, Inc. 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.
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 most 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.
EXCHANGE PRIVILEGE -- GENERAL. Shareholders of Class A, Class B and Class
C shares may exchange their shares for shares of the corresponding class of
Kemper Mutual Funds. Class M shareholders may exchange their shares for Class A
shares of a Kemper Mutual Fund and may only exchange shares in an amount less
than $250,000. A 2% fee will apply to any exchange of Class M shares and will be
retained by the fund for the benefit of the remaining shareholders (see
"Redemption Fee" below). Shares of a Kemper Fund with a value in excess of
$1,000,000 (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 (the "15-Day Hold Policy"). Shares of a Kemper
Fund with a value of $1,000,000 or less (except Kemper Cash Reserve Fund)
acquired by exchange from another Kemper Fund or a Money Market Fund may not be
exchanged thereafter until they have been owned for 15 days, if, in the
investment manager's judgment, the exchange activity may have an adverse effect
on the fund. In particular, a pattern of exchanges that coincides with a
"market-timing" strategy may be disruptive to the 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.
For purposes of determining any contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
10
<PAGE> 13
BUYING SHARES
You may purchase shares of the fund by contacting the securities dealer or
other financial services firm from whom you received this prospectus.
CLASS A SHARES
PUBLIC OFFERING PRICE, INCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE
----------------------------------
AS A % OF AS A % OF NET
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED*
- ------------------ -------------- ----------------
<S> <C> <C>
Less than $50,000....................................... 5.75% 6.10%
$50,000 but less than $100,000.......................... 4.50 4.71
$100,000 but less than $250,000......................... 3.50 3.63
$250,000 but less than $500,000......................... 2.60 2.67
$500,000 but less than $1 million....................... 2.00 2.04
$1 million and over..................................... 0.00**
</TABLE>
- ---------------
* Rounded to nearest one hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
NAV PURCHASES
Class A shares of the fund may be purchased at net asset value by:
- shareholders in connection with the investment or reinvestment of income
and capital gain dividends;
- a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by
a K-12 school district, provided in each case that such plan has not less
than 200 eligible employees;
- any purchaser with Kemper Funds investment totals of at least $1,000,000;
- unitholders of unit investment trusts sponsored by Ranson & Associates,
Inc. or its predecessors through reinvestment programs described in the
prospectuses of such trusts that have such programs;
- officers, 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, any trust, pension, profit-sharing or other benefit plan
for only such persons;
- persons who purchase shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm;
- registered representatives and employees of broker-dealers having selling
group agreements with Kemper Distributors, Inc., any trust, pension,
profit-sharing or other benefit plan for only such persons;
- officers, directors, and employees of service agents of the fund;
- 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);
- selected employees (including their spouses and dependent children) of
banks and other financial services firms that provide administrative
services related to the fund pursuant to an agreement with Kemper
Distributors, Inc. or one of its affiliates;
- certain professionals who assist in the promotion of Kemper Funds
pursuant to personal services contracts with Kemper Distributors, Inc.,
for themselves or members of their families;
11
<PAGE> 14
- in connection with the acquisition of the assets of or merger or
consolidation with another investment company;
- 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, any trust, pension, profit-sharing or other
benefit plan for only such persons;
- persons who purchase shares of the fund through Kemper Distributors, Inc.
as part of an automated billing and wage deduction program administered
by RewardsPlus of America;
- 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
Kemper Distributors, Inc., including a requirement that such shares be
sold for the benefit of their clients participating in an investment
advisory program or agency commission program under which such clients
pay a fee to the investment advisor or other firm for portfolio
management or agency brokerage services.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be imposed upon redemption of Class
A shares purchased under the Large Order NAV Purchase Privilege as follows: 1%
if they are redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
- redemptions under the fund's Systematic Withdrawal Plan at a maximum of
10% per year of the net asset value of the account;
- redemption of shares of a shareholder (including a registered joint
owner) who has died;
- 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);
- redemptions by a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by
a K-12 school district;
- redemptions by employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder
Service Agent or its affiliates;
- redemptions of shares whose dealer of record at the time of the
investment notifies Kemper Distributors, Inc. that the dealer waives the
commission applicable to such Large Order NAV Purchase.
RULE 12B-1 FEE
None
EXCHANGE PRIVILEGE
Class A shares may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase Privilege may
be exchanged for Class A shares of any Kemper Fund or a Money Market Fund
without paying any contingent deferred sales charge. If
12
<PAGE> 15
the Class A shares received on exchange are redeemed thereafter, a contingent
deferred sales charge may be imposed.
CLASS B SHARES
PUBLIC OFFERING PRICE
Net asset value per share without any sales charge at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE
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. The charge is computed at the following rates applied to
the value of the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
YEAR OF REDEMPTION AFTER PURCHASE: FIRST SECOND THIRD FOURTH FIFTH SIXTH
- ---------------------------------- ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Contingent Deferred Sales Charge:....................... 4% 3% 3% 2% 2% 1%
</TABLE>
The contingent deferred sales charge will be waived:
- 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);
- 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 Section
72(t)(2)(A)(iv) of the Internal Revenue Code of 1986, as amended (Code)
prior to age 59 1/2;
- for redemptions made pursuant to a systematic withdrawal plan;
- 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;
- in the event of the death of the shareholder (including a registered
joint owner).
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:
- 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);
- redemptions in connection with retirement distributions (limited at any
one time to 10% of the total value of plan assets invested in the fund);
- redemptions in connection with distributions qualifying under the
hardship provisions of the Code;
- redemptions representing returns of excess contributions to such plans.
RULE 12B-1 FEE
0.75%
CONVERSION FEATURE
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. 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.
13
<PAGE> 16
EXCHANGE PRIVILEGE
Class B shares of the fund and Class B shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without a contingent
deferred sales charge.
CLASS C SHARES
PUBLIC OFFERING PRICE
Net asset value per share without any sales charge at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge of 1% may be imposed upon redemption of
Class C shares redeemed within one year of purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
contingent deferred sales charge will be waived in the event of:
- redemptions by a participant-directed qualified retirement plan described
in Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457;
- redemption by employer sponsored employee benefit plans (or their
participants) using the subaccount record keeping system made available
through the Shareholder Service Agent or its affiliates;
- redemption of shares of a shareholder (including a registered joint
owner) who has died;
- 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);
- redemptions under the fund's systematic withdrawal plan at a maximum of
10% per year of the net asset value of the account;
- redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has
waived the advance on the first year administrative service and
distribution fees applicable to such shares and agrees to receive such
fees quarterly;
- redemption of shares purchased through a dealer-sponsored asset
allocation program maintained on an omnibus record-keeping system
provided the dealer of record has waived the advance of the first year
administrative services and distribution fees applicable to such shares
and has agreed to receive such fees quarterly.
RULE 12B-1 FEE
0.75%
CONVERSION FEATURE
None
EXCHANGE PRIVILEGE
Class C shares of the fund and Class C shares of most Kemper Funds may be
exchanged for each other at their relative net asset value without paying any
contingent deferred sales charge.
SELLING AND EXCHANGING SHARES
GENERAL
Contact your securities dealer or other financial services firm to arrange
for share redemptions or exchanges.
14
<PAGE> 17
Any shareholder may require the fund to redeem his or her shares. When
shares are held for the account of a shareholder by the fund's transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.
Any exchange of shares entails the sale of fund shares and subsequent
purchase of shares of another Kemper Mutual Fund.
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 investment is received. For example, an investment made in
December, 1998 will be eligible for the second year's charge if redeemed on or
after December 1, 1999. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares presenting reinvested dividends and then from the
earliest purchase of shares. Kemper Distributors, Inc. receives any contingent
deferred sales charges directly.
SHARE CERTIFICATES
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Services Company, 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.
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.
REINVESTMENT PRIVILEGE
Under certain circumstances, a shareholder who has redeemed Class A shares
may reinvest up to the full amount redeemed at net asset value at the time of
the reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The fund normally distributes dividends of net investment income annually.
The fund distributes any net realized short-term and long-term capital gains at
least annually.
Income and capital gains dividends, if any, of the fund will be credited to
shareholder accounts in full and fractional shares of the same class of the fund
at net asset value on the reinvestment date (with the exception of Class M
shareholders who will receive Class A shares of the fund), except that, upon
written request to the Shareholder Service Agent, Kemper Services Company, a
shareholder may select one of the following options:
(1) To receive income and short-term capital gains dividends in cash and
long-term capital gains dividends in shares of the same class at net
asset value; or
(2) To receive income and capital gains dividends in cash.
Any dividends of the fund that are reinvested will normally be reinvested
in shares of the same class of the fund, except for Class M shareholders who
will receive Class A shares of the fund. However, by writing to the Shareholder
Service Agent, you may choose to have dividends of the fund invested in shares
of the same
15
<PAGE> 18
class of another Kemper fund at the net asset value of that class and fund. To
use this privilege, you must maintain a minimum account value of $1,000 in the
fund distributing the dividends. The fund will reinvest dividend checks (and
future dividends) in shares of the same class of the fund if checks are returned
as undeliverable. Dividends and other distributions in the aggregate amount of
$10 or less are automatically reinvested in shares of the fund unless you
request that such policy not be applied to your account.
Distributions are generally taxable, whether received in cash or
reinvested.
TAXES
Dividends representing net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individual shareholders as long-term capital gains, regardless of the length of
time shareholders have owned shares. Short-term capital gains and any other
taxable income distributions are taxable to you as ordinary income. A portion of
dividends from ordinary income may qualify for the dividends-received deduction
for corporations.
A dividend received shortly after the purchase of shares reduces the net
asset value of the shares by the amount of the dividend and, although in effect
a return of capital, is taxable to you.
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 are taxable to you as if paid on December 31 of the calendar year in
which they were declared.
A sale or exchange of your shares is a taxable event and may result in a
capital gain or loss which may be long-term or short-term, generally depending
on how long you owned the shares. Shareholders of the fund may be subject to
state, local and foreign taxes on fund distributions and redemptions of fund
shares. You should consult your tax advisor regarding the particular tax
consequences of an investment in the fund.
The fund sends you detailed tax information about the amount and type of
its distributions by January 31 of the following year. In certain years, you may
be able to claim a credit or deduction on your income tax return for your share
of foreign taxes paid by the fund.
The fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions and redemption proceeds payable to you if you
fail to provide the fund your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal Revenue
Service that you are subject to backup withholding. Any such withheld amounts
may be credited against your U.S. federal income tax liability.
TRANSACTION INFORMATION
SHARE PRICE
Scudder Fund Accounting Corporation determines the net asset value per
share of the fund as of the close of regular trading on the New York Stock
Exchange normally 4:00 p.m. eastern time, on each day the New York Stock
Exchange is open for trading. Market prices are used to determine the value of
the fund's assets. If market prices are not readily available for a security or
if a security's price is not considered to be market indicative, that security
may be valued by another method that the Board or its delegate believes
accurately reflects fair value. In those circumstances where a security's price
is not considered to be market indicative, the security's valuation may differ
from an available market quotation.
The net asset value per share of the fund is the value of one share and is
determined separately for each class by dividing the value of the fund's net
assets attributable to that class, less all liabilities of that class, by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of the fund will generally be lower than that of the
Class A and M shares of the fund because of the higher annual expenses borne by
the Class B and Class C shares.
16
<PAGE> 19
To the extent that the fund invests in foreign securities, these securities
may be listed on foreign exchanges that trade on days when the fund does not
price its shares. As a result, the net asset value per share of the fund may
change at a time when shareholders are not able to purchase or redeem their
shares.
REDEMPTION FEE (CLASS M SHARES)
Upon the redemption or exchange of Class M shares of the fund (including
redemptions in-kind) for a period of one year from the date of this prospectus,
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,
is not a commission paid to the investment manager or its subsidiaries, and does
not benefit the investment manager in any way. 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.
PROCESSING TIME
All requests to buy and sell shares that are received in good order by the
fund's transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load, contingent deferred
sales charge or redemption fee). Orders received by dealers or other financial
services firms prior to the determination of net asset value and received by the
fund's transfer agent prior to the close of its business day will be confirmed
at a price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable
but in no event later than seven days after receipt of a properly executed
request. If you have share certificates, these must accompany your order in
proper form for transfer. When you place an order to sell shares for which the
fund may not yet have received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), the fund may delay transmittal of the
proceeds until it has determined that collected funds have been received for the
purchase of such shares. This may be up to 10 days from receipt by the fund of
the purchase amount. The redemption of shares within certain time periods may be
subject to contingent deferred sales charges, as noted above.
SIGNATURE GUARANTEES
A signature guarantee is required when you sell $50,000 or less worth of
shares (prior to the imposition of any contingent deferred sales charge) and the
proceeds are payable to the shareholder of record at the address of record. You
can obtain a guarantee from most brokerage houses and financial institutions,
although not from a notary public. The fund will normally send you the proceeds
within one business day following your request, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
PURCHASE RESTRICTIONS
Purchase and sales should be made for long-term investment purposes only.
The fund and its transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in the fund's share price. The fund reserves the right
to withdraw all or any part of the offering made by this prospectus and to
reject purchase orders. Also, from time to time, the fund may temporarily
suspend the offering of its shares or a class of its shares to new investors.
During the period of such suspension, persons who are already shareholders
normally are permitted to continue to purchase additional shares and to have
dividends reinvested.
17
<PAGE> 20
MINIMUM BALANCES
The minimum initial investment for the fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an IRA 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.
Because of the high cost of maintaining small accounts, the fund may assess
a quarterly fee of $9 on an account with a balance below $1,000 for the quarter
which will be collected automatically by the fund from the shareholder's
account. The fee will not apply to accounts enrolled in an automatic investment
program, IRAs or employer sponsored employee benefit plans using the subaccount
record keeping system made available through the Shareholder Service Agent.
THIRD PARTY TRANSACTIONS
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than the fund's distributor),
that member may charge a fee for that service. This prospectus should be read in
connection with such firm's material regarding its fees and services.
REDEMPTIONS IN-KIND
The fund reserves the right to honor any request for redemption or
repurchases by making payment in whole or in part in readily marketable
securities ("redemption in-kind"). These securities will be chosen by the fund
and valued as they are for purposes of computing the fund's net asset value. A
shareholder may incur transaction expenses in converting these securities to
cash.
With respect to Class M shareholders, all large redemption requests (i.e.,
redemptions exceeding $250,000) will be redeemed in-kind, and like all
redemptions of Class M shares, will be subject to a 2% redemption fee on the
current net asset value of the shares. Shareholders whose redemptions are
effected in-kind may bear expenses in excess of 1% of the net asset value of the
shares redeemed, which expenses are in addition to any applicable redemption
fee. No redemption requests subject to in-kind redemption may be made other than
by a written request accompanied by a properly completed redemption and
certification form, which is available from Kemper Service Company.
FINANCIAL HIGHLIGHTS
The table below is intended to help you understand the fund's financial
performance for the periods reflected below. Certain information reflects the
financial results for a single fund share. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by PricewaterhouseCoopers LLP
whose report, along with the fund's financial statements, is included in the
fund's annual report, which is available upon request by calling Kemper at
1-800-621-1048.
Prior to the date of this prospectus, the fund operated as a closed-end
management investment company that had one class of shares. Accordingly, the
following table shows financial information for the fund's original share class
(Class M) expressed in terms of one share outstanding throughout the relevant
period, and reflects the operations of the fund as a closed-end investment
company. Financial information is not available for the fund's Class A, B and C
shares since the reorganization of the fund took place after the close of the
fund's most recent fiscal year. The fund's performance may have been lower if it
had operated as an open-end fund during this period.
[TO BE COMPLETED BY SCUDDER KEMPER]
Additional information about the fund may be found in the fund's STATEMENT
OF ADDITIONAL INFORMATION, the SHAREHOLDER SERVICES GUIDE and in SHAREHOLDER
REPORTS. Shareholder inquiries may be made by calling the toll-free telephone
number listed below. The Statement of Additional Information contains more
detailed
18
<PAGE> 21
information on fund investments and operations. The Shareholder Services Guide
contains information about purchases and sales of fund shares. The semiannual
and annual shareholder reports contain a discussion of the market conditions and
the investment strategies that significantly affected the fund's performance
during the last fiscal year, as well as a listing of portfolio holdings and
financial statements. These and other fund documents may be obtained without
charge from the following sources:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CALL THE KEMPER FUNDS AT:
BY TELEPHONE 1-800-621-1048
- --------------------------------------------------------------------------------------------
<S> <C>
In Person Public Reference Room
Securities and Exchange Commission
Washington, D.C.
(Call 1-800-SEC-0330 for more
information).
- --------------------------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section,
Securities and Exchange Commission,
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------------------
By Internet http://www.sec.gov
http://www.kemper.com
- --------------------------------------------------------------------------------------------
</TABLE>
The Statement of Additional Information dated , 1999 is incorporated
by reference into this prospectus (is legally a part of this prospectus).
INVESTMENT COMPANY ACT FILE NUMBER: 811-5969
19
<PAGE> 1
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED APRIL 28, 1999
STATEMENT OF ADDITIONAL INFORMATION
, 1999
KEMPER EUROPE FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the prospectus of the Kemper Europe Fund, Inc. (the
"Fund") dated , 1999. The prospectus may be obtained without charge
from the Fund and is also available along with other related materials on the
SEC's Internet web site (http://www.sec.gov).
The Fund was a closed-end fund whose shares were listed on the New York
Stock Exchange, Inc. The shareholders of the Fund have approved a proposal to
open-end the Fund. The conversion of the Fund to an open-end investment company
is expected to occur as of the date of this Statement of Additional Information.
This Statement of Additional Information pertains to the Fund as an open-end
investment company.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT RESTRICTIONS..................................... 1
INVESTMENT OBJECTIVE AND POLICIES........................... 2
CERTAIN INVESTMENT PRACTICES................................ 4
DIVIDENDS AND TAXES......................................... 18
NET ASSET VALUE............................................. 22
PERFORMANCE................................................. 23
INVESTMENT MANAGER AND UNDERWRITER.......................... 26
PORTFOLIO TRANSACTIONS...................................... 30
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES............... 31
REDEMPTION OR REPURCHASE OF SHARES.......................... 37
SPECIAL FEATURES............................................ 42
OFFICERS AND DIRECTORS...................................... 46
ORGANIZATION OF THE FUND.................................... 48
</TABLE>
The financial statements appearing in the Fund's Annual Report to
Shareholders are incorporated herein by reference. The Report for the Fund
accompanies this document.
PRINTED
ON RECYCLED PAPER
i
<PAGE> 3
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which,
together with the investment objective and fundamental policies of the Fund,
cannot be changed without approval of a "majority" of its outstanding voting
securities. 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.
The Fund is classified as a non-diversified open-end management company.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as
may be necessary or routine for clearance of transactions and the
maintenance of margin with respect to futures and forward contracts.
2. Make short sales of securities, except short sales against the
box.
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow money as permitted under the 1940 Act, as
interpreted or modified by regulatory authority having jurisdiction from
time to time, and may also pledge its assets to secure such borrowings. For
the purposes of this investment restriction, collateral arrangements with
respect to the writing of options or the purchase or sale of futures
contracts are not deemed a pledge of assets or the issuance of a senior
security.
4. Invest more than 25% of the total value of its assets in a
particular industry; provided, however, that the foregoing restriction
shall not be deemed to prohibit the Fund from purchasing the securities of
any issuer pursuant to the exercise of rights distributed to the Fund by
the issuer, except that no such purchase may be made if as a result the
Fund will fail to meet the diversification requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). This restriction does not
apply to securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities, but will apply to foreign government
obligations unless the U.S. Securities and Exchange Commission (the "SEC")
permits their exclusion.
5. Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under applicable securities laws.
6. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities that
are secured by real estate or commodities and securities of companies that
invest or deal in real estate or commodities, may purchase and sell futures
contracts and related options on stock indices and currencies, may enter
into forward currency exchange contracts, may write options on stocks and
may purchase and sell options on currencies and stock indexes.
7. Make loans, provided that the Fund may (a) acquire debt securities
as described herein, (b) enter into repurchase agreements and (c) lend
portfolio securities in an amount not to exceed 25% of the Fund's total
assets.
The following additional restrictions are not fundamental policies of the
Fund and may be changed by the Board of Directors.
The Fund may not:
1. Borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging in
reverse repurchase agreements, dollar rolls, or other investments or
transactions described in the Fund's registration statement which may be
deemed to be borrowings.
2. Enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets.
<PAGE> 4
3. Purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total assets;
or sell put options, if as a result the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets.
4. Enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial margin
with respect to such futures contracts entered into on behalf of the Fund
and the premiums paid for such options on futures contracts 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.
5. Purchase warrants if as a result such securities, taken at the
lower of cost or market value, would represent more than 5% of the value of
the Fund's total assets (for this purpose, warrants acquired in units or
attached to securities will be deemed to have no value).
6. Lend portfolio securities in an amount greater than 5% of its
total assets.
7. Make investments for the purpose of exercising control or
management. Substantial stock ownership may occasionally confer on the Fund
the ability to influence policies of portfolio companies. In addition, the
Fund's management may consult with and advise the management of portfolio
companies with respect to the operating and financial policies of such
companies.
8. Participate on a joint and several basis in any trading account in
securities.
9. Purchase any security (other than obligations of the U.S.
government, its agencies or instrumentalities) if, as a result, more than
10% of the Fund's total assets (taken at current value) would then be
invested in securities of any single issuer. The exercise of stock
subscription rights or conversion rights is not deemed to be a purchase for
purposes of this restriction.
10. Invest more than 15% of its assets in illiquid securities.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation,
which it seeks to achieve by investing primarily in equity securities of
European companies.
The Fund will invest in both the industrialized nations of Western Europe
and the less wealthy or developed countries in Southern and Eastern Europe. The
Fund will invest in established markets and companies with large capitalizations
as well as newer markets and smaller companies, and the portion of the Fund's
assets invested in each will vary from time to time. The Fund seeks to benefit
from accelerating economic growth transformation and deregulation taking hold in
Europe. These developments involve, among other things, increased privatizations
and corporate restructurings, the reopening of equity markets and economies in
Eastern Europe, further broadening of the European Union, and the implementation
of economic policies to promote non-inflationary growth. The Fund invests in
companies it believes are well placed to benefit from these and other structural
and cyclical changes now underway in this region.
Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
The Fund will invest, under normal market conditions, at least 65% of its
total assets in the equity securities of European companies. The Fund defines a
European company as: (i) a company organized under the laws of a European
country and that has a principal office in a European country; or (ii) a
company, wherever organized, where at least 50% of the company's non-current
assets, capitalization, gross revenue or profit in its most recent fiscal year
represents (directly or indirectly through subsidiaries) assets or activities
located in Europe; or (iii) a company whose equity securities are traded
principally in European securities markets. The Fund's definition of European
companies may include companies that have characteristics and business
relationships common to companies in other regions. As a result, the value of
the securities of such
2
<PAGE> 5
companies may reflect economic and market forces applicable to other regions, as
well as to Europe. The Fund believes, however, that investment in such companies
will be appropriate in light of the Fund's investment objective, because Scudder
Kemper Investments, Inc. (the "Adviser") will select among such companies only
those which, in its view, have sufficiently strong exposure to economic and
market forces in Europe such that their value will tend to reflect European
developments to a greater extent than developments in other regions. For
example, the Adviser may invest in companies organized and located in the U.S.
or other countries outside of Europe, including companies having their entire
production facilities outside of Europe, when such companies meet one or more
elements of the Fund's definition of European companies so long as the Adviser
believes at the time of investment that the value of the company's securities
will reflect principally conditions in Europe.
The Fund expects the majority of its equity assets to be invested in the
more established and liquid markets of Western and Southern Europe. These more
established Western and Southern European countries include: Austria, Belgium,
Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom. To
enhance return potential, however, the Fund may pursue investment opportunities
in the less wealthy nations of Southern Europe, currently Greece, Portugal and
Turkey, and the former communist countries of Eastern Europe, including
countries once part of the Soviet Union. The Fund may invest in other countries
of Europe when their markets become sufficiently developed, in the opinion of
the Adviser.
The Fund intends to allocate its investments among at least three countries
at all times. The Fund's equity investments may consist of: common stock,
preferred stock (convertible or non-convertible), depositary receipts (sponsored
or unsponsored) and warrants. These may be illiquid securities. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter ("OTC")or have no organized
market. In addition, the Fund may engage in strategic transactions, including
derivatives.
The Fund may invest, under normal market conditions, up to 20% of its total
assets in European debt securities. Capital appreciation in debt securities may
arise from a favorable change in relative interest rate levels or in the
creditworthiness of issuers. Within this 20% limit, the Fund may invest in debt
securities which are unrated, rated, or the equivalent of those rated below
investment grade (commonly referred to as "junk bonds"); that is, rated below
Baa by Moody's Investor Service, Inc. ("Moody's") or below BBB by Standard &
Poor's Ratings Service ("S&P"). Such securities may be in default with respect
to payment of principal or interest.
The Fund may invest in when-issued securities, illiquid and restricted
securities and convertible securities and may enter into repurchase agreements
and reverse repurchase agreements. The Fund may also invest in closed-end
investment companies that invest primarily in Europe.
When, in the opinion of the Adviser, market conditions warrant, the Fund
may hold foreign or U.S. debt instruments as well as cash or cash equivalents,
including foreign and domestic money market instruments, short-term government
and corporate obligations, and repurchase agreements without limit for temporary
defensive purposes and up to 20% to maintain liquidity. It is impossible to
accurately predict how long such alternative strategies may be utilized.
Foreign securities such as those purchased by the Fund may be subject to
foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund.
From time to time, the Fund may be a purchaser of restricted debt or equity
securities (i.e., securities which may require registration under the Securities
Act of 1933, as amended (the "1933 Act"), or an exemption therefrom, in order to
be sold in the ordinary course of business) in a private placement. The Fund has
undertaken not to purchase or acquire any such securities if, solely as a result
of such purchase or acquisition, more than 15% of the value of the Fund's net
assets would be invested in illiquid securities.
3
<PAGE> 6
To a lesser extent, the Fund may also invest in "Specialized Investments"
which consist of equity securities of: (i) privately-held European companies;
(ii) European companies that have recently made initial public offerings of
their shares; (iii) government-owned or -controlled companies that are being
privatized; (iv) smaller publicly-held European companies, i.e., any European
company having a market capitalization of less than $500 million (the Board of
Directors of the Fund may, in the future, reevaluate and increase or decrease
the maximum market capitalization for qualification as a smaller European
company); (v) companies and joint ventures based in Eastern Europe; (vi) private
placements and joint venture participations in European companies that may not
be readily marketable; (vii) pooled investment funds that invest principally in
securities in which the Fund may invest, which are considered investment
companies for purposes of the 1940 Act restrictions described below; and (viii)
European companies with private market values perceived by the Adviser to be
substantially in excess of their publicly-traded values.
CERTAIN INVESTMENT PRACTICES
INVESTING IN FOREIGN SECURITIES
Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting and auditing 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 the New York
Stock Exchange (the "NYSE"), and securities of some foreign companies are less
liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the U.S. and at times, volatility of price can be greater than in
the U.S. Further, foreign markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of 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. Payment
for securities without delivery may be required in certain foreign markets.
Fixed commissions on some foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. Further,
the Fund may encounter difficulties or be unable to pursue legal remedies and
obtain judgments in foreign courts. There is generally less government
supervision and regulation of business and industry practices, stock exchanges,
brokers and listed companies in foreign countries than in the U.S. It may be
more difficult for the Fund's agents to keep currently informed about corporate
actions 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 withholding or
confiscatory taxes, 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.
Many of the currencies of Eastern European countries have experienced a
steady devaluation relative to Western currencies. Any future devaluation may
have a detrimental impact on any investments made by the
4
<PAGE> 7
Fund in Eastern Europe. The currencies of most Eastern European countries are
not freely convertible into other currencies and are not internationally traded.
The Fund will not invest its assets in non-convertible fixed income securities
denominated in currencies that are not freely convertible into other currencies
at the time the investment is made.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may not be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
EMERGING MARKETS. While the Fund's investments in foreign securities will
principally be in developed countries, the Fund may invest in countries
considered by the Adviser to be developing or "emerging" markets. Developing or
emerging markets involve exposure to economic structures that are generally less
diverse and mature than in the U.S., and to political systems that may be less
stable. A developing country or emerging market country can be considered to be
a country that is in the initial stages of its industrialization cycle.
Currently, emerging markets generally include every country in the world other
than the U.S., Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and
most Western European countries. Currently, investing in many emerging markets
may not be desirable or feasible because of the lack of adequate custody
arrangements for the Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or other reasons. As opportunities to invest in securities in
emerging markets develop, the Fund may expand and further broaden the group of
emerging markets in which it invests. In the past, markets of developing
countries have been more volatile than the markets of developed countries;
however, such markets often have provided higher rates of return to investors.
The Adviser believes that these characteristics can be expected to continue in
the future.
Many of the risks described above relating to foreign securities generally
will be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially
smaller, less developed, less liquid and more volatile than the securities
markets of the U.S. and other more developed countries. Disclosure, regulatory
and accounting standards in many respects are less stringent than in the U.S.
and other developed markets. There also may be a lower level of monitoring and
regulation of developing markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely limited.
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the U.S.; this is particularly true with respect to emerging markets. Such
markets have different settlement and clearance procedures. In certain markets,
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Such settlement problems may cause emerging market securities to
be illiquid. The inability of the Fund to make intended securities purchases due
to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability
5
<PAGE> 8
to the purchaser. Certain emerging markets may lack clearing facilities
equivalent to those in developed countries. Accordingly, settlements can pose
additional risks in such markets and ultimately can expose the Fund to the risk
of losses resulting from the Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of its Board of Directors.
Investment in certain emerging market securities is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging market securities and
increase the costs and expenses of a Fund. Emerging markets may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in an emerging market's balance of payments, the market
could impose temporary restrictions on foreign capital remittances.
PRIVATIZED ENTERPRISES. Investments in foreign securities may include
securities issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or -controlled company or enterprise that has not
yet conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as the
Fund, to participate in privatizations may be limited by local law, or the price
or terms on which the Fund may be able to participate may be less advantageous
than for local investors. Moreover, there can be no assurance that governments
that have embarked on privatization programs will continue to divest their
ownership of state enterprises, that proposed privatizations will be successful
or that governments will not re-nationalize enterprises that have been
privatized.
In the case of the enterprises in which the Fund may invest, large blocks
of the stock of those enterprises may be held by a small group of stockholders,
even after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or
former state enterprises go through an internal reorganization or management.
Such reorganizations are made in an attempt to better enable these enterprises
to compete in the private sector. However, certain reorganizations could result
in a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering, these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
FOREIGN CURRENCIES. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on futures
contracts on foreign currencies, 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.
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Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward or futures contracts to purchase or sell foreign currencies.
DEPOSITARY RECEIPTS. The Fund may invest directly in securities of
emerging country issuers through sponsored or unsponsored American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary
Receipts ("IDRs") and other types of Depositary Receipts (which, together with
ADRs, GDRs and IDRs are hereinafter referred to as "Depositary Receipts").
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored Depositary Receipts are not obligated to
disclose material information in the U.S. and, therefore, there may not be a
correlation between such information and the market value of the Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may be issued by
U.S. banks or trust companies, and evidence ownership of underlying securities
issued by either a foreign or a U.S. corporation. Generally, Depositary Receipts
in bearer form are designed for use in securities markets outside the U.S. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities of the European company into which they may be converted.
Depositary Receipts other than those denominated in U.S. dollars will be subject
to foreign currency exchange rate risk. Certain Depositary Receipts may not be
listed on an exchange and therefore may be illiquid securities.
DEBT SECURITIES. When the Adviser believes that it is appropriate to do so
in order to achieve the Fund's objective of long-term capital appreciation, the
Fund may invest up to 20% of its total assets in European debt securities,
including bonds of foreign governments, supranational organizations and private
issuers. Portfolio debt investments will be selected on the basis of, among
other things, credit quality, and the fundamental outlooks for currency,
economic and interest rate trends, taking into account the ability to hedge a
degree of currency or local bond price risk. The Fund may purchase
"investment-grade" bonds, rated Aaa, Aa or A by Moody's or AAA, AA or A by S&P
or, if unrated, judged to be of equivalent quality as determined by the Adviser.
Subject to the above 20% limit, the Fund may also purchase debt securities
which are rated below investment-grade, that is, rated below Baa by Moody's or
below BBB by S&P and unrated securities ("high-yield/high-risk securities"),
which usually entail greater risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk of principal and income, and may be less liquid
than securities in the higher rating categories. The lower the ratings of such
debt securities, the greater their risks. The Fund may also purchase bonds rated
B or lower by Moody's or S&P, and may invest in securities which are rated C by
Moody's or D by S&P or securities of comparable quality in the Adviser's
judgment. Such securities may be in default with respect to payment of principal
or interest, carry a high degree of risk and are considered speculative. See the
Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by Moody's and S&P and their respective
characteristics.
To the extent developments in emerging markets result in improving credit
fundamentals and rating upgrades for countries in emerging markets, the Adviser
believes that there is the potential for capital appreciation as the improving
fundamentals become reflected in the price of debt instruments. The Adviser also
believes that a country's sovereign credit rating (with respect to foreign
currency denominated issues) acts as a "ceiling" on the rating of all debt
issuers from that country. Thus, the ratings of private sector
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companies cannot be higher than that of their home countries. The Adviser
believes, however, that many companies in emerging market countries, if rated on
a stand-alone basis without regard to the rating of the home country, possess
fundamentals that could justify a higher credit rating, particularly if they are
major exporters and receive the bulk of their revenues in U.S. dollars or other
hard currencies. The Adviser seeks to identify such opportunities and benefit
from this type of market inefficiency.
Trading in debt obligations ("sovereign debt") issued or guaranteed by
foreign governments or their agencies or instrumentalities ("governmental
entities") also involves a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be willing or able to repay the
principal and/or interest when due in accordance with the terms of such
obligations. A governmental entity's willingness or ability to repay principal
and interest due in a timely manner may be affected by, among other factors, its
cash flow situation, dependence on expected disbursements from third parties,
the governmental entity's policy towards the International Monetary Fund and the
political constraints to which a governmental entity may be subject. As a
result, governmental entities may default on their sovereign debt. Holders of
sovereign debt may be requested to participate in the rescheduling of such debt
and to extend further loans to governmental entities. There is no bankruptcy
proceeding by which defaulted sovereign debt may be collected in whole or in
part.
HIGH-YIELD/HIGH-RISK SECURITIES. As stated above, within the Fund's 20%
limit of investments in European debt securities, the Fund may also invest in
high-yield/high-risk securities.
High-yield, high-risk securities are especially subject to adverse changes
in general economic conditions, to changes in the financial condition of their
issuers and to price fluctuations in response to changes in interest rates. An
economic downturn could disrupt the high-yield market and impair the ability of
issuers to repay principal and interest. Also, an increase in interest rates
would have a greater adverse impact on the value of such obligations than on
higher-quality debt securities. During an economic downturn or period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations. Prices and yields of high-yield securities will fluctuate
over time and, during periods of economic uncertainty, volatility of high-yield
securities may adversely affect the Fund's net asset value. In addition,
investments in high-yield, zero coupon or pay-in-kind bonds, rather than
income-bearing high-yield securities, may be more speculative and may be subject
to greater fluctuations in value due to changes in interest rates.
The trading market for high-yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may limit
the ability of the Fund to accurately value high-yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high-yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the 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 securities.
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.
SMALL COMPANIES. The Fund may invest its assets in the securities of small
companies. Investments in small companies involve considerations that are not
applicable to investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about issuers and
markets, less stringent financial disclosure requirements and accounting
standards, illiquidity of securities, higher brokerage commissions and fees and
greater market risk in general. In addition, these securities involve greater
risks since they may have limited marketability and, thus, may be more volatile.
Because such companies normally have fewer shares outstanding than larger
companies, it may be more difficult for the Fund to buy or sell significant
amounts of such shares without an unfavorable impact on prevailing prices. These
companies may have
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limited product lines, markets or financial resources and may lack management
depth. In addition, these companies are typically subject to a greater degree of
changes in earnings and business prospectus than are larger, more established
companies.
STRATEGIC TRANSACTIONS AND DERIVATIVES. The Fund may, but is not required
to, utilize various other investment strategies as described below to hedge
various market risks (such as interest rates, currency exchange rates, and broad
or specific equity or fixed-income market movements), to protect the Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the fixed-income securities in the Fund's portfolio, to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities, or to enhance potential gain. No
more than 5% of the Fund's assets will be [committed] to Strategic Transactions
(as defined below) entered into for non-hedging purposes. Strategic Transactions
involving financial futures and options thereon will be purchased, sold or
entered into only for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes. These strategies may be executed
through the use of derivative contracts. Such strategies are generally accepted
as part of modern portfolio management and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and OTC put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, "Strategic Transactions"). 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.
The use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize Strategic
Transactions successfully will depend on the Adviser's ability to predict market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.
Strategic Transactions, including derivative contracts, involve risks,
including possible default by the other party to the transactions, 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 purchase or sale 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 OTC 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. 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 used.
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, The Chase Manhattan Bank (the "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
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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 liquid
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligations.
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 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, 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
deliver 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 possibly 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.
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
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purchased or sold. Thus, the following general discussion relates to each of the
types of options discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of Fund assets as described
above 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
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
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underlying an OTC option it has entered into with the Fund or fails to make a
cash settlement payment due in accordance with the terms of that option, the
Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. The Fund will engage in OTC option
transactions only with U.S. government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers" or broker/dealers,
domestic or foreign banks or other financial institutions which have received
(or the guarantors of the obligation of which have received) a short-term credit
rating of A-1 from S&P or P-1 from Moody's or an equivalent rating from any
nationally recognized statistical rating organization ("NRSRO") or 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 a fund, and
portfolio securities "covering" the amount of a fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a 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, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
OTC 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 above as long as the call is outstanding. See "Use of
Segregated and Other Special Accounts." 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 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.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also
may purchase and sell call and put options on securities 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. 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.
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GENERAL CHARACTERISTICS OF FUTURES. As stated above, the Fund may enter
into financial futures contracts or purchase or sell put and call options on
such futures for bona fide hedging, risk management or portfolio management
purposes and not for speculative 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 financial 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. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any future 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 above. See "Use of Segregated and Other Special Accounts."
CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge 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 will be
limited to hedging involving either specific transactions or portfolio
positions. 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 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
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generally quoted in or currently convertible into such currency, other than with
respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars.
Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived correlation between various currencies may not be present or may not
be present during the particular time that the Fund is engaging in proxy
hedging. If the Fund enters into a currency hedging transaction, the Fund will
comply with the asset segregation requirements described below.
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 into are interest rate, currency and index 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 intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream
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<PAGE> 17
the Fund may be obligated to pay. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, 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 agreement 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.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities
which are bonds, notes, debentures, preferred stocks, and other securities which
are convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payment and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions, or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a
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<PAGE> 18
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 increases, 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 fixed income 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 fixed income 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 stocks 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). 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 purchase 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.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, any foreign bank or with any
domestic or foreign broker-dealer which is recognized as a reporting government
securities dealer if the creditworthiness of the bank or broker-dealer has been
determined by the Adviser to be at least as high as that of other obligations
the Fund may purchase.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and 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 the 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
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<PAGE> 19
the seller of the Obligation before repurchase of the Obligation under a
repurchase agreement, the Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the Obligation. If the court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the Obligation, the Fund
may be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, the Fund would
be at risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. However, if the market value of
the Obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
BORROWING. The fund may not borrow money, except as permitted under
Federal law. The Fund will borrow only when the Adviser believes that borrowing
will benefit the Fund after taking into account considerations such as the costs
of the borrowing. The Fund does not expect to borrow for investment purposes, to
increase return or leverage the portfolio. 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.
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 1933 Act or the availability of an exemption from
registration (such as Rules 144 or 144A) or because they are subject to other
legal or contractual delays in or restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. The Fund may be deemed to be an "underwriter" for
purposes of the 1933 Act when selling restricted securities to the public, and
in such event the Fund may be liable to purchasers of such securities if such
sale is made in violation of the 1933 Act or if the registration statement
prepared by the issuer, or the prospectus forming a part of it, is materially
inaccurate or misleading.
The Fund may invest up to 15% of its total net assets in illiquid
securities.
WHEN-ISSUED SECURITIES. The Fund may from time to time purchase equity and
debt securities on a "when-issued" or "forward delivery" basis. The price of
such securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the 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
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<PAGE> 20
determining its net asset value. 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 NYSE, and would be required to be
secured continuously by collateral in cash, U.S. Government securities or other
high grade debt obligations maintained on a current basis at an amount at least
equal to the market value and accrued interest of the securities loaned. The
Fund 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 the 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.
SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box
for the purpose of, but not limited to, deferring realization of loss when
deemed advantageous for federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns at least an equal
amount of the securities sold short or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and at least equal in amount to, the securities or other
assets sold short. [The Fund may engage in such short sales only to the extent
that not more than 10% of the Fund's total assets (determined at the time of the
short sale) is held as collateral for such sales.] [The Fund currently does not
intend, however, to engage in such short sales to the extent that more than 5%
of its net assets will be held as collateral therefor during the current year.]
If the Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund normally distributes dividends of net investment
income annually and distributes any net realized short-term and long-term
capital gains at least annually. 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 and M shares primarily as a result of the distribution services fee
applicable to Class B and Class C shares. Distributions of capital gains, if
any, will be paid in the same amount for each class.
The Fund may vary at any time the foregoing dividend practice and,
therefore, reserves the right from time to time either to distribute or to
retain for reinvestment such of its net investment income and its net short-term
and long-term capital gains as the Board of Directors of the Fund determines
appropriate under then current circumstances. In particular, and without
limiting the foregoing, the Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Code. Income dividends and capital
gain dividends, if any, of the Fund will be credited to shareholder accounts in
full and fractional Fund shares of the same class at net asset value except
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<PAGE> 21
that, upon written request to the Shareholder Service Agent, a shareholder may
select one of the following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net
asset value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested
in Fund shares of the same class. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of the Fund
invested without a sales charge in shares of the same class of another Kemper
Fund at the net asset value of such class of such other fund. See "Special
Features -- Class A Shares -- Combined Purchases" for a list of such other
Kemper Funds. To use this privilege of investing dividends of the Fund in shares
of another Kemper Fund, shareholders must maintain a minimum account value of
$1,000 in the Fund distributing the dividends. The Fund reinvests dividend
checks (and future dividends) in shares of the same class of the same Fund if
checks are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same class of the same Fund unless the shareholder requests that such policy not
be applied to the shareholder's account.
TAXES. The Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed in the
manner required by the Code. Such qualification does not involve governmental
supervision or management of investment practices or policy.
To so qualify, the Fund is required to distribute to its shareholders at
least 90% of its investment company taxable income (including net short-term
capital gain) (the "90% Distribution Requirement").
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to meet the 90% Distribution Requirement and to prevent imposition of the 4%
excise tax.
Dividends derived from net investment income and net short-term capital
gains are taxable to shareholders as ordinary income and long-term capital gain
dividends are taxable to shareholders as long-term capital gain regardless of
how long the shares have been held and whether received in cash or shares.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year declared.
A dividend received shortly after the purchase of shares reduces the net
asset value of the shares by the amount of the dividend and, although in effect
a return of capital, will be taxable to the shareholder.
It is anticipated that only a small portion, if any, of the ordinary income
dividends from the Fund will be eligible for the dividends received deduction
available to corporate shareholders. The aggregate amount eligible for the
dividends received deduction may not exceed the aggregate qualifying dividends
received by the Fund for the fiscal year.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a pro rata share of federal income taxes paid by
the Fund on such gains as a credit against federal income tax liability, and
will be entitled to increase the adjusted tax basis on Fund shares by the
difference between such gains and the tax credit.
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<PAGE> 22
A shareholder who redeems shares of the Fund will recognize capital gain or
loss for federal income tax purposes measured by the difference between the
value of the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares.
[A shareholder who has redeemed shares of the Fund 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 the same Fund within 30 days before or
after the redemption or exchange, the transactions may be subject to the wash
sale rules resulting in a postponement of the recognition of such loss for
federal income tax purposes. An exchange of the Fund's shares for shares of
another fund is treated as a redemption and reinvestment for federal income tax
purposes upon which gain or loss may be recognized.
Investment income derived from foreign securities may be subject to foreign
income taxes withheld at the source. Because the amount of the Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance. The Fund may
elect for U.S. income tax purposes to treat foreign income taxes paid by it as
paid by its shareholders if: (i) the Fund qualifies as a regulated investment
company, (ii) certain asset and distribution requirements are satisfied, and
(iii) more than 50% of the Fund's total assets at the close of its fiscal year
consists of stock or securities of foreign corporations. The Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. If the Fund were to make an election, shareholders of the Fund would be
required to take into account an amount equal to their pro rata portions of such
foreign taxes in computing their taxable income and then treat an amount equal
to those foreign taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, the Fund will report to its shareholders the
amount per share of such foreign income tax that must be included in each
shareholder's gross income and the amount which will be available for the
deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Certain limitations will be imposed
on the extent to which the credit (but not the deduction) for foreign taxes may
be claimed.
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 (such as a
gain on a sale of PFIC shares) 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. Mark
to market losses would be deductible, as ordinary losses, to the extent of any
net mark to market gains included in income in prior years.
20
<PAGE> 23
The effect of the election would be to treat excess distributions and gain on
dispositions as ordinary income which is not subject to a fund level tax when
distributed to shareholders as a dividend. Alternatively, the Fund may elect to
include as income and gain its share of the ordinary earnings and net capital
gain of certain foreign investment companies in lieu of being taxed in the
manner described above.
The Fund's Strategic Transactions will be subject to special tax rules.
Equity options (including covered call options on portfolio stock) and OTC
options on debt securities written or purchased by the Fund will be subject to
tax under Section 1234 of the Code. In general, no loss is recognized by the
Fund upon payment of a premium in connection with the purchase of a put or call
option. The character of any gain or loss recognized (i.e., long-term or
short-term) will generally depend, in the case of a lapse or sale of the option,
on the Fund's holding period for the option, and in the case of an exercise of a
put option, on the Fund's holding period for the underlying stock. 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 stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by the Fund and all listed non-equity options written or purchased
by the Fund (including options on futures contracts and options on broad-based
stock indices) will be governed by Section 1256 of the Code. In general, gain or
loss attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term capital gain or
loss, and on the last trading day of the Fund's fiscal year, all outstanding
Section 1256 positions will be marked to market (i.e. treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income.
Positions of the Fund which consist of at least one stock and at least one
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 certain "qualified
covered call options" on stock written by the Fund.
Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or non-equity
option governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." 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 intends to monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Under certain circumstances, the purchase of a put option or the 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. Moreover, 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.
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
21
<PAGE> 24
certain options, futures contracts and forward contracts, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition are also
treated as ordinary gain or loss. These gains or losses, referred to under the
Code as "Section 988" gains or losses, may increase or decrease the amount of
the Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Under the backup withholding provisions, distributions of taxable income
and capital gains and proceeds from the redemption or exchange of the shares of
a regulated investment company may be subject to withholding of federal income
tax at the rate of 31% in the case of non-exempt shareholders who fail to
furnish the investment company with their taxpayer identification numbers and
with required certifications regarding their status under the federal income tax
law. Withholding may also be required if the Fund is notified by the IRS or a
broker that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisors about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A and M shares of the
Fund because of the higher expenses borne by the Class B and Class C shares. The
net asset value of shares of the Fund is computed as of the close of regular
trading (the "value time") on the NYSE on each day the NYSE is open for trading.
The NYSE 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 Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
generally valued at market value as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board of Directors.
Securities listed primarily on foreign exchanges may trade on days when the
Fund's net asset value is not computed; and therefore, the net asset value of
the Fund may be significantly affected on days when investors have no access to
the Fund.
An exchange-traded equity security is valued at its most recent sale price.
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"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market Inc.
("Nasdaq") is valued at its most recent
22
<PAGE> 25
sale price. Lacking any sales, the security is valued at the most recent bid
quotation. The value of an equity security not quoted on Nasdaq, but traded in
another OTC market, is its most recent sale price. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.
Debt securities are valued at prices supplied by a pricing agent(s) which
reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board of Directors 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 of the Fund may calculate the price of that
debt security, subject to limitations established by the Board of Directors.
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 OTC is
valued at the most recent bid quotation in the case of a purchased options
contract and at the most recent asked quotation in the case of a written options
contract. Futures contracts are valued at the most recent settlement price.
Foreign currency exchange forward contracts are valued at the value of the
underlying currency at the prevailing exchange rate on the valuation date.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the OTC market, quotations are taken from the market in which
the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Board of Directors,
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 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.
PERFORMANCE
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 class. Each of
these figures is based upon historical results and is not representative of the
future performance of any class of the Fund. If fees or expenses are being
waived or absorbed by the Adviser, the Fund may also advertise performance
information before and after the effect of the fee waiver or expense absorption.
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the SEC. The average annual
total return for the Fund for a specific period is found by first taking a
hypothetical $1,000 investment ("initial investment") in the Fund's shares on
the first day of the period, adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "redeemable value" of that
investment at the end of the period. The redeemable value in the case of Class B
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 in the
case of Class M shares may or may not include the effect of any applicable
redemption fee. The redeemable value is then divided by the initial investment,
and this
23
<PAGE> 26
quotient is taken to the Nth root (N representing the number of years in the
period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return figures may also be
calculated without deducting the maximum sales charge.
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements and Prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B, Class C and Class M 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 or any applicable redemption fee. 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 or C shares or redemption fee for Class M
shares would be reduced if such charges were included.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at
least the one-, five- and ten-year periods ending on a recent calendar quarter
(or if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
The Fund's performance figures are based upon historical results and are
not representative of future performance. The Fund's Class A shares are sold at
net asset value plus a maximum sales charge of 5.75% of the offering price.
Class B and 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
purchase. Redemptions and exchanges of Class M shares (including redemptions
in-kind) will be subject to a 2% redemption fee. Average annual total return
figures do, and total return figures may, include the effect of the contingent
deferred sales charge for the Class B and C shares that may be imposed at the
end of the period in question and the applicable redemption fee imposed on Class
M shares. Performance figures for the Class B, C and M shares not including the
effect of the applicable contingent deferred sales charge or redemption fee
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 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 [INSERT APPROPRIATE
INDICES] and may also be compared to the performance of other mutual funds or
mutual fund indexes with similar objectives and policies as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charges.
24
<PAGE> 27
Information may be quoted from publications such as Morningstar, Inc., The
Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago
Tribune, USA Today, Institutional Investor and Registered Representative.
Also, investors may want to compare the historical returns of various
investments, performance indexes of those investments or economic indicators,
including but not limited to stocks, bonds, certificates of deposit and other
bank products, money market funds and U.S. Treasury obligations. Bank product
performance may be based upon, among other things, the Bank Rate Monitor
National Index(TM) or various certificate of deposit indexes. Performance of
U.S. Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured. Economic indicators
may include, without limitation, indicators of market rate trends and cost of
funds, such as Federal Home Loan Bank Board 11th District Cost of Funds Index
("COFI").
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, IBC/Donoghue's Money Fund Averages(R)
(All Taxable). As reported by IBC/Donoghue's, all investment results represent
total return (annualized results for the period net of management fees and
expenses) and one year investment results are effective annual yields assuming
reinvestment of dividends.
The Fund may depict the historical performance of the securities in which
the Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's returns and net asset value will fluctuate and shares of the
Fund are redeemable by an investor at the then current net asset value, which
may be more or less than original cost. Redemption of Class B shares and Class C
shares may be subject to a contingent deferred sales charge as described above.
Redemption and exchanges of Class M shares (including redemptions in-kind) are
subject to a 2% fee as described above. Additional information about the Fund's
performance also appears in its Annual Report to Shareholders, which is
available without charge from the Fund.
The Fund converted to open-end status and combined, as the surviving
entity, with the Kemper Europe Fund, which was subsequently terminated, as of
, 1999 (the "Reorganization"). Prior to the Reorganization, the Fund
had only one class of shares which was renamed Class M shares upon the
Reorganization. The figures below show performance information prior to the
Reorganization for Class M shares over various periods. Class A, B and C shares
are newly offered and therefore have no available performance information. The
other share classes, however, would have substantially similar returns because
the shares are invested in the same portfolio securities and the annual returns
would differ only to the extent that Class A, B and C shares do not have the
same expenses. Comparative information with respect to certain indices is also
included. There are differences and similarities between the investments which
the Fund may purchase and the investments measured by the indices which are
described herein. [DESCRIBE RELEVANT INDICES]. The foregoing indices are
unmanaged. The net asset value and returns of the Fund will fluctuate. No
adjustment has been made for taxes payable on dividends. The periods indicated
were ones of fluctuating securities prices and interest rates.
[SCUDDER KEMPER TO PROVIDE PERFORMANCE FIGURES]
The following table compares the performance of the Class M shares of the
Fund over various periods with that of other mutual funds within the category
described below according to data reported by Lipper. Lipper performance figures
are based on changes in net asset value, with all income and capital gain
dividends reinvested. Such calculations do not include the effect of any sales
charges. Future performance cannot be guaranteed. Lipper publishes performance
analyses on a regular basis.
[SCUDDER KEMPER TO PROVIDE PERFORMANCE FIGURES]
25
<PAGE> 28
Again, the historical performance figures reflected above represent the
operations of the Fund in closed-end form. If the Fund had operated as an
open-end fund during those periods, the performance of the Fund would likely
have been different and possibly lower.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("the Adviser"), 345
Park Avenue, New York, New York, is the Fund's investment manager. The Adviser
is approximately 70% owned directly and indirectly by Zurich Financial Services,
a newly formed global insurance and financial services company. The balance of
the Adviser is owned by its officers and employees. Pursuant to an investment
management agreement, 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 investment management agreement
provides that the Fund shall pay the charges and expenses of its operations,
including the fees and expenses of the directors (except those who are
affiliated with officers or employees of the Adviser), independent auditors,
counsel, custodian and transfer agent and the cost of share certificates,
reports and notices to shareholders, brokerage commissions or transaction costs,
costs of calculating net asset value and maintaining all accounting records
related thereto, taxes and membership dues. The Fund bears the expenses of
registration of its shares with the SEC, while Kemper Distributors, Inc.
("KDI"), as principal underwriter, pays the cost of qualifying and maintaining
the qualification of the Fund's shares for sale under the securities laws of the
various states.
The investment management agreement provides that the Adviser shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the agreement.
The Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually by a majority of
the directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of the Fund and by the
shareholders of the Fund subject thereto or the Board of Directors. The Fund's
investment management agreement may be terminated at any time upon 60 days'
notice by either party, or by a majority vote of the outstanding shares of the
Fund subject thereto, and will terminate automatically upon assignment.
Responsibility for overall management of the Fund rests with its Board of
Directors and officers. Professional investment supervision is provided by the
Adviser.
On December 31, 1997, pursuant to the terms of an agreement, Scudder,
Stevens & Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed
a new global organization by combining Scudder with Zurich Kemper Investments,
Inc., a former subsidiary of Zurich and the former investment manager to the
Fund, and Scudder changed its name to Scudder Kemper Investments, Inc. As a
result of the transaction, Zurich owned approximately 70% of the Adviser, with
the balance owned by the Adviser's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) 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, Inc. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board therefore approved a new investment management
agreement with the Adviser, which was substantially identical to the prior
investment management agreement of the Fund in closed-end form, except for the
date of execution and termination.
26
<PAGE> 29
This agreement became effective upon the termination of the then current
investment management agreement and was approved by shareholders at a special
meeting which concluded in December 1998.
A new investment management agreement was approved by the Board of
Directors and subsequently by the shareholders of the Fund at the annual meeting
held on July 20, 1999, in connection with the proposal to convert the Fund to
open-end status and to combine the Fund with the Kemper Europe Fund. This new
agreement reflects the implementation of lower advisory fees and other changes
to conform the agreement to those in place for other open-end funds in the
Kemper family of funds. A summary of the terms of the new agreement is provided
above.
The Fund pays Scudder Kemper an investment management fee, payable monthly,
at 1/12 of the annual rates shown below:
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT
AVERAGE DAILY NET ASSETS OF THE FUND FEE RATES
- ------------------------------------ -----------------
<S> <C>
$0 - $250 million.......................................... 0.75%
$250 million - $1 billion.................................. 0.72
$1 billion - $2.5 billion.................................. 0.70
$2.5 billion - $5 billion.................................. 0.68
$5 billion - $7.5 billion.................................. 0.65
$7.5 billion - $10 billion................................. 0.64
$10 billion - $12.5 billion................................ 0.63
Over $12.5 billion......................................... 0.62
</TABLE>
The expenses of the Fund, and of other investment companies investing in
foreign securities, can be expected to be higher than for investment companies
investing primarily in domestic securities since the costs of operation are
higher, including custody and transaction costs for foreign securities and
investment management fees.
The investment management fees incurred by the Fund for its last three
fiscal years are shown in the table below. These fees are based on the Fund's
former fee schedule as a closed-end entity and are based on the Fund's average
weekly net assets. The investment management fees to be paid by the fund in
open-end form will be lower.
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
<S> <C> <C> <C>
</TABLE>
[SCUDDER KEMPER TO PROVIDE]
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of the Adviser,
is responsible for determining the daily net asset value per share of the Fund
and maintaining all accounting records related thereto. As a closed-end
investment company, the Fund was not charged any fees for the services provided
by SFAC. As an open-end investment company, however, the Fund will incur an
annual accounting service fee that is based on the actual services provided, but
is expected to equal approximately .10% of the average daily net assets of the
Fund.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution
services agreements ("distribution agreement"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of
the Adviser, is the principal underwriter and distributor for the shares of the
Fund and acts as agent of the Fund in the continuous offering of its shares. KDI
bears all of its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. The Fund pays the cost for
the
27
<PAGE> 30
prospectus and shareholder reports to be set in type and printed for existing
shareholders, and KDI pays for the printing and distribution of copies thereof
used in connection with the offering of shares to prospective investors. KDI
also pays for supplementary sales literature and advertising costs.
The distribution agreement continues in effect from year to year so long as
such continuance is approved for each relevant class at least annually by a vote
of the Board of Directors of the Fund, including the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement. The agreement automatically terminates in the event
of its assignment and may be terminated for a class at any time without penalty
by the Fund or by KDI upon 60 days' notice. Termination by the Fund with respect
to a class may be by vote of a majority of the Board of Directors, or a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act. The agreement may not be amended for a class to increase the fee to be
paid by the Fund with respect to such class without approval by a majority of
the outstanding voting securities of such class of the Fund and all material
amendments must in any event be approved by the Board of Directors in the manner
described above with respect to the continuation of the agreement. The
provisions concerning the continuation, amendment and termination of the
distribution agreement are on a class by class basis.
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 agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of the Fund's shares.
CLASS B SHARES. For its services under the distribution agreement, KDI
receives a fee from the Fund under a Rule 12b-1 Plan, payable monthly, at the
annual rate of 0.75% of average daily net assets of the Fund attributable to
Class B shares. This fee is accrued daily as an expense of Class B shares. KDI
also receives any contingent deferred sales charges. See "Redemption or
Repurchase of Shares -- Contingent Deferred Sales Charge -- Class B Shares." KDI
currently compensates firms for sales of Class B shares at a commission rate of
3.75%.
CLASS C SHARES. For its services under the distribution agreement, KDI
receives a fee from the Fund under a Rule 12b-1 Plan, payable monthly, at the
annual rate of 0.75% of average daily net assets of the Fund attributable to
Class C shares. This fee is accrued daily as an expense of Class C shares. KDI
currently advances to firms the first year distribution fee at a rate of 0.75%
of the purchase price of Class C shares. For periods after the first year, KDI
currently pays firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or the Fund. KDI also receives any contingent deferred sales
charges. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales
Charges -- Class C Shares".
CLASS M SHARES. KDI receives no compensation from the Fund as principal
underwriter for Class M shares.
CLASS B SHARES AND CLASS C SHARES. The Fund has adopted a plan under Rule
12b-1 of the Act (the "Plan") that provides for fees payable as an expense of
the Class B shares and Class C shares that are used by KDI to pay for
distribution and services for those classes. Because 12b-1 fees are paid out of
Fund assets on an ongoing basis, they will, over time, increase the cost of an
investment and cost more than other types of sales charges.
If the Plan is terminated in accordance with its terms, the obligation of
the Fund to make payments to KDI pursuant to the Plan will cease and the Fund
will not be required to make any payments past the termination date. Thus, there
is no legal obligation for the Fund to pay any expenses incurred by KDI in
excess of its fees under 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.
28
<PAGE> 31
ADMINISTRATIVE SERVICES. Administrative services are provided to the Fund
under an administrative services agreement ("administrative agreement") with
KDI. KDI bears all its expenses of providing services pursuant to the
administrative agreement between KDI and the Fund, including the payment of
service fees. For the services under the administrative agreement, the Fund pays
KDI an administrative services fee, payable monthly, at the annual rate of up to
0.25% of average daily net assets of Class A, B, C and M shares of the Fund.
KDI enters into related arrangements with various broker-dealers and other
service or administrative firms ("firms"), that provide services and facilities
for their customers or clients who are investors of the Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. With respect to Class A and
Class M shares, KDI pays each firm a service fee, normally payable quarterly, at
an annual rate of up to 0.25% (calculated monthly and normally paid quarterly)
of the net assets attributable to Class A shares maintained and serviced by the
firm and the fee continues until terminated by KDI and the Fund. With respect to
Class B shares and Class C shares, KDI currently advances to firms the first
year service fee at a rate of up to 0.25% of the purchase price of such shares.
For periods after the first year, KDI currently intends to pay firms a service
fee at an annual rate of up to 0.25% (calculated monthly and normally paid
quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm and the fee continues until terminated by
KDI or the Fund. Firms to which service fees may be paid include broker-dealers
affiliated with KDI.
Prior to the date of this Statement of Additional Information, the Fund has
not paid any administrative services fees.
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 based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which there is a firm of record. The Board of Directors of the
Fund, in its discretion, may approve basing the fee to KDI on all Fund assets in
the future.
Certain Directors or officers of the Fund are also directors or officers of
the Adviser, or KDI as indicated under "Officers and Directors."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Brown Brothers
Harriman & Co. (the "Custodian"), 40 Water Street, Boston, Massachusetts 02109,
has custody of all securities and cash of the Fund. 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. Investors Fiduciary Trust Company
("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, is the Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSvC"), an affiliate of the Adviser, serves as
"Shareholder Service Agent" of the Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives as transfer
agent, and pays to KSvC, annual account fees of $10.00 ($18.00 for retirement
accounts) plus set up charges, annual fees associated with the contingent
deferred sales charge (Class B only), an asset-based fee of 0.08% and
out-of-pocket reimbursement. IFTC's fee is reduced by certain earnings credits
in favor of the Fund.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the 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
29
<PAGE> 32
will receive annual audited financial statements and semi-annual unaudited
financial statements. Prior to July 20, 1999, PricewaterhouseCoopers LLP served
as independent auditors to the Fund.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle
Street, Chicago, Illinois 60601, serves as legal counsel to the Fund.
PORTFOLIO TRANSACTIONS
BROKERAGE
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase and
sale of securities for the Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission where applicable,
size of order, difficulty of execution and skill required of the executing
broker/ dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
KDI with commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction solely on account of the receipt of research,
market or statistical information. The Adviser may place orders with
broker/dealers on the basis that the broker/dealer has or has not sold shares of
the Fund. In effecting transactions in OTC 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 Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Funds 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 Board members 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.
30
<PAGE> 33
The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.
The table below shows total brokerage commissions paid by the Fund for the
last three fiscal periods and for the most recent fiscal year, the percentage
thereof that was allocated to firms based upon research information provided.
<TABLE>
<CAPTION>
ALLOCATED TO
FIRMS BASED ON
RESEARCH IN
FISCAL 1998 FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
</TABLE>
PURCHASE, REPURCHASE 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. Class M shares
represent the initial class of shares of the Fund and are no longer offered.
Class M shares are subject to a 2% fee on exchanges and redemptions (including
redemptions in-kind). Class M Shares expire one year from the date of this
Statement of Additional Information. When placing purchase orders, investors
must specify whether the order is for Class A, Class B or Class C shares.
The primary distinctions among the classes of the Fund's shares lie in
their initial and contingent deferred sales charge structures and in their
ongoing expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
31
<PAGE> 34
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
SALES CHARGE DAILY NET ASSETS) OTHER INFORMATION
------------ ------------------ -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived or
5.75% of the public offering reduced for certain purchases
price
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
Class M None None Subject to 2% fee on all
redemptions (including
redemptions in-kind) and
exchanges; all "large" redemption
requests (i.e., $250,000 or
greater) will be redeemed
in-kind; Class M shares will
convert into Class A shares of
the Fund one year from the date
of this Statement of Additional
Information
</TABLE>
The minimum initial investment for the Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an IRA 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 of the Fund choosing the initial sales
charge alternative is the net asset value plus a sales charge, as set forth
below.
SALES CHARGE
<TABLE>
<CAPTION>
ALLOWED TO
DEALERS AS A
AS A PERCENTAGE OF AS A PERCENTAGE OF 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 Class A shares sold.
KDI, the Fund's principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the
32
<PAGE> 35
applicable public offering price to investment dealers, which discounts are
uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based upon
attainment of minimum sales levels. During periods when 90% or more of the sales
charge is reallowed, such dealers may be deemed to be underwriters as that term
is defined in the 1933 Act.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in the Fund or other Kemper Mutual
Funds listed under "Special Features -- Class A Shares -- Combined Purchases"
totals at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district provided in each case
that such plan has not less than 200 eligible employees (the "Large Order NAV
Purchase Privilege"). Redemption within two years of shares purchased under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales
Charge -- Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale, KDI will consider the cumulative amount
invested by the purchaser in the Fund and other Kemper Mutual Funds listed under
"Special Features -- Class A Shares -- Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of the Fund at net asset value under the Large Order NAV Purchase Privilege is
not available if another net asset value purchase privilege also applies.
Class A shares of the Fund or any other Kemper Mutual Fund listed under
"Special Features -- Class A Shares -- Combined Purchases" may be purchased at
net asset value in any amount by members of the plaintiff class in the
proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D.Il). This privilege is
generally non-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 may be sold at net asset value in any amount to: (a)
officers, directors, trustees, employees (including retirees) and sales
representatives of the Fund, its Adviser, 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
33
<PAGE> 36
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 Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may also 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 Fund Class A shares at net asset value through
reinvestment programs described herein 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 1940 Act and other financial services
firms acting solely as agents 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.
Class A shares of the Fund may be purchased at net asset value by persons
who purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of the Fund may be purchased at net asset value in any
amount by certain professionals who assist in the promotion of Kemper Funds
pursuant to personal services contracts with KDI, for themselves or members of
their families. KDI in its discretion may compensate financial services firms
for sales of Class A shares under this privilege at a commission rate of 0.50%
of the amount of Class A shares purchased.
Class A shares of the Fund may be purchased at net asset value by persons
who purchase shares of the Fund through KDI as part of an automated billing and
wage deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Investors choosing
the deferred sales charge alternative may purchase Class B shares at net asset
value per share without any sales charge at the time of purchase. Since Class B
shares are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares."
34
<PAGE> 37
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of
the Fund six years after issuance on the basis of the relative net asset value
per share. 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 the rate of 0.75% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms for sales of
Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75%
of net assets attributable to Class C shares maintained and serviced by the
firm. KDI is compensated by the Fund for services as distributor and principal
underwriter for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of
shares provides a more suitable investment for an investor depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
and who plan to hold their investment for more than six years might consider
Class B shares. Investors who prefer not to pay an initial sales charge but who
plan to redeem their shares within six years might consider Class C shares.
Orders for Class B shares or Class C shares for $500,000 or more will be
declined. Orders for Class B shares or Class C shares by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the KSvC will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the above sales arrangements, consult your
financial representative or the KSvC. Financial services firms may receive
different compensation depending upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients, and KDI may pay them a
transaction fee up to the level of the discount or commission allowable or
payable to dealers as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
Banks or other financial services firms may be subject to various state laws
regarding the services described above and may be required to register as
dealers pursuant to state law. If banking firms were prohibited from acting in
any capacity or providing any of the described services, management would
consider what action, if any, would be appropriate. KDI does not believe that
termination of a relationship with a bank would result in any material adverse
consequences to the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the
amount of shares of the Fund sold by the firm under the following conditions:
(i) the purchased shares are held in a Kemper IRA account, (ii) the shares are
purchased as a direct "roll over" of a distribution from a qualified retirement
plan account maintained on a participant subaccount record keeping system
provided by KSvC, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in
35
<PAGE> 38
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 Fund. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Fund or other funds underwritten by
KDI.
Orders for the purchase of shares of the Fund will be confirmed at a price
based on the net asset value of the Fund next determined after receipt by KDI of
the order accompanied by payment. However, orders received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day ("trade date"). The
Fund reserves the right to determine the net asset value more frequently than
once a day if deemed desirable. Dealers and other financial services firms are
obligated to transmit orders promptly. Collection may take significantly longer
for a check drawn on a foreign bank than for a check drawn on a domestic bank.
Therefore, if an order is accompanied by a check drawn on a foreign bank, funds
must normally be collected before shares will be purchased.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund 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
Fund 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 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, repurchase 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.
The Fund reserves the right to withdraw all or any part of the offering
made by the prospectus and this statement of additional information and to
reject purchase orders. Also, from time to time, the Fund may temporarily
suspend the offering of any class of its shares to new investors. During the
period of such suspension, persons who are already shareholders of such class of
the Fund normally are permitted to continue to purchase additional shares of
such class and to have dividends reinvested.
Shareholders should direct their inquiries to KSvC, 811 Main Street, Kansas
City, Missouri 64105-2005 or to the firm from which they received this statement
of additional information.
As described herein, Fund shares are sold at their public offering price,
which is the net asset value next determined after an order is received in
proper form plus, with respect to Class A shares, an initial sales charge. The
minimum initial investment is $1,000 and the minimum subsequent investment is
$100 but such minimum amounts may be changed at any time. An order for the
purchase of shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until 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. The amount
received by a shareholder upon redemption or repurchase may be more or less than
the amount paid for such shares depending on the market value of the Fund's
portfolio securities at the time.
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<PAGE> 39
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI to accept purchase and
redemption orders for the Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on the Fund's behalf. Orders
for purchase or redemption will be deemed to have been received by the Fund when
such brokers or their authorized designees accept the orders. Subject to the
terms of the contract between the Fund and the broker, ordinarily orders will be
priced as the Fund's net asset value next computed after acceptance by such
brokers or their authorized designees. Further, if purchases or redemptions of
the Fund's shares are arranged and settlement is made at an investor's election
through any other authorized NASD member, that member may, at its discretion,
charge a fee for that service. The Board of Directors of the Fund and KDI each
has the right to limit the amount of purchases by, and to refuse to sell to, any
person. The Board and KDI may suspend or terminate the offering of shares of the
Fund at any time for any reason.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares.
When shares are held for the account of a shareholder by the Fund's transfer
agent, the shareholder may redeem them by sending a written request with
signatures guaranteed to Kemper Mutual Funds, Attention: Redemption Department,
P.O. Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares
have been issued, they must be mailed to or deposited with the Shareholder
Service Agent, along with a duly endorsed stock power and accompanied by a
written request for redemption. Redemption requests and a stock power must be
endorsed by the account holder with signatures guaranteed by a commercial bank,
trust company, savings and loan association, federal savings bank, member firm
of a national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of the Fund will be the net asset value per
share of the Fund next determined following receipt by the Shareholder Service
Agent of a properly executed request with any required documents as described
above. Payment for shares redeemed will be made in cash as promptly as
practicable but in no event later than seven days after receipt of a properly
executed request accompanied by any outstanding share certificates in proper
form for transfer. When the Fund is asked to redeem shares for which it may not
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") and 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).
Upon the redemption or exchange of Class M shares of the Fund (including
redemptions in-kind), 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. The fee is not a deferred sales charge, is
not a commission paid to the investment manager or its subsidiaries, and does
not benefit the investment manager in any way. The Fund reserves the right to
modify the terms of or terminate this fee at any time. The 2% fee applies to
redemptions from the Fund and exchanges to other Kemper Mutual Funds by Class M
shareholders, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased.
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<PAGE> 40
Because of the high cost of maintaining small accounts, the Fund may assess
a quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
IRAs 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
telephone instructions are genuine. THE SHAREHOLDER WILL BEAR THE RISK OF LOSS
including loss resulting from fraudulent or unauthorized transactions, so long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge or applicable redemption fee)
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, or 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. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value effective on
that day and normally the proceeds will be sent to the designated account the
following business day. Delivery of the proceeds of a wire redemption request of
$250,000 or more may be delayed by the Fund for up to seven days if Scudder
Kemper deems it appropriate under then current
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<PAGE> 41
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 or redemption
fee). To change the designated account to receive wire redemption proceeds, send
a written request to the Shareholder Service Agent with signatures guaranteed as
described above or contact the firm through which shares of the Fund were
purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire transfer until such shares have been owned
for at least 10 days. Account holders may not use this privilege to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege. The 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 the redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent or its affiliates;
(c) redemption of shares of a shareholder (including a registered joint owner)
who has died; (d) redemption of shares of a shareholder (including a registered
joint owner) who after purchase of the shares being redeemed becomes totally
disabled (as evidenced by a determination by the federal Social Security
Administration); (e) redemptions under the Fund's Systematic Withdrawal Plan at
a maximum of 10% per year of the net asset value of the account; and (f)
redemptions of shares whose dealer of record at the time of the investment
notifies KDI that the dealer waives the commission applicable to such Large
Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES. A contingent deferred
sales charge may be imposed upon redemption of Class B shares. There is no such
charge upon redemption of any share appreciation or reinvested dividends on
Class B shares. The charge is computed at the following rates applied to the
value of the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE
- --------------------------------- -------------------
<S> <C>
First....................................................... 4%
Second...................................................... 3%
Third....................................................... 3%
Fourth...................................................... 2%
Fifth....................................................... 2%
Sixth....................................................... 1%
</TABLE>
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 Code Section 72(t)(2)(A)(iv) prior to age 59 1/2
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<PAGE> 42
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 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 Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service Agent
and (g) redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has waived
the advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
CONTINGENT DEFERRED SALES CHARGE -- GENERAL. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 in appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the
length of the period of ownership. Investments are tracked on a monthly basis.
The period of ownership for this purpose begins the first day of the month in
which the order for the investment is received. For example, an investment made
in March 1999 will be eligible for the second year's charge if redeemed on or
after March 1, 2000. In the event no specific order is requested, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of
the Fund or any other Kemper Mutual Fund listed under "Special Features -- Class
A Shares -- Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Mutual Funds. A shareholder of the Fund
or any other Kemper Mutual Fund who redeems Class A shares purchased under the
Large Order NAV Purchase Privilege (see "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares"), Class B shares or Class C shares and
incurs a contingent deferred sales charge may reinvest up to the full amount
redeemed at net asset value at the time of
40
<PAGE> 43
the reinvestment in Class A shares, Class B shares or Class C shares, as the
case may be, of the Fund or of other Kemper Mutual Funds. The amount of any
contingent deferred sales charge also will be reinvested. These reinvested
shares will retain their original cost and purchase date for purposes of the
contingent deferred sales charge. Also, a holder of Class B shares who has
redeemed shares may reinvest up to the full amount redeemed, less any applicable
contingent deferred sales charge that may have been imposed upon the redemption
of such shares, at net asset value in Class A shares of the Fund or of the other
Kemper Mutual Funds listed under "Special Features -- Class A Shares -- Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Mutual Funds available for sale in the shareholder's
state of residence as listed under "Special Features -- Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of Fund shares, the reinvestment in the same Fund may
be subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinvestment privilege may be terminated or modified at any
time.
REDEMPTION IN-KIND. The Fund has adopted the following redemption policy
in an attempt to avoid the imposition of adverse tax consequences on remaining
shareholders that may be caused by certain large-scale redemptions. In
conformity with Rule 18f-1 under the 1940 Act, the Fund reserves the right to
redeem its 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 the
Fund at the beginning of the period. As an operating policy, the Fund reserves
the right to satisfy redemption requests in excess of such amount by
distributing portfolio securities in lieu of cash. This policy may be modified
or terminated at any time by the Board of Directors. As to Class M shareholders,
the Fund will honor any request for a large redemption (i.e., redemptions
exceeding $250,000) by making payment in whole or in part in readily marketable
securities. Any securities distributed in-kind would be valued in accordance
with the Fund's policies used to determine net asset value, and would be
selected pursuant to procedures adopted by the Board of Directors to help ensure
that such redemptions are effected in a manner that is fair and equitable to all
shareholders. The redeeming shareholder will bear the risk of fluctuations in
value of the in-kind redemption proceeds after the trade date for the
redemption. Shareholders who receive portfolio securities in redemption of Fund
shares will be required to make arrangements for the transfer of custody of such
securities to the shareholder's account and must communicate relevant custody
information to the Fund prior to the effectiveness of a redemption request.
Redemption requests subject to the Fund's redemption in-kind policy will not be
considered in good order unless such information is provided. As discussed
below, a redeeming shareholder will bear all costs associated with the in-kind
distribution of portfolio securities. Shareholders receiving securities in-kind
may, when selling them, receive less than the redemption value of such
securities and would also incur certain transaction costs. Such a redemption
would not be as liquid as a redemption entirely in cash.
Redeeming shareholders will bear any costs of delivery and transfer of the
portfolio securities received in an in-kind redemption (generally, certain
transfer taxes and custodial expenses), and such costs will be deducted from
their redemption proceeds. Redeeming shareholders will also bear the costs of
re-registering the securities, as the securities delivered will be registered in
the Fund's name or the nominee names of the Fund's custodians. The actual per
share expenses for redeeming shareholders of effecting an in-kind redemption and
of any subsequent liquidation by the shareholder of the portfolio securities
received will depend on a number of factors, including the number of shares
redeemed, the Fund's portfolio composition at the time and market conditions
prevailing during the liquidation process. The Fund gives no assurances of such
expenses, and shareholders whose redemptions are effected in-kind may bear
expenses in excess of 1% of the net asset value of the shares of the Fund
redeemed. These expenses are in addition to any applicable redemption fee or
contingent deferred sales charge.
The Fund has received an exemptive order from the SEC to permit in-kind
redemption transactions to be effected by shareholders who may be deemed to be
affiliated with the Fund because they own 5% or more of the Fund's outstanding
voting securities.
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<PAGE> 44
SPECIAL FEATURES
CLASS A SHARES -- COMBINED PURCHASES. The Fund's Class A shares may be
purchased at the rate applicable to the discount bracket attained by combining
concurrent investments in Class A shares of any of the following funds: Kemper
Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small
Capitalization Equity Fund, Kemper Income and Capital Preservation Fund, Kemper
Municipal Bond Fund, Kemper Strategic Income Fund, Kemper High Yield Series,
Kemper U.S. Government Securities Fund, Kemper International Fund, Kemper State
Tax-Free Income Series, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Series,
Inc., Kemper Value Plus Growth Fund, Kemper Horizon Fund, Kemper Europe Fund,
Inc., Kemper Asian Growth Fund, Kemper Aggressive Growth Fund, Kemper
Global/International Series, Inc., Kemper Equity Trust, Kemper Income Trust,
Kemper Funds Trust and Kemper Securities Trust ("Kemper Mutual Funds"). Except
as noted below, there is no combined purchase credit for direct purchases of
shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California Money
Market Fund, Cash Account Trust, Investors Municipal Cash Fund or Investors Cash
Trust ("Money Market Funds"), which are not considered "Kemper Mutual Funds" for
purposes hereof. For purposes of the Combined Purchases feature described above
as well as for the Letter of Intent and Cumulative Discount features described
below, employer sponsored employee benefit plans using the subaccount record
keeping system made available through the Shareholder Service Agent may include:
(a) Money Market Funds as "Kemper Mutual Funds", (b) all classes of shares of
any Kemper Mutual Fund and (c) the value of any other plan investments, such as
guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
CLASS A SHARES -- LETTER OF INTENT. The same reduced sales charges for
Class A shares, as shown in the applicable prospectus, also apply to the
aggregate amount of purchases of such Kemper Mutual Funds listed above made by
any purchaser within a 24-month period under a written Letter of Intent
("Letter") provided by KDI. The Letter, which imposes no obligation to purchase
or sell additional Class A shares, provides for a price adjustment depending
upon the actual amount purchased within such period. The Letter provides that
the first purchase following execution of the Letter must be at least 5% of the
amount of the intended purchase, and that 5% of the amount of the intended
purchase normally will be held in escrow in the form of shares pending
completion of the intended purchase. If the total investments under the Letter
are less than the intended amount and thereby qualify only for a higher sales
charge than actually paid, the appropriate number of escrowed shares are
redeemed and the proceeds used toward satisfaction of the obligation to pay the
increased sales charge. The Letter for an employer sponsored employee benefit
plan maintained on the subaccount record keeping system available through the
Shareholder Service Agent may have special provisions regarding payment of any
increased sales charge resulting from a failure to complete the intended
purchase under the Letter. A shareholder may include the value (at the maximum
offering price) of all shares of such Kemper Mutual Funds held of record as of
the initial purchase date under the Letter as an "accumulation credit" toward
the completion of the Letter, but no price adjustment will be made on such
shares. Only investments in Class A shares of a Fund are included for this
privilege.
CLASS A SHARES -- CUMULATIVE DISCOUNT. The Fund's Class A shares also may
be purchased at the rate applicable to the discount bracket attained by adding
to the cost of Fund shares being purchased the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES -- AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares
may exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
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<PAGE> 45
Shareholders of Class M shares may also exchange their shares for Class A shares
of other Kemper Mutual Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of
the Money Market Funds listed under "Special Features -- Class A
Shares -- Combined Purchases" above may be exchanged for each other at their
relative net asset values. Shares of Money Market Funds and Kemper Cash Reserves
Fund that were acquired by purchase (not including shares acquired by dividend
reinvestment) are subject to the applicable sales charge on exchange. Series of
Kemper Target Equity Fund are available on exchange only during the offering
period for such series as described in the applicable prospectus or 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.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Mutual Fund or a
Money Market Fund under the exchange privilege described above without paying
any contingent deferred sales charge at the time of exchange. If the Class A
shares received on exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed in accordance with the foregoing requirements provided
that the shares redeemed will retain their original cost and purchase date for
purposes of the contingent deferred sales charge.
CLASS B SHARES. Class B shares of the Fund and Class B shares of any other
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class B shares may be exchanged without any contingent deferred sales charge
being imposed at the time of exchange. For purposes of the contingent deferred
sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.
CLASS C SHARES. Class C shares of the Fund and Class C shares of any other
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class C shares may be exchanged without a contingent deferred sales charge being
imposed at the time of exchange. For determining whether there is a contingent
deferred sales charge that may be imposed upon the redemption of the Class C
shares received by exchange, the cost and purchase date of the shares that were
originally purchased and exchanged are retained.
CLASS M SHARES. Class M shares of the Fund may be exchanged for Class A
Shares of any other Kemper Mutual Fund listed under "Special Features -- Class A
Shares -- Combined Purchases", subject to 2% fee. Class M shareholders may not
exchange shares in an amount that would trigger an in-kind redemption (see
above).
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of
$1,000,000 or less (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 Period").
The Fund reserves the right to invoke the 15-Day Hold Policy for exchanges of
$1,000,000 or less if, in the investment manager's judgment, the exchange
activity may have an adverse effect on the Fund. In particular, a pattern of
exchanges that coincides with a "market timing" strategy may be disruptive to
the Fund and therefor 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
43
<PAGE> 46
a sale upon which a gain or loss may be realized, depending upon whether the
value of the shares being exchanged is more or less than the shareholder's
adjusted cost basis of such shares. Shareholders interested in exercising the
exchange privilege may obtain prospectuses of the other funds from dealers,
other firms or KDI. Exchanges may be accomplished by a written request to KSvC,
Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Redemption or Repurchase of Shares -- General." Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to implement the telephone exchange privilege. The exchange privilege
is not a right and may be suspended, terminated or modified at any time.
Exchanges may only be made for Kemper Funds that are eligible for sale in the
shareholder's state of residence. Currently Tax-Exempt California Money Market
Fund is available for sale only in California and the portfolios of Investors
Municipal Cash Fund are available for sale only in certain states.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of
the shares of a Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another such Kemper Fund. If selected, exchanges
will be made automatically until the privilege is terminated by the shareholder
or the other 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 $5,000) 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 KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as IRAs.
BANK DIRECT DEPOSIT. A shareholder may purchase additional Fund shares
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (minimum $50, maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her plan
by sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination by a shareholder will become effective within thirty
days after the Shareholder Service Agent has received the request. The Fund may
immediately terminate a shareholder's plan in the event that any item is unpaid
by the shareholder's financial institution. The 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
44
<PAGE> 47
period. A shareholder may terminate participation in these programs by giving
written notice to the shareholder's employer or government agency, as
appropriate. (A reasonable time to act is required.) The Fund is not responsible
for the efficiency of the employer or government agency making the payment or
any financial institutions transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of the
Fund's shares at the offering price (net asset value plus, in the case of Class
A shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to IRAs. 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 ordinarily will 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 already
have been paid. Therefore, the Funds 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
redemption of Class A shares purchased under the Large Order NAV Purchase
Privilege, Class B shares and Class C shares made pursuant to a systematic
withdrawal plan. The right is reserved to amend the systematic withdrawal plan
on 30 days' notice. The plan may be terminated at any time by the investor or
the Funds.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- Traditional, Roth and Education IRAs with IFTC as custodian. This
includes Savings Incentive Match Plan for Employees of Small Employers
("SIMPLE") IRA accounts and Simplified Employee Pension Plan ("SEP") IRA
accounts and prototype documents.
- 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of
plan is available to employees of most non-profit organizations.
- Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit
plans, target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and
materials for establishing them are available from the Shareholder Service Agent
upon request. The brochures for plans with IFTC as custodian describe the
current fees payable to IFTC for its services as custodian. Investors should
consult with their own tax advisers before establishing a retirement plan.
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 such Fund as described in the Fund's prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
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 in sales and sales-related efforts.
The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the NYSE is closed other than customary
weekend and holiday closings or during any period in which trading on the NYSE
is restricted, (b) during any period when an emergency exists as a result of
which
45
<PAGE> 48
(i) disposal of the Fund's investments is not reasonably practicable, or (ii) it
is not reasonably practicable for the Fund to determine the value of its net
assets, or (c) for such other periods as the SEC may by order permit for the
protection of the Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the IRS 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 Code, and (b) that the conversion of Class B shares to Class A shares
does not constitute a taxable event under the 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.
OFFICERS AND DIRECTORS
The officers and directors of the Fund, their birthdates, their principal
occupations, addresses, and their affiliations, if any, with the Adviser and KDI
are listed below. All persons named as directors also serve in similar
capacities for other funds managed by the Adviser.
DIRECTORS.
JAMES E. AKINS (10/15/26), Director, 2904 Garfield Terrace N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly, a career United States Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi Arabia, 1973-1976.
ARTHUR R. GOTTSCHALK (2/13/25), Director, 10642 Brookridge Drive,
Frankfort, Illinois; Retired; formerly, President, Illinois Manufacturers
Association; Trustee, Illinois Masonic Medical Center; formerly, Illinois State
Senator; formerly, Vice President, The Reuben H. Donnelley Corp.; formerly,
attorney.
FREDERICK T. KELSEY (4/25/27), Director, 738 York Court, Northbrook,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Northern Institutional Funds; formerly,
Trustee of the Pilot Funds.
FRED B. RENWICK (2/1/30), Director, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Warburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church in America.
*THOMAS W. LITTAUER (4/26/55), Director, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper; formerly, Head of Broker
Dealer Division of an unaffiliated investment management firm during 1997; prior
thereto, President of Client Management Services of an unaffiliated investment
management firm from 1991 to 1996.
JOHN G. WEITHERS (8/8/33), Director, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
OFFICERS
*CORNELIA M. SMALL (7/28/44), Chairman, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
46
<PAGE> 49
*MARK S. CASADY (9/21/60), President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
*PHILIP J. COLLORA (11/15/45), Vice President and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper.
*THOMAS W. LITTAUER (4/26/55), Vice President, Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper.
*ANN M. MCCREARY (11/6/56), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
*KATHRYN L. QUIRK (12/3/52), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
*LINDA J. WONDRACK (9/12/64), Vice President, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
*JOHN R. HEBBLE (6/27/58), Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
*BRENDA LYONS (2/21/63), Assistant Treasurer, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
*CAROL L. FRANKLIN ( ), Vice President, 345 Park Avenue, New York,
New York; Managing Director, Scudder Kemper
*JOAN R. GREGORY ( ), Vice President, 345 Park Avenue, New York,
New York; Vice President, Scudder Kemper.
*MARC SLENDEBROEK ( ), Vice President, 345 Park Avenue, New York,
New York; Vice President, Scudder Kemper.
*CAROLINE PEARSON (4/1/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
*MAUREEN E. KANE (2/14/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
*ELIZABETH C. WERTH (10/1/47), Assistant Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Vice President, Scudder Kemper; Vice President and
Director of State Registrations, KDI.
- ---------------
* Interested persons of the Fund as defined in the 1940 Act.
The directors and officers who are "interested persons" as designated above
receive no compensation from the Fund. The tables below shows amounts estimated
to be paid or accrued to those directors who are not designated "interested
persons" during the Fund's first full fiscal year following its reorganization
to open-end status except that the information in the last column is for
calendar year 1998.
47
<PAGE> 50
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
ESTIMATED AGGREGATE KEMPER FUND COMPLEX PAID
COMPENSATION TO BOARD
NAME OF DIRECTOR FROM FUND(1) MEMBERS(2)
- ---------------- ------------------- ------------------------
<S> <C> <C>
James E. Akins............................ $130,000
Arthur R. Gottschalk(1)................... $133,200
Frederick T. Kelsey(1).................... [TO BE PROVIDED BY $130,500
SCUDDER KEMPER]
Fred B. Renwick........................... $130,500
John G. Weithers.......................... $134,800
</TABLE>
- ---------------
(1) Includes deferred fees pursuant to deferred compensation agreements with
certain Kemper funds. Deferred amounts accrue interest monthly at a rate
equal to the yield of Zurich Money Funds -- Zurich Money Market Fund.
(2) Includes compensation for service on the Boards of [15] Kemper Funds with
[53] fund portfolios. Each Director currently serves as a board member of
[15] Kemper funds with [53] fund portfolios.
As of the date the Fund's Registration Statement became effective, the
directors and officers as a group owned less than 1% of the then outstanding
shares of the Fund and no person owned of record more than 5% of the outstanding
shares of any class of the Fund, except as shown below:
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS CLASS PERCENTAGE
- ---- ---------------- -------- ----------
<C> <S> <C> <C>
[TO BE PROVIDED BY SCUDDER KEMPER]
</TABLE>
ORGANIZATION OF THE FUND
The Fund was organized as a Maryland corporation on November 22, 1989. The
Fund began operations on February 9, 1990 as a closed-end management investment
company. On July 20, 1999, the fund's shareholders approved the conversion of
the Fund to an open-end investment company and the reorganization of the Fund
with Kemper Europe Fund. As a result of the reorganization, the Fund changed its
name to "Kemper Europe Fund, Inc." and issued newly designated Class A, Class B
and Class C shares to the shareholders of Kemper Europe Fund and Class M shares
to its existing shareholders. Class M shares will automatically convert to Class
A shares one year after the date of this Statement of Additional Information.
Currently, the Fund offers three classes of shares. These are Class A,
Class B and Class C shares, which have different expenses, which may affect
performance. Shares of the Fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive voting rights with
respect to the Fund's Rule 12b-1 Plan. Shares of each class also have equal
rights with respect to dividends, assets and liquidation of such Fund subject to
any preferences (such as resulting from different Rule 12b-1 distribution fees),
rights or privileges of any classes of shares of the Fund. Shares are fully paid
and nonassessable when issued, are transferable without restriction and have no
preemptive rights. Class B Shares will convert to Class A Shares six years after
issuance and Class M shares will convert to Class A Shares one year after the
date of this Statement of Additional Information. The Fund is not required to
hold annual shareholder meetings and does not intend to do so. However, it will
hold special meetings as required or deemed desirable for such purposes as
electing directors, changing fundamental policies or approving an investment
management agreement. Subject to the Articles and By-laws of the Fund,
shareholders may remove directors.
Each director serves until the next meeting of shareholders, if any, called
for the purpose of electing directors and until the election and qualification
of a successor or until such director sooner dies, resigns, retires or is
removed by a majority vote of the shares entitled to vote (as described below).
In accordance with the 1940 Act (a) the Fund will hold a shareholder meeting for
the election of directors at such time as less than a majority of the directors
have been elected by shareholders, and (b) if, as a result of a vacancy in the
Board of Directors, less than two-thirds of the directors have been elected by
the shareholders, that vacancy will be filled only by a vote of the
shareholders.
48
<PAGE> 51
Directors may be removed from office by a vote of the holders of a majority
of the outstanding shares at a meeting called for that purpose, which meeting
shall be held upon the written request of the holders of not less than 10% of
the outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a director, the
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Fund's Articles provide that the presence at a shareholder meeting in
person or by proxy of at least one-third of the shares entitled to vote on a
matter shall constitute a quorum. Thus, a meeting of shareholders of the Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of directors and ratification of the selection of
independent auditors. Investors in the Fund are entitled to one vote for each
full share held and fractional votes for fractional shares held. Shareholders of
the Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements.
49
<PAGE> 52
APPENDIX
The following is a description of the ratings given by S&P and Moody's to
corporate bonds.
RATINGS OF CORPORATE BONDS
S&P:
Debt rated AAA has the highest rating assigned by S&P. 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 Cl 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 winch make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to
<PAGE> 53
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 both 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.
2
<PAGE> 1
[LOGO] SCUDDER
New Europe
Fund, Inc.
Annual Report
October 31, 1998
A closed-end investment company seeking long-term capital appreciation through
investments primarily in the equity securities of companies traded on smaller or
emerging European markets, as well as companies likely to benefit from changes
and developments throughout Europe.
<PAGE> 2
[LOGO] Scudder New Europe Fund, Inc.
================================================================================
Investment objective and policies
o long-term capital appreciation through investment primarily in the equity
securities of companies traded on smaller or emerging European markets, as
well as companies likely to benefit from changes and developments
throughout Europe
Investment characteristics
o a non-diversified closed-end investment company
o a convenient vehicle for participation in opportunities available in
smaller and emerging European markets and that result from the dynamic
changes affecting Europe
Contents
================================================================================
In Brief 3
Letter to Shareholders 3
Investment Summary 7
Portfolio Summary 8
Investment Portfolio 9
Financial Statements 14
Financial Highlights 17
Notes to Financial Statements 18
Report of Independent Accountants 22
Tax Information 23
Investment Manager 24
Dividend Reinvestment and
Cash Purchase Plan 25
Directors and Officers 27
General Information
================================================================================
Executive offices
Scudder New Europe Fund, Inc.
345 Park Avenue
New York, NY 10154
For Fund information: 1-800-349-4281
Transfer agent, registrar and dividend reinvestment plan agent
Boston EquiServe
Investor Relations Department
P.O. Box 8200
Boston, MA 02266-8200
Telephone: 1-800-426-5523
Custodian
Brown Brothers Harriman & Co.
Legal Counsel
Willkie Farr & Gallagher
Independent Accountants
PricewaterhouseCoopers LLP
New York Stock Exchange Symbol -- NEF
Net Asset Value
The Fund's net asset value is listed in the following publications:
The Wall Street Journal (Mondays)
The New York Times
Barron's
The Financial Times
- --------------------------------------------------------------------------------
This report is sent to the shareholders of Scudder New Europe Fund, Inc. for
their information. It is not a prospectus, circular, or representation intended
for use in the purchase or sale of shares of the Fund or of any securities
mentioned in the report.
- --------------------------------------------------------------------------------
2
<PAGE> 3
[LOGO] Scudder New Europe Fund, Inc.
In Brief
================================================================================
o Despite volatility associated with the crises overseas, the fundamental
picture in Europe remains quite sound. An ongoing emphasis on
restructuring and shareholder value continues to benefit the corporate
sector, and the European Monetary Union should act as a positive catalyst
for change.
o In selecting individual stocks throughout this period of market
turbulence, we emphasized companies with domestically based franchises,
recovering growth in their core markets, and minimal exposure to external
economic weakness.
[LOGO] Letter to Shareholders
================================================================================
Dear Shareholders:
For the twelve-month period ended October 31, 1998, Scudder New Europe Fund's
shares quoted on the New York Stock Exchange returned 39.56% to close at
$18.875, beating the 23.06% return of the unmanaged benchmark, the MSCI Europe
Index. The 27.70% return based on the Fund's net asset value was slightly lower.
The Fund's market price reflected a 15.09% discount to the NAV of $22.23 on
October 31.
Market Performance
European markets staged a remarkable climb over the twelve-month period,
propelled by low interest rates, upward revisions in continental European
earnings, ongoing merger activity, and the positive effects of a strong U.S.
dollar. Despite problems in Asia, several European markets continued to test new
highs until mid-July, when stocks fell sharply following the intensification of
the crises in the emerging markets, the rescue of U.S. hedge fund Long Term
Capital Management, and the numerous profit downgrades from prominent global
corporations. These events raised questions about the sustainability of Europe's
nascent recovery, and clouded the outlook for corporate earnings. Most
important, the crisis focused attention on the excessive level of bank loans to
the developing countries, causing sharp losses in financial stocks. Following
weeks of indiscriminate liquidation, markets began to bounce back by mid-October
in response to constructive policy initiatives in Japan and Brazil and lower
rates in the United States. We believe that in the early part of the year
European markets went up too far, too fast, but have since returned to more
realistic levels as risks have become more evident.
The Economic Environment
Despite the volatility in the financial markets, the fundamentals of the
European economy remained quite sound. Although growth in 1998 and 1999 should
fall short of expectations as global demand slows and a stronger euro puts
pressure on exports, Europe is likely to show economic growth of over 2% in
1999, which is relatively attractive on a global basis. Consumer confidence is
high, and resilient household spending, supported by a reduction in personal
income taxes in several countries, should offset weakness in exports and capital
investment. The rise of more Social Democratic parties in Europe and new,
left-of-center governments in Germany and Italy may amplify the policy bias in
favor of the consumer through a possible relaxation of fiscal policy. The
direction of monetary policy also appears favorable as central banks
aggressively cut interest rates ahead of the launch of the euro. Although we
have seen substantial downward revisions in corporate earnings, the European
corporate sector maintains strong cash
3
<PAGE> 4
[LOGO] Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
flow and boasts the lowest level of debt in over ten years.
The European Monetary Union (EMU) should continue to be a catalyst for change in
the evolving European landscape. As the continent moves toward an integrated
market, the need to consolidate production and gain economies of scale will
become more pressing in an increasingly competitive environment. European
companies tend to have little debt, providing them with the financial strength
necessary to pursue growth and acquisition activity, or to buy back shares as a
more shareholder-oriented perspective develops. Deregulation continues to move
forward as governments privatize previously nationalized industries such as
utilities, telecoms, and airlines.
The outlook for the European Monetary Union remains stable despite political
crosscurrents, setting the stage for a stronger, more efficient economy in
continental Europe. The EMU block survived a serious test when historically
volatile currencies such as the Spanish peseta and the Italian lira remained
stable against the deutschemark through the recent market turbulence. The end of
the Kohl era in Germany in September and the recent election of an ex-communist
to the prime minister post in Italy has shifted the tone of the debate
concerning monetary policy, with politicians now calling for the new European
Central Bank (ECB) to lower interest rates throughout Europe. We do not believe
that the independence of the ECB is threatened by these pressures. Indeed, for
the core countries of Europe, specifically Germany, one of the risks of
integration is a rate policy that is set too tight to contain potential
inflationary "bubbles" in the more rapidly growing economies of the European
periphery. Given an environment of slower economic growth, it is likely that the
ECB -- with or without political urging -- will lower rates next year to give
core countries the breathing room they need, while affording the peripheral
nations the latitude to continue their expansion. We are hopeful that the EMU
will act as a positive catalyst for many of the changes that Europe needs by
providing an impetus for deregulation and liberalization. Additionally, a
successful launch stands to reduce the expenses associated with currency
exchange, and create new opportunities for scale and efficiency.
Portfolio Strategy
The Fund continues to invest in niche players, companies benefiting from
structural changes in less developed markets, and smaller firms possessing a
strong global franchise. Portfolio returns over the twelve-month period were
boosted by the performance of core holdings with strong, reliable earnings,
superb managements, and high quality franchises. Marschollek Lautenschlager
(MLP), the German financial services group, returned 114%, while Portuguese
retailer Jeronimo Martins and German computer software manufacturer SAP rose 59%
and 57%, respectively. French outsourcer Altran Technologies returned a
spectacular 170%, while Telepizza, Spain's preeminent pizza delivery company,
rose a stellar 131%. Nokia (+104%), the global manufacturer of cellular
infrastructure based in Finland, U.K. global food caterer Compass (+85%), and
Spanish wine maker Baron de Ley (+79%) also made significant contributions to
performance.
In selecting stocks for the portfolio, we emphasized companies with domestically
based franchises, recovering growth in their core markets, and minimal exposure
to external economic weakness. Douglas, a German retailer focused on fashion,
cosmetics, and jewelry, is a recent addition to the portfolio that effectively
4
<PAGE> 5
[LOGO] Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
illustrates our strategy. Excellent customer service, product diversity, and an
investment in training personnel has resulted in leading market positions in a
number of targeted areas. Douglas, whose perfume business has been a source of
outstanding growth, has established a leading position in the perfume markets of
Holland, Austria, and Italy, and has set a goal of becoming the number one
perfume distributor in Europe.
L'Espresso in Italy manages a portfolio of newspaper, magazine, and radio
businesses on both the local and the national level. A number of positive
developments should result in higher revenue growth for the company, including
improved content in their publications, a buoyant Italian advertising market,
and increased circulation. Additionally, a reduction in headcount and labor
costs should help to reduce the company's expenses. We believe that the
acquisition of two local newspapers with profit margins well above L'Espresso's
will result in important integration synergies involving joint distribution,
marketing, and purchasing power.
Brisa, a Portuguese operator of toll motorways, operates a state-of-the-art toll
system whose high level of efficiency promotes increased usage by motorists. In
an environment of strong economic growth, traffic will be driven by longer
motorways and the rising level of car ownership that will result when Portugal's
per capita income catches up with other European countries. Cash-rich and facing
no tax liability until 2005, Brisa's strong revenue growth gives the stock
strong defensive qualities.
Year 2000 Readiness
Like other registered investment companies and financial business organizations
worldwide, the Fund could be adversely affected if computer systems on which the
Fund relies, which primarily include those used by the Fund's Manager, its
affiliates or other service providers, are unable to correctly process
date-related information on and after January 1, 2000. This risk is commonly
called the Year 2000 Issue (Y2K). Failure to successfully address the Y2K Issue
could result in interruptions to and other material adverse effects on the
Fund's business and operations. Scudder Kemper Investments has commenced a
review of the Y2K Issue as it may affect the Fund and is taking steps it
believes are reasonably designed to address the Y2K Issue, although there can be
no assurances that these steps will be sufficient. In addition, there can be no
assurances that the Y2K Issue will not have any adverse effect on the companies
whose securities are held by the Fund or on global markets or economies
generally. The foregoing is a year 2000 readiness disclosure under the Year 2000
Information and Readiness Disclosure Act.
Euro Conversion
The planned introduction of a new European currency, the euro, may result in
uncertainties for European securities in the markets in which they trade and
with respect to the operation of the Fund's portfolio. Currently, the euro is
expected to be introduced on January 1, 1999 by eleven European countries that
are members of the European and Monetary Union (EMU). The introduction of the
euro will require the redenomination of European debt and equity securities over
a period of time, which may result in various accounting differences and/or tax
treatments that otherwise would not likely occur. Additional questions are
raised by the fact that certain other EMU members, including the United Kingdom,
will not officially be implementing the euro on January 1, 1999. If the
introduction of the euro does not take place as planned, there could be negative
effects, such as
5
<PAGE> 6
[LOGO] Scudder New Europe Fund, Inc.
Letter to Shareholders
================================================================================
severe currency fluctuations and market disruptions.
The Manager is actively working to address euro-related issues and understands
that other key service providers are taking similar steps. At this time, no one
knows precisely what the degree of impact will be. To the extent that the market
impact or effect on a portfolio holding is negative, it could hurt the
portfolio's performance.
The Outlook
Although we have seen a number of policy responses to the recent global crisis
from world governments, the global economic environment still presents a number
of concerns. Despite the potential for further volatility in the equity markets,
macroeconomic and corporate fundamentals in Europe remain attractive on a global
basis. In this environment, we will continue to invest in smaller companies with
high quality growth characteristics, excellent managements, and dependable
franchises.
Respectfully,
/s/ Nicholas Bratt /s/ Daniel Pierce
Nicholas Bratt Daniel Pierce
President Chairman of the Board
6
<PAGE> 7
[LOGO] Scudder New Europe Fund, Inc.
Investment Summary as of October 31, 1998
================================================================================
<TABLE>
<CAPTION>
Historical
Information Total Return (%)
Life of Fund ---------------------------------------------------------------
Market Value Net Asset Value (a) Index (b)
------------------- -------------------- -------------------
Average Average Average
Cumulative Annual Cumulative Annual Cumulative Annual
------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Current Quarter -14.45 -- -16.65 -- -9.36 --
One Year 39.56 39.56 27.70 27.70 23.06 23.06
Three Years 112.80 28.62 94.02 24.72 82.11 22.10
Five Years 112.80 16.30 139.63 19.10 129.35 18.05
Life of Fund* 100.43 8.31 155.47 11.37 200.09 13.50
</TABLE>
- --------------------------------------------------------------------------------
Per Share Information and Returns (a)
Yearly periods ended October 31
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
<TABLE>
<CAPTION>
1990* 1991 1992 1993 1994 1995 1996 1997 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value....... $11.01 $10.12 $ 9.12 $10.72 $11.61 $13.24 $16.60 $19.96 $22.23
Income Dividends...... $ -- $ .47 $ .15 $ .08 $ -- $ -- $ .05 $ .06 $ .09
Capital Gains and
Other Distributions... $ -- $ .20 $ .15 $ .18 $ -- $ -- $ -- $ -- $ 2.11
Total Return (%)...... -4.68 -1.26 -6.65 21.33 8.30 14.04 25.92 20.66 27.70
</TABLE>
(a) 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. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
(b) Morgan Stanley Capital International (MSCI) Europe Index (14)
* The Fund commenced operations on February 16, 1990. Index comparisons
began on February 28, 1990.
Past results are not necessarily indicative of future performance of the
Fund.
7
<PAGE> 8
[LOGO] Scudder New Europe Fund, Inc.
Portfolio Summary as of October 31, 1998
================================================================================
Geographical
Geographical breakdown of the Fund's equity securities
<TABLE>
<S> <C>
Germany 16%
France 15%
United Kingdom 14%
Italy 12%
Spain 10%
Portugal 9%
Netherlands 6%
Finland 6%
Switzerland 4%
Other 8%
----
100%
====
</TABLE>
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- --------------------------------------------------------------------------------
Sectors
Sector breakdown of the Fund's equity securities
<TABLE>
<S> <C>
Financial 24%
Consumer Discretionary 15%
Service Industries 14%
Technology 9%
Durables 8%
Consumer Staples 7%
Communications 6%
Manufacturing 6%
Media 4%
Other 7%
----
100%
====
</TABLE>
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- --------------------------------------------------------------------------------
Ten Largest Equity Holdings
1. Marschollek Lautenschlaeger und Partner AG
Leading German independent life insurance company
2. Getronics NV
Dutch provider of computer installation and maintenance services
3. Banca Popolare di Brescia SpA
Cooperative bank in Italy
4. Nokia AB
Finnish manufacturer of telecommunication systems and equipment
5. Jeronimo Martins SA
Portuguese food producer and retailer
6. Altran Technologies, SA
French engineering and consulting services firm for aerospace,
telecommunications and electronics fields
7. SAP AG
Computer software manufacturer in Germany
8. Baloise Holding Ltd.
Multi-line Swiss insurance company
9. TelePizza, SA
Operator of fast food pizza restaurants in Spain, Portugal, Poland, Mexico
and Chile
10. Provident Financial PLC
Insurance and personal credit company in the United Kingdom
8
<PAGE> 9
[LOGO] Scudder New Europe Fund, Inc.
Investment Portfolio as of October 31, 1998
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 11.1%
United States
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/30/1998 at 5.4%
to be repurchased at $39,956,973 on 11/2/1998, collateralized by a $39,831,000
U.S. Treasury Bond, 3.625%, 4/15/2028 (Cost $39,939,000) ........................... 39,939,000 39,939,000
-----------
- ----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS 0.1%
France
Leon De Bruxelles SA, 2%, 7/1/2003 (Operator of low cost family restaurants)
(Cost $333,776) .................................................................... FRF 1,836,570 360,920
-----------
- ----------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 0.4%
<CAPTION>
Shares
----------
<S> <C> <C>
Belgium
Lernout & Hauspie Speech Products N.V., 4.75%,* (Developer of advanced speech
technologies) (Cost $2,000,000) .................................................... 40,000 1,430,000
-----------
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 88.4%
Austria 0.2%
Schoeller Bleckmann Oilfield Equipment AG (Manufacturer of components for oil
and gas drilling equipment) ........................................................ 12,770 843,845
-----------
Croatia 0.6%
Pliva D.D. (GDR) (Pharmaceutical company) ............................................ 158,000 2,322,600
-----------
Finland 5.1%
JOT Automation Group Oyj* (Developer and manufacturer of high technology
production automation systems and equipment) ....................................... 137,000 3,345,112
Nokia AB "A" (Manufacturer of telecommunication systems and equipment) ............... 95,600 8,701,261
Pohjola Insurance Co., Ltd. "B" (Insurance company) .................................. 76,000 3,107,891
Tieto Corp. (Manufacturer of computer software) ...................................... 106,200 3,080,064
-----------
18,234,328
-----------
France 13.5%
Alliance et Gestion Commerciale SA (Manufacturer and retailer of modular
buildings) ......................................................................... 26,500 2,570,593
Altran Technologies, SA (Engineering and consulting services for aerospace,
telecommunications and electronics fields) ......................................... 39,628 7,752,297
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 10
[LOGO] Scudder New Europe Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dassault Systemes SA (Developer of computer aided design, manufacturing and
engineering software) ................................................................. 105,326 4,018,557
Dexia France (Municipal and local development financing) ................................ 31,343 4,619,800
Eiffage (Civil engineering, construction and real estate services) ...................... 46,300 3,824,656
Entrelec Groupe SA (Manufacturer of low-tension electric equipment) ..................... 60,000 3,390,624
Galeries Lafayette (Group of department stores and supermarkets chains) ................. 2,525 2,799,244
Genset SA* (DNA technology) ............................................................. 7,636 698,117
Leon de Bruxelles SA (Operator of low cost family restaurants) .......................... 51,700 4,186,988
Publicis SA (International advertising company) ......................................... 28,400 4,497,795
Royal Canin SA (Producer of dry cat and dog food) ....................................... 35,000 1,889,679
Societe Industrielle de Transports Automobiles SA (Operator of waste collection
service) .............................................................................. 8,222 2,124,861
Transgene SA (ADR)* (Developer of gene therapy technologies) ............................ 30,427 444,995
Valeo SA (Automobile and truck components manufacturer) ................................. 64,444 5,578,613
Valeo SA (Warrants) expire 8/7/2001 ..................................................... 39,000 210,564
-----------
48,607,383
-----------
Germany 14.1%
Adidas-Salomon AG (Manufacturer of sport shoes, clothing and equipment) ................. 20,130 2,357,513
Boewe Systec AG (Manufacturer of automated paper management systems) .................... 64,000 2,530,637
Douglas Holdings AG (Marketer of a broad range of high-end retail products) ............. 63,545 3,644,295
Hawesko Holding AG* (Marketer of wines and liqueurs and related products) ............... 39,000 1,977,664
LHS Group Inc.* (Client/server-based billing and customer care software
and services) ......................................................................... 78,700 3,316,185
Marschollek Lautenschlaeger und Partner AG (pfd) (Leading independent life
insurance company) .................................................................... 49,510 25,255,629
Pfeiffer Vacuum Technology AG* (ADR) (Manufacturer of various pumps and vacuum
systems) .............................................................................. 95,714 4,534,451
SAP AG (pfd.) (Computer software manufacturer) .......................................... 15,000 7,307,576
-----------
50,923,950
-----------
Greece 2.1%
Delta Informatics SA (Corporate information services) ................................... 237,000 4,412,906
National Bank of Greece SA (Full service bank) .......................................... 21,000 2,984,862
-----------
7,397,768
-----------
Hungary 1.0%
Magyar Olaj-es Gazipari Rt (Integrated domestic oil and gas company) .................... 36,600 821,121
OTP Bank Rt (Savings and commercial bank) ............................................... 80,500 2,865,430
-----------
3,686,551
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 11
[LOGO] Scudder New Europe Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ireland 1.3%
Elan Corp. PLC (ADR)* (Research and development of drug delivery technology) ............ 65,000 4,554,063
-----------
Italy 11.0%
Assicurazioni Generali SpA (Life and property insurance company) ........................ 110,888 3,971,522
Autogrill SpA (Operator of highway and self service restaurants and snack bars) ......... 602,500 4,587,815
Banca Carige SpA (Commercial bank) ...................................................... 125,000 1,073,857
Banca Popolare di Brescia SpA (Cooperative bank) ........................................ 391,000 9,208,701
Bulgari SpA (Manufacturer and retailer of fine jewelry, luxury watches and
perfumes) ............................................................................. 652,000 3,572,385
Gewiss SpA (Manufacturer of electrical components) ...................................... 200,000 4,185,607
Gruppo Editoriale L'Espresso (Publisher) ................................................ 524,500 4,672,321
La Rinascente SpA di Risparmio (Department store chain) ................................. 700,000 3,166,967
Luxottica Group SpA (ADR) (Manufacturer and marketer of eyeglasses) ..................... 105,200 946,799
Telecom Italia SpA di Risparmio (Telecommunications, electronics,
network construction) ................................................................. 825,000 4,157,845
-----------
39,543,819
-----------
Netherlands 5.5%
Getronics NV (Provider of computer installation and maintenance services) ............... 226,349 9,389,310
Nutreco Holding NV (Producer of livestock feed and nutrition) ........................... 146,700 4,986,057
Qiagen NV* (Biopharmaceutical company) .................................................. 60,500 3,675,375
Tas Groep NV* (Software developer) ...................................................... 369,600 1,681,529
-----------
19,732,271
-----------
Poland 1.0%
Bank Rozwoju Eksportu SA (Export bank) .................................................. 28,040 598,154
Bydgoska Fabryka Kabli SA* (Manufacturer of cables, wires and insulating
materials) ............................................................................ 130,000 437,672
ITI Group SA* (Telecommunication services) (b) .......................................... 10,524 2,625,738
Mostostal Krakow SA* (Heavy construction company) ....................................... 118,234 133,830
-----------
3,795,394
-----------
Portugal 8.0%
Banco Portugues do Investimento (Bank) .................................................. 99,800 3,060,107
Brisa-Auto Estradas de Portugal, SA (Builder and operator of motorways) ................. 36,500 1,767,913
Cimentos de Portugal SA (Manufacturer of cement, ready mix concrete
and aggregates) ....................................................................... 150,000 5,184,651
Corporacion Industrial do Norte (Paint producer and distributor) ........................ 29,200 1,228,388
Jeronimo Martins SA (Food producer and retailer) ........................................ 192,996 8,359,771
Portugal Telecom SA (Telecommunication services) ........................................ 110,300 5,225,642
Telecel-Comunicacoes Pessoais, SA (Cellular communication services) ..................... 22,300 4,107,877
-----------
28,934,349
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
[LOGO] Scudder New Europe Fund, Inc.
Investment Portfolio
================================================================================
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Spain 8.5%
Adolfo Dominguez SA* (Designer clothing retail chain) ................................... 47,700 1,293,582
Aldeasa SA (Operator of airport duty-free shops) ........................................ 68,100 2,320,602
Banco Pastor SA (Commercial bank) ....................................................... 57,830 3,091,438
Baron de Ley, SA* (Wine producer) ....................................................... 158,000 5,277,510
Compania Telefonica Nacional de Espana SA (Telecommunication services) .................. 32,727 1,477,664
Compania Telefonica Nacional de Espana SA (ADR) (Telecommunication services) ............ 20,609 2,822,145
Cortefiel, SA (Owner and operator of various retail clothing stores) .................... 185,100 4,572,966
Metrovacesa, SA (Property holding company that leases and sells apartment blocks,
parking garages, and office blocks) ................................................... 108,063 3,118,530
TelePizza, SA* (Operator of fast food restaurants) ...................................... 787,680 6,430,726
-----------
30,405,163
-----------
Switzerland 3.8%
Adecco SA (Bearer) (Personnel and temporary employment company) ......................... 11,539 4,597,211
Baloise Holding Ltd. (Registered) (Multi-line insurance company) ........................ 8,100 6,681,275
Gretag Imaging Group (Registered) (Manufacturer of image processing equipment
and systems) .......................................................................... 25,546 2,318,251
-----------
13,596,737
-----------
Turkey 0.7%
Migros Turkey (Retailer) ................................................................ 2,787,750 2,371,482
-----------
United Kingdom 12.0%
Aegis Group PLC (Leading independent media services group) .............................. 2,250,000 3,483,806
Avis Europe PLC (Car rental services) ................................................... 1,213,000 5,299,452
British-Borneo Oil & Gas PLC (Oil and natural gas exploration and production
company) .............................................................................. 617,142 2,319,162
Cobham PLC (Manufacturer of aerospace components) ....................................... 396,000 4,984,742
Compass Group PLC (International catering group) ........................................ 540,000 5,468,634
Flextech PLC* (Broadcaster of entertainment programs) ................................... 214,180 2,007,690
Misys PLC (Provider of computer, support and data services) ............................. 646,490 4,534,251
Provident Financial PLC (Personal finance group) ........................................ 392,716 5,919,595
Serco Group PLC (Facilities management company) ......................................... 265,000 4,613,270
Taylor Nelson Sofres PLC (Market research company) ...................................... 3,191,000 4,673,747
-----------
43,304,349
-----------
Total Common Stocks (Cost $184,981,183) ................................................. 318,254,052
-----------
- ----------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio--100.0% (Cost $227,253,959) (a) .............................. 359,983,972
-----------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 13
[LOGO] Scudder New Europe Fund, Inc.
Investment Portfolio
================================================================================
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $230,444,509. At
October 31, 1998, net unrealized appreciation for all securities
based on tax cost was $129,539,463. This consisted of aggregate
gross unrealized appreciation for all securities in which there was
an excess of market value over tax cost of $135,761,310 and
aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over market value of $6,221,847.
(b) Securities valued in good faith by the Valuation Committee of the
Board of Directors at fair value amounted to $2,625,738 (0.73% of
net assets). These values have been estimated by the Valuation
Committee in the absence of readily ascertainable market values.
However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would
have been used had a ready market for the securities existed, and
the difference could be material. The cost of these securities at
October 31, 1998 aggregated $1,999,560. These securities may also
have certain restrictions as to resale.
Transactions in written call options on currencies during the year ended
October 31, 1998 were:
<TABLE>
<CAPTION>
Principal Amount
(000s) Premiums ($)
------------------------------------------------
<S> <C> <C> <C>
Outstanding at
October 31, 1997 ... FRF 196,000 617,400
Contracts written .. FRF -- --
Contracts closed ... FRF (196,000) (617,400)
------------------------------------------------
Outstanding at
October 31, 1998 ... FRF -- --
========= =========
</TABLE>
Currency Abbreviations: FRF French Franc
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
[LOGO] Scudder New Europe Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market (including repurchase agreement of $39,939,000)
(identified cost $227,253,959) ...................................................... $ 359,983,972
Foreign currency holdings, at market (identified cost $2,451,979) ...................... 2,452,507
Receivable for investments sold ........................................................ 1,484,050
Dividends and interest receivable ...................................................... 55,600
Foreign taxes recoverable .............................................................. 294,116
Other assets ........................................................................... 2,013
----------------
Total assets ........................................................................... 364,272,258
----------------
LIABILITIES
Due to custodian bank .................................................................. 162,977
Payable for investments purchased ...................................................... 5,042,734
Accrued management fee ................................................................. 324,834
Other payables and accrued expenses .................................................... 220,343
----------------
Total liabilities ...................................................................... 5,750,888
----------------
Net assets, at market value ............................................................ $ 358,521,370
================
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net investment income ........................... (2,821,052)
Unrealized appreciation (depreciation) on:
Investments ......................................................................... 132,730,013
Foreign currency related transactions ............................................... 24,207
Accumulated net realized gain (loss) ................................................... 47,655,147
Paid-in capital ........................................................................ 180,933,055
----------------
Net assets, at market value ............................................................ $ 358,521,370
================
Net asset value per share ($358,521,370 / 16,124,566 shares of common stock
issued and outstanding, $.01 par value, 100,000,000 shares authorized) .............. $22.23
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE> 15
[LOGO] Scudder New Europe Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
Statement of Operations
Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $574,294) .................................. $ 3,896,731
Interest ............................................................................... 1,181,944
----------------
5,078,675
----------------
Expenses:
Management fee ......................................................................... 4,151,077
Custodian and accounting fees .......................................................... 615,031
Directors' fees and expenses ........................................................... 98,708
Reports to shareholders ................................................................ 91,818
Auditing ............................................................................... 69,780
Services to shareholders ............................................................... 37,460
Legal .................................................................................. 5,403
Other .................................................................................. 39,603
----------------
5,108,880
----------------
Net investment income (loss) ........................................................... (30,205)
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ............................................................................ 47,792,111
Written options ........................................................................ (668,164)
Foreign currency related transactions .................................................. (115,621)
----------------
47,008,326
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................................ 24,333,139
Written options ........................................................................ 986,497
Foreign currency related transactions .................................................. 25,608
----------------
25,345,244
----------------
Net gain (loss) on investment transactions ............................................. 72,353,570
----------------
Net increase (decrease) in net assets resulting from operations ........................ $ 72,323,365
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE> 16
[LOGO] Scudder New Europe Fund, Inc.
Financial Statements
================================================================================
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended October 31,
-------------------------------------
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .......................................... $ (30,205) $ (99,311)
Net realized gain (loss) from investment transactions ................. 47,008,326 38,325,303
Net unrealized appreciation (depreciation) on investment
transactions during the period ..................................... 25,345,244 16,585,461
---------------- ----------------
Net increase (decrease) in net assets resulting from operations ....... 72,323,365 54,811,453
---------------- ----------------
Distributions to shareholders from:
Net investment income .............................................. (1,444,424) (962,847)
---------------- ----------------
Net realized gains from investment transactions .................... (33,783,456) --
---------------- ----------------
Fund shares transactions:
Reinvestment of distributions ...................................... 1,132,492 26,057
---------------- ----------------
Increase (decrease) in net assets ..................................... 38,227,977 53,874,663
Net assets at beginning of period ..................................... 320,293,393 266,418,730
---------------- ----------------
Net assets at end of period (including accumulated distributions
in excess of net investment income of $(2,821,052) and
$(562,639), respectively) .......................................... $ 358,521,370 $ 320,293,393
================ ================
Other Information
Increase (decrease) in Fund Shares
Shares outstanding at beginning of period ............................. 16,049,224 16,047,487
Shares issued to shareholders in reinvestment of distributions ........ 75,342 1,737
---------------- ----------------
Shares outstanding at end of period ................................... 16,124,566 16,049,224
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
16
<PAGE> 17
[LOGO] Scudder New Europe Fund, Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements and market price data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended October 31,
------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .................. $ 19.96 $ 16.60 $ 13.24 $ 11.61 $ 10.72
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (a) ...................... -- (.01) .05 .05 .02
Net realized and unrealized gain (loss)
on investment transactions .......................... 4.47 3.43 3.36 1.58 .87
------- ------- ------- ------- -------
Total from investment operations ...................... 4.47 3.42 3.41 1.63 .89
------- ------- ------- ------- -------
Less distributions from:
Net investment income ................................. (.09) (.06) (.05) -- --
Net realized gains on investment
transactions ........................................ (2.11) -- -- -- --
------- ------- ------- ------- -------
Total distributions ................................... (2.20) (.06) (.05) -- --
------- ------- ------- ------- -------
Net asset value, end of period ........................ $ 22.23 $ 19.96 $ 16.60 $ 13.24 $ 11.61
======= ======= ======= ======= =======
Market value, end of period ........................... $ 18.88 $ 15.50 $ 14.00 $ 10.25 $ 9.75
======= ======= ======= ======= =======
Total Return
Per share market value (%) ............................ 39.56 11.16 37.18 5.13 (4.88)
Per share net asset value (%) (b) ..................... 27.70 20.66 25.92 14.04 8.30
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................ 359 320 266 213 186
Ratio of operating expenses to average
net assets (%) ...................................... 1.41 1.49 1.51 1.62 1.67
Ratio of net investment income (loss) to
average net assets (%) .............................. (.01) (.03) .31 .39 .20
Portfolio turnover rate (%) ........................... 41.4 44.7 35.3 32.4 43.2
</TABLE>
(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. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market price.
- --------------------------------------------------------------------------------
17
<PAGE> 18
[LOGO] Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
A. Significant Accounting Policies
Scudder New Europe Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end management
investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on such system. If there are no such sales, the value is the most
recent bid quotation. Securities which are not quoted on Nasdaq but are traded
in another over-the-counter market are valued at the most recent sale price on
such market. If no sale occurred, the security is then valued at the mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities other than money market instruments with an original
maturity over sixty days are valued by pricing agents approved by the officers
of the Fund, whose quotations reflect broker/dealer-supplied valuations and
electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund held put options and written call options on currencies
primarily as a hedge against potential adverse price movements in the value of
portfolio assets.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire, it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
18
<PAGE> 19
[LOGO] Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least the repurchase price.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the daily rates of exchange
prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in the foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized gain (loss) from foreign currency related transactions includes
gains and losses between trade and settlement dates on securities transactions,
gains and losses arising from the sales of foreign currency, and gains and
losses between the ex and payment dates on dividends, interest, and foreign
withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement
19
<PAGE> 20
[LOGO] Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
date. Realized and unrealized gains and losses which represent the difference
between the value of the forward contract to buy and the forward contract to
sell are included in net realized and unrealized gain (loss) from foreign
currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. The Fund paid no federal income taxes, and no federal income tax
provision was required.
Distribution of Income and Gains. Distribution of net investment income is made
annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders at least annually. An additional distribution may be made to the
extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in forward contracts, passive
foreign investment companies, and foreign denominated investments. As a result,
net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
For the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $139,813,455 and
$183,116,346, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Manager"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Advisory, Management and Administration Agreement with Scudder. However, a new
Investment Advisory, Management and Administration Agreement (the "Management
Agreement") between the Fund and Scudder Kemper was approved by the
20
<PAGE> 21
[LOGO] Scudder New Europe Fund, Inc.
Notes to Financial Statements
================================================================================
Fund's Board of Directors and by the Fund's Shareholders. The Management
Agreement, which was effective December 31, 1997, is the same in all material
respects as the corresponding previous Investment Advisory, Management and
Administration Agreement, except that Scudder Kemper is the new investment
Manager to the Fund.
Under the Fund's Management Agreement with Scudder Kemper, the Manager directs
the investments of the Fund in accordance with the Fund's investment objectives,
policies, and restrictions. In addition to portfolio management services, the
Manager provides certain administrative services in accordance with the
Management Agreement. The management fee payable under the Management Agreement
is equal to a monthly fee at an annualized rate of 1.25% of the Fund's average
weekly net assets up to and including $75 million, 1.15% of such net assets on
the next $125 million, and 1.10% of such net assets in excess of $200 million,
computed and accrued daily and payable monthly. For the year ended October 31,
1998, the fee pursuant to the agreements aggregated $4,151,077 which was
equivalent to an annual effective rate of 1.15% of the Fund's average weekly net
assets.
On September 7, 1998, Zurich, majority owner of the Manager, entered into an
agreement with B.A.T Industries p.l.c. ("B.A.T") pursuant to which the financial
services businesses of B.A.T were combined with Zurich's businesses to form a
new global insurance and financial services company known as Zurich Financial
Services. Upon consummation of the transaction, the Fund's Management Agreement
with Scudder Kemper was deemed to have been assigned and, therefore, terminated.
The Board of Directors of the Fund has approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the former
Management Agreement, except for the dates of execution, termination, and
breakpoints in the fee structure. The Board of Directors of the Fund will seek
shareholder approval of the new investment management agreement through a proxy
solicitation that is currently scheduled to conclude in mid-December.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Manager is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $202,557 of
which $34,860 is unpaid at October 31, 1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Manager, provides
shareholder communications services for the Fund. For the year ended October 31,
1998, the amount charged to the Fund by SSC aggregated $15,000, of which $1,250
is unpaid at October 31, 1998.
The Fund pays each Director not affiliated with the Manager an annual retainer,
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1998, Directors' fees and expenses aggregated $98,708.
21
<PAGE> 22
[LOGO] Scudder New Europe Fund, Inc.
Report of Independent Accountants
================================================================================
To the Board of Directors and Shareholders of Scudder New Europe Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder New Europe Fund, Inc. (the
"Fund") at October 31, 1998, the results of its operations for the year then
ended and the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 4, 1998
22
<PAGE> 23
[LOGO] Scudder New Europe Fund, Inc.
Tax Information
================================================================================
The Fund paid distributions of $2.105 per share from net long-term capital gains
during its fiscal year ended October 31, 1998, of which 77.4% represents 20%
rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$48,600,000 as a long-term capital gain dividend for the fiscal year ended
October 31, 1998.
The Fund paid foreign taxes of $575,000 and earned $654,000 of foreign source
income during the fiscal year ended October 31, 1998. Pursuant to section 853 of
the Internal Revenue Code, the Fund designates $0.04 per share as foreign taxes
paid and $0.05 per share as income earned from foreign sources for the fiscal
year ended October 31, 1998.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder New Europe Fund account, please call a Service Representative
at 1-800-SCUDDER.
23
<PAGE> 24
[LOGO] Scudder New Europe Fund, Inc.
Investment Manager
================================================================================
The investment manager of Scudder New Europe Fund, Inc. is Scudder Kemper
Investments Inc. (the "Manager"), one of the most experienced investment
management firms in the world. Established in 1919, the firm manages investments
for institutional and corporate clients, retirement and pension plans, insurance
companies, mutual fund investors, and individuals. The Manager has offices
throughout the United States and has subsidiaries in London, Switzerland, and
Tokyo.
The Manager has been a leader in international investment management for
over 40 years. It manages Scudder International Fund, which was originally
incorporated in Canada in 1953 as the first foreign investment company
registered with the United States Securities and Exchange Commission. The
Manager's clients which invest primarily in foreign securities include thirty
open-end investment companies as well as portfolios for institutional investors.
In addition to the Fund, the Manager manages the assets of six other
closed-end investment companies which invest primarily in foreign securities:
The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., Scudder
Global High Income Fund, Inc., Scudder New Asia Fund, Inc., and Scudder Spain
and Portugal Fund, Inc.
24
<PAGE> 25
[LOGO] Scudder New Europe Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
================================================================================
The Plan
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan")
offers you an automatic way to reinvest your dividends and capital gains
distributions in shares of the Fund. The Plan also provides for cash investments
in Fund shares of $100 to $3,000 semiannually through Boston EquiServe, the Plan
Agent.
Participation in the Plan
If you own shares in your own name, you can participate directly in the
Plan. If you choose to participate in the Plan, your dividends and capital gains
distributions will be promptly invested for you, automatically increasing your
holdings in the Fund. If the Fund declares a dividend or capital gains
distribution payable either in cash or in stock of the Fund, you will
automatically receive stock. If your shares are held in the name of a brokerage
firm, bank, or other nominee as the shareholder of record, please consult your
nominee (or any successor nominee) to determine whether it is participating in
the Plan on your behalf. Many nominees are generally authorized to receive cash
dividends unless they are specifically instructed by a client to reinvest. If
you would like your nominee to participate in the Plan on your behalf, you
should give your nominee instructions to that effect as soon as possible.
Pricing of Dividends and Distributions
If the market price per share on the payment date for the dividend or
distribution (the "Valuation Date") equals or exceeds net asset value per share
on that date, the Fund will issue new shares to participants at the greater of
the following on the Valuation Date: (a) net asset value, or (b) 95% of the
market price. The Valuation Date will be the dividend or distribution payment
date or, if that date is not a New York Stock Exchange trading date, the next
preceding trading date. If the net asset value exceeds the market price of Fund
shares at such time, participants in the Plan are considered to have elected to
receive shares of stock from the Fund, valued at market price, on the Valuation
Date. In either case, for Federal income tax purposes, the shareholder receives
a distribution equal to the market value on Valuation Date of new shares issued.
State and local taxes may also apply. If the Fund should declare an income
dividend or net capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, for the participants' account on, or
shortly after, the payment date.
Voluntary Cash Purchases
Participants in the Plan have the option of making additional cash
payments to the Plan Agent, semiannually, in any amount from $100 to $3,000, for
investment in the Fund's shares. The Plan Agent will use all such monies
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15. Any voluntary cash payments received more than
30 days prior to these dates will be returned by the Plan Agent, and interest
will not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately ten days before February 15, or
August 15, as the case may be. A participant may withdraw a voluntary cash
payment by written notice, if the notice is received by the Plan Agent not less
than 48 hours before such payment is to be invested.
25
<PAGE> 26
[LOGO] Scudder New Europe Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
===============================================================================
Participant Plan Accounts
The Plan Agent maintains all participant accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by participants for personal and tax records. Shares in the
account of each plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each participant will
be able to vote those shares purchased pursuant to the Plan at a shareholder
meeting or by proxy.
No Service Fee to Reinvest
There is no service fee charged to participants for reinvesting dividends
or distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage commissions with respect to
shares issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gains distributions payable only in cash.
Costs for Cash Purchases
With respect to purchases of Fund shares from voluntary cash payments, the
Plan Agent will charge $1.00 for each such purchase for a participant. Each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases of Fund shares in connection
with voluntary cash payments made by the participant.
Brokerage charges for purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than the usual brokerage
charges for such transactions, because the Plan Agent will be purchasing stock
for all participants in blocks and pro-rating the lower commission thus
attainable.
Amendment or Termination
The Fund and the Plan Agent each reserve the right to terminate the Plan.
Notice of the termination will be sent to the participants of the Plan at least
30 days before the record date for a dividend or distribution. The Plan also may
be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by giving at least 30 days' written notice to participants in
the Plan.
A participant may terminate his account under the Plan by written notice
to the Plan Agent. If the written notice is received 10 days before the record
day of any distribution, it will be effective immediately. If received after
that date, it will be effective as soon as possible after the reinvestment of
the dividend or distribution.
If a participant elects to sell his shares before the Plan is terminated,
the Plan Agent will deduct a $3.50 fee plus brokerage commissions from the sale
transaction.
Plan Agent Address and Telephone Number
You may obtain more detailed information by requesting a copy of the Plan
from the Plan Agent. All correspondence (including notifications) should be
directed to: Scudder New Europe Fund Dividend Reinvestment and Cash Purchase
Plan, c/o Boston EquiServe, P.O. Box 8209, Boston, MA 02266-8209,
1-800-426-5523.
26
<PAGE> 27
[LOGO] Scudder New Europe Fund, Inc.
Directors and Officers
================================================================================
DANIEL PIERCE*
Chairman of the Board and Director
NICHOLAS BRATT*
President and Director
PAUL BANCROFT III
Director
MARY JOHNSTON EVANS
Director
RICHARD M. HUNT
Director
WILLIAM H. LUERS
Director
WILSON NOLEN
Director
LADISLAS O. RICE
Director
CAROL L. FRANKLIN*
Vice President
JOAN R. GREGORY*
Vice President
ANN M. McCREARY*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
BRUCE H. GOLDFARB*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Vice President and Secretary
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
JOHN R. HEBBLE*
Treasurer
CAROLINE PEARSON*
Assistant Secretary
* Scudder Kemper Investments, Inc.
27
<PAGE> 1
[LOGO] KEMPER FUNDS
Kemper Global and International Funds
PROSPECTUS March 1, 1999
KEMPER GLOBAL AND INTERNATIONAL FUNDS
222 South Riverside Plaza, Chicago, Illinois 60606 (800) 621-1048
This prospectus describes a choice of funds managed by Scudder Kemper
Investments, Inc.
Global Discovery Fund
Growth Fund Of Spain
Kemper Asian Growth Fund
Kemper Emerging Markets Growth Fund
Kemper Emerging Markets Income Fund
Kemper Europe Fund
Kemper Global Blue Chip Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Growth and Income Fund
Kemper Latin America Fund
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE> 2
FOREIGN INVESTING
INVESTMENT APPROACH
The funds described in this prospectus invest primarily in non-U.S. issuers.
Each fund has its own investment objective, investment strategy and risk
profile.
PRINCIPAL RISK FACTORS
There are market and investment risks with any security and the value of an
investment in the funds will fluctuate over time and it is possible to lose
money invested in the funds.
Stock Market. Each stock fund's returns and net asset value will go up and down.
Stock market movements will affect the funds' share prices on a daily basis.
Declines in value are possible both in the overall stock market and in the types
of securities held by the funds.
Bond Market. When interest rates rise, the price of bonds typically falls in
proportion to their duration. It is also possible that bonds in the fund's
portfolio could be downgraded in credit rating or go into default.
Duration, a measurement based on the estimated pay-back period or duration of a
bond (or portfolio of bonds), is the most widely used gauge of sensitivity to
interest rate change. Like maturity, duration is expressed in years. The longer
a fund's duration, the more sharply its share price is likely to rise or fall
when interest rates change.
Portfolio Strategy. The portfolio managers' skill in choosing appropriate
investments for the funds will determine in large part the funds' ability to
achieve their respective investment objectives.
Foreign Securities. Foreign investments, particularly investments in emerging
markets, carry added risks due to inadequate or inaccurate financial information
about companies, potential political disturbances and fluctuations in currency
exchange rates.
2 Global Investing
<PAGE> 3
ABOUT THE FUNDS
GROWTH FUND OF SPAIN
INVESTMENT OBJECTIVE
Growth Fund Of Spain seeks long-term capital appreciation. Unless otherwise
indicated, the fund's investment objective and policies are fundamental and
cannot be changed without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its objective by investing primarily in equity
securities of Spanish companies. A company is deemed to be Spanish if it is:
o organized under the laws of Spain; or
o traded in the Spanish securities markets and doing business in Spain.
Under normal market conditions, at least 65% of the fund's total assets will be
invested in equity securities of Spanish companies. The fund may invest up to
25% of its total assets in unlisted equity and debt securities, including
convertible debt securities, and in other securities that are not readily
marketable, a significant portion of which may be considered illiquid. The fund
may invest up to 35% of its total assets in investment-grade fixed income
securities denominated in Pesetas or U.S. dollars.
As an operating policy the investment manager intends to evaluate investment
opportunities throughout the Iberian Peninsula (i.e., Spain and Portugal). As a
matter of non-fundamental policy, the fund may invest up to 35% of its total
assets in equity securities of companies other than Spanish companies, and may
focus such investments in whole or in part in equity securities of companies
organized under the laws of Portugal or traded in the Portuguese securities
markets and doing business in Portugal.
In selecting its investments, the fund will look for companies with (i) strong
and sustainable earnings growth, (ii) solid management and (iii) reasonable
stock market valuations.
A stock is typically sold when, in the opinion of the portfolio manager, (i) the
stock has reached its fair market value, (ii) a company's fundamentals have
deteriorated and (iii) the fund's portfolio is too heavily weighted in a
particular industry or sector.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Growth Fund Of Spain 3
<PAGE> 4
Other investments
To a more limited extent, the fund may, but is not required to, utilize other
investments and investment techniques that may impact fund performance,
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their value from other securities or commodities, or
that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of derivatives could magnify losses.
For temporary defensive purposes, the fund may vary from its investment
objective and may invest, without limit, in high quality debt instruments, such
as U.S. and Spanish government securities. In such a case, the fund would not be
pursuing, and may not achieve, its investment objective. The fund may also at
any time invest funds in U.S. dollar-denominated money market instruments as
reserves for expenses and dividends and other distributions to shareholders.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The securities markets of Spain and Portugal have substantially less volume than
the securities markets of the U.S. and securities of some companies in Spain and
Portugal are less liquid and more volatile than securities of comparable U.S.
companies. Accordingly, these markets may be subject to greater influence by
adverse events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the U.S.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The fund is the successor entity to The Growth Fund of Spain, Inc., a closed-end
fund whose shares were exchanged for Class A shares of the fund in connection
with a reorganization transaction completed on December 11, 1998. The
information provided in the chart is for The Growth Fund of Spain, Inc. through
December 11, 1998 and for the fund's Class A shares thereafter, and does not
reflect sales charges, which reduce return. Open-end funds generally have higher
expenses than closed-end funds and, accordingly, the fund expects that
4 Growth Fund Of Spain
<PAGE> 5
its expense ratio will be higher than that of its predecessor. Expenses
adversely affect performance.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1991................. 15.82%
1992................. -23.48%
1993................. 28.79%
1994................. 2.26%
1995................. 22.11%
1996................. 31.12%
1997................. 19.47%
1998................. 49.85%
</TABLE>
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 32.17% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -21.84% (the third quarter of 1992).
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended
December 31, 1998 Class A[ Class B Class C IBEX 35 Index
- ----------------- ------- ------- ------- -------------
<S> <C> <C> <C> <C>
One Year 41.21% -- -- 47.47%
Five Years 22.52% -- -- 25.23%
Ten Years -- -- -- --
Since Class
Inception* 13.19% 3.22%** 6.44%** ***
</TABLE>
- -----------
[ The information provided is for The Growth Fund of Spain, Inc. through
December 11, 1998 and for the fund's Class A shares thereafter, and
assumes deduction of the Class A sales charge.
* Inception date for Class A shares is 2/14/90, which was the inception date
for the fund's predecessor, The Growth Fund of Spain, Inc. and for Class B
and C shares is 12/14/98.
** Aggregate returns.
*** Index return for the life of each class: 14.82% (2/14/90) for Class A
shares, and 4.65% (12/14/98) for Class B and C shares.
The IBEX 35 Index is a capitalization-weighted index of the 35 most liquid
Spanish stocks traded on the continuous markets. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees,
expenses or sales charges.
Growth Fund Of Spain 5
<PAGE> 6
Fee and Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transaction
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Buying shares and Choosing a share class -- Special features
sections of this prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) 2.00%* 2.00%* 2.00%*
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets**
- --------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.10% 1.35% 1.30%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.85% 2.85% 2.80%
- --------------------------------------------------------------------------------
</TABLE>
* 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 "Redemption Fee."
** The fund was reorganized from a closed-end fund to an open-end fund in
December 1998. The fees and expenses of open-end funds are, in many cases,
higher than those of closed-end funds. Accordingly, the expense ratios
shown above are estimated, based on the fund's current fee schedule and
expenses incurred by the fund during its most recent fiscal year, for the
fund's current fiscal year ending on October 31, 1999. The actual expenses
for each class of shares in future years may be more or less than the
numbers in the tables above, depending on a number of factors, including
changes in actual value of the fund's assets represented by each class of
shares.
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
6 Growth Fund of Spain
<PAGE> 7
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold your shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $941 $888 $583
3 Years $1,123 $1,183 $868
5 Years $1,518 $1,704 $1,479
10 Years $2,619 $2,719 $3,128
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $752 $288 $283
3 Years $1,123 $883 $868
5 Years $1,518 $1,504 $1,479
10 Years $2,619 $2,719 $3,128
</TABLE>
Growth Fund Of Spain 7
<PAGE> 8
KEMPER ASIAN GROWTH FUND
INVESTMENT OBJECTIVE
Kemper Asian Growth Fund seeks long-term capital growth. Unless otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing in a diversified
portfolio consisting primarily of equity securities of Asian companies.
Under normal circumstances the fund will invest at least 85% of its total assets
in equity securities of Asian companies. The fund considers an issuer of
securities to be an Asian company if:
o the company is organized under the laws of an Asian country and has a
principal office in an Asian country;
o the company derives 50% or more of its total revenues from business in
Asia; or
o the company's equity securities are traded principally on a stock exchange
in Asia.
Furthermore, the fund will invest at least 65% of its total assets in securities
of Asian companies which satisfy at least one of the first two criteria
described above.
The fund invests principally in developing or emerging countries. The fund may
invest without limit in emerging Asian countries, such as China, Indonesia,
Korea, Malaysia, Philippines, Thailand and Taiwan. The fund may also invest
without limit in developed Asian countries, such as Japan and Singapore.
However, the fund will only invest in Japan when economic conditions warrant,
and then only in limited amounts. From time to time, the fund may have 40% or
more of its total assets invested in any major Asian industrial or developed
country.
The fund's investment manager determines the appropriate distribution of
investments among various Asian countries and geographic regions by considering
numerous factors, including the following, among other things:
o prospects for relative economic growth of Asian countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to investors in
Asian companies.
In selecting its investments, the fund will look for companies with (i)
identifiable market niches, (ii) clean balance sheets and (iii) strong
valuations.
8 Kemper Asian Growth Fund
<PAGE> 9
A stock is typically sold when, in the opinion of the portfolio manager, (i) the
stock has reached its fair market value, (ii) a company's fundamentals have
deteriorated and (iii) the fund's portfolio is too heavily weighted in a
particular industry or sector.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in other types of securities including, but not limited to,
equity securities of non-Asian companies, bonds, notes, and other debt
securities of domestic or foreign companies and obligations of domestic or
foreign governments and their political subdivisions. The fund does not
currently intend to invest more than 5% of its net assets in debt securities.
The fund considers Asian equity securities to include shares of closed-end
management investment companies, the assets of which are invested primarily in
equity securities of Asian companies and depository receipts where the
underlying or deposited securities are equity securities of Asian companies.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests primarily in one geographic region. Common economic forces and
other factors may affect investments in a single region, even though a number of
different countries within a region may be represented within the fund. Factors
affecting Asian investments may present a greater risk to the fund than
investments in a more geographically diversified fund.
Kemper Asian Growth Fund 9
<PAGE> 10
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1997................. -34.60%
1998................. -19.02%
</TABLE>
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 19.46% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -33.05% (the second quarter of 1998).
Average Annual Total Returns
<TABLE>
<CAPTION>
MSCI All Country
For periods ended Asia Free
December 31, 1998 Class A Class B Class C Ex-Japan Index
- ----------------- ------- ------- ------- --------------
<S> <C> <C> <C> <C>
One Year -23.70% -22.37% -20.06% -4.82%
Five Years -- -- -- --
Ten Years -- -- -- --
Since Class
Inception** -25.10% -24.90% -23.77% *
</TABLE>
- -----------
* Index returns for the life of each class: -26.49% (11/30/96) for Class A,
B, and C, respectively.
** Inception date for Class A, B and C shares is 10/21/96.
10 Kemper Asian Growth Fund
<PAGE> 11
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 returns assume reinvestment
of dividends and unlike the fund's returns, do not reflect any fees, expenses,
or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.85% 0.85% 0.85%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.80% 2.69% 2.96%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.65% 4.29% 4.56%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended November 30, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.80%, Class B shares to 2.78%, and Class C shares to 2.71%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. As a result, for the fiscal year ended November 30, 1998,
"Total Annual Fund Operating Expenses" were reduced by 0.85%, 1.51% and 1.85%
for Class A, Class B and Class C and actual total
Kemper Asian Growth Fund 11
<PAGE> 12
annual fund operating expenses were 1.80% for Class A, 2.78% for Class B and
2.71% for Class C.
Total Annual Fund Operating Expenses are currently limited to 1.85% for Class A
shares, 2.79% for Class B shares, and 3.25% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary to
current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. It is estimated that Total Annual
Fund Operating Expenses, without the effect of any waiver or reimbursement, will
be 3.23% for Class A shares, 4.11% for Class B shares and 6.30% for Class C
shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $828 $831 $557
3 Years $1,351 $1,601 $1,377
5 Years $1,899 $2,383 $2,305
10 Years $3,387 $3,788 $4,662
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $828 $431 $457
3 Years $1,351 $1,301 $1,377
5 Years $1,899 $2,183 $2,305
10 Years $3,387 $3,788 $4,662
</TABLE>
12 Kemper Asian Growth Fund
<PAGE> 13
KEMPER EMERGING MARKETS GROWTH FUND
INVESTMENT OBJECTIVE
Kemper Emerging Markets Growth Fund seeks long-term growth of capital. Unless
otherwise indicated, the fund's investment objective and policies may be changed
without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective through equity investment in
emerging markets around the globe. Normally, at least 65% of the fund's total
assets will be invested in the equity securities of emerging market issuers.
The investment manager takes a top-down approach to evaluating investments for
the fund, using extensive fundamental and field research. The process begins
with a study of the economic fundamentals of each country and region, as well as
an examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the investment manager to identify industries and companies that
the investment manager believes are most likely to benefit from the political,
social and economic changes taking place in a given region of the world.
Within a market, the investment manager looks for, among other things,
individual companies with exceptional business prospects, which may be due to
market dominance, unique franchises, high growth potential, or innovative
services, products or technologies. The investment manager seeks to identify
companies with favorable potential for appreciation through growing earnings or
greater market recognition over time. While these companies may be among the
largest in their local markets, they may be small by the standards of U.S. stock
market capitalization.
A stock is typically sold when, in the opinion of the portfolio manager (i) the
stock has reached it fair market value and its appreciation is limited, (ii) a
company's fundamentals have deteriorated, (iii) the fund's portfolio is too
heavily weighted in a particular industry or sector, and (iv) country risk
outweighs probable return.
The fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the following: the International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.
The investment manager may pursue investment opportunities in Asia, Africa,
Latin America, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The fund deems an issuer to be located in an emerging market
if:
o the issuer is organized under the laws of an emerging market country;
o the issuer's principal securities trading market is in an emerging market;
or
Kemper Emerging Markets Growth Fund 13
<PAGE> 14
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is
derived (directly or indirectly through subsidiaries) from assets or
activities located in emerging markets.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest up to 35% of its total assets in emerging market and
domestic debt securities which may be below investment-grade or unrated if the
investment manager determines that capital appreciation of debt securities is
likely to equal or exceed the capital appreciation of equity securities.
Under normal market conditions, the fund may invest up to 35% of its total
assets in equity securities of issuers in the U.S. and other developed markets.
The fund may invest in closed-end investment companies investing primarily in
the emerging markets. Such closed-end company investments will generally only be
made when market access or liquidity considerations restricts direct investment
in the market.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may hold, without limit, debt
instruments, as well as cash and cash equivalents, including foreign and
domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements. In such a case, the fund would not be
pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
14 Kemper Emerging Markets Growth Fund
<PAGE> 15
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 21.13% 22.06% 22.03%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 22.38% 24.06% 24.03%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 2.28%, Class B shares to 3.18%, and Class C shares to 3.15%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.35% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 20.10%, 20.88% and 20.88% for Class A, Class B and
Class C and actual total annual fund operating expenses were 2.28% for Class A,
3.18% for Class B and 3.15% for Class C.
Total Annual Fund Operating Expenses are currently limited to 2.19% for Class A
shares, 3.06% for Class B shares, and 3.03% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary
Kemper Emerging Markets Growth Fund 15
<PAGE> 16
to current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. The investment manager has agreed
to continue to waive 0.35% of its management fee until December 31, 1999. It is
estimated that Total Annual Fund Operating Expenses, without the effect of any
waiver or reimbursement, will be 17.82% for Class A shares, 19.05% for Class B
shares and 17.48% for Class C shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $2,501 $2,577 $2,274
3 Years $5,407 $5,665 $5,360
5 Years $7,391 $7,653 $7,449
10 Years $10,014 $9,914 $10,042
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $2,501 $2,177 $2,174
3 Years $5,407 $5,365 $5,360
5 Years $7,391 $7,453 $7,449
10 Years $10,014 $9,914 $10,042
</TABLE>
16 Kemper Emerging Markets Growth Fund
<PAGE> 17
KEMPER EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVES
Kemper Emerging Markets Income Fund has dual investment objectives. The fund's
primary investment objective is to provide investors with high current income.
As a secondary investment objective, the fund seeks long-term capital
appreciation. Unless otherwise indicated, the fund's investment objectives and
policies may be changed without a vote of shareholders.
Main investment strategies
In pursuing its investment objectives, the fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets.
The fund can invest entirely in high yield/high risk bonds (also called "junk"
bonds). The fund invests in lower quality securities of emerging market issuers,
some of which have defaulted in the past on certain of their financial
obligations. The fund's weighted average maturity may vary from period to
period.
In seeking high current income and, secondarily, long-term capital appreciation,
the fund invests, under normal market conditions, at least 65% of its total
assets in debt securities issued by governments, government-related entities and
corporations in emerging markets, or in debt securities, the return on which is
derived primarily from emerging markets.
The fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the following: the International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.
The investment manager may pursue investment opportunities in Asia, Africa,
Latin America, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The fund deems an issuer to be located in an emerging market
if:
o The issuer is organized under the laws of an emerging market country;
o The issuer's principal securities trading market is in an emerging market;
or
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is
derived (directly or indirectly from subsidiaries) from assets or
activities located in emerging markets.
The portfolio manager seeks to buy securities of companies with good credit,
strong fundamentals and strong valuations, and conversely, to sell securities
which cannot meet these criteria.
In an attempt to reduce or eliminate currency risk, the debt securities in which
the fund invests are exclusively U.S. dollar-denominated debt securities, or
foreign currency denominated debt securities that are fully hedged back into the
U.S. dollar.
Kemper Emerging Markets Income Fund 17
<PAGE> 18
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but not required to, invest in the
following:
The fund may invest up to 35% of its total assets in securities other than debt
obligations issued in emerging markets. These holdings include debt securities
and money market instruments issued by corporations and governments based in
developed markets.
The fund may invest up to 20% of its total assets in U.S. fixed income
instruments which may be below investment-grade.
The fund may acquire shares of closed-end investment companies that invest
primarily in emerging market debt securities.
The fund is authorized to borrow from banks and other entities in an amount
equal to up to 20% of the fund's total assets (including the amount borrowed),
less all liabilities and indebtedness other than the borrowing, and may use
proceeds of the borrowings for investment purposes. Borrowing creates leverage,
which is a speculative characteristic.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
The fund will not commit more than 40% of its total assets to issuers in a
single country.
For temporary defensive purposes, the fund may invest without limit in U.S. debt
securities, including short-term money market securities. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
18 Kemper Emerging Markets Income Fund
<PAGE> 19
Main risks
The fund's principal risks are associated with investing in the bond market, the
investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests in emerging securities markets that 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 have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Certain emerging markets require prior
governmental approval of the type and/or amount of investments by foreign
persons.
Issuers whose bonds are below investment-grade may be in impaired financial
condition and may be affected by stock market shifts. The prices of their bonds,
therefore, tend to change based on stock market movements to a greater degree
than investment-grade bond prices.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Kemper Emerging Markets Income Fund 19
<PAGE> 20
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1998................. -36.38%
</TABLE>
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 10.31% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -38.46% (the second quarter of 1998).
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended JP Morgan
December 31, 1998 Class A Class B Class C EMBI+ Index
- ----------------- ------- ------- ------- -----------
<S> <C> <C> <C> <C>
One Year* -39.20% -38.78% -36.96% -14.35%
Five Years -- -- -- --
Ten Years -- -- -- --
</TABLE>
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
The unmanaged JP Morgan Emerging Markets Bond Index Plus (EMBI+) tracks total
returns for traded external debt instruments in the emerging markets. Included
in the index are U.S. dollar and other external-currency-denominated Brady
bonds, loans, Eurobonds, and local market instruments. Index returns assume
reinvestment of dividends and unlike the fund's returns, do not reflect any
fees, expenses or sales charges.
Fee and Expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
20 Kemper Emerging Markets Income Fund
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 4.5% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 4.12% 5.00% 4.97%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 5.12% 6.75% 6.72%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.68%, Class B shares to 2.56%, and Class C shares to 2.53%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.70% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 3.44%, 4.19% and 4.19% for Class A, Class B and Class
C and actual total annual fund operating expenses were 1.68% for Class A, 2.56%
for Class B and 2.53% for Class C.
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further that such reimbursement may be discontinued
at any time. The investment manager has agreed to continue to waive 0.70% of its
management fee until December 31, 1999. It is estimated that Total Annual Fund
Operating Expenses, without the effect of any waiver or reimbursement, will be
4.71% for Class A shares, 4.49% for Class B shares and 4.94% for Class C shares.
Kemper Emerging Markets Income Fund 21
<PAGE> 22
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $939 $1,069 $766
3 Years $1,914 $2,272 $1,964
5 Years $2,887 $3,430 $3,218
10 Years $5,310 $5,622 $6,170
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $939 $669 $666
3 Years $1,914 $1,972 $1,964
5 Years $2,887 $3,230 $3,218
10 Years $5,310 $5,622 $6,170
</TABLE>
22 Kemper Emerging Markets Income Fund
<PAGE> 23
KEMPER EUROPE FUND
INVESTMENT OBJECTIVE
Kemper Europe Fund seeks long-term capital growth. Unless otherwise indicated,
the fund's investment objective and policies may be changed without a vote of
shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing in a diversified
portfolio consisting primarily of equity securities of European companies.
Under normal circumstances the fund will invest at least 85% of its total assets
in securities of European companies. The fund considers an issuer of securities
to be a European company if:
o the company is organized under the laws of a European country and has a
principal office in a European country;
o the company derives 50% or more of its total revenues from business in
Europe; or
o the company's equity securities are traded principally on a stock exchange
in Europe.
Furthermore, the fund will invest at least 65% of its total assets in securities
of European companies which satisfy at least one of the first two criteria
described above.
The fund invests principally in developed countries, but may invest up to 25% of
its total assets in developing or "emerging" countries. Currently, the developed
European countries in which the fund may invest without limit include Austria,
France, Germany, the Netherlands, Switzerland, Spain, Italy, Luxembourg, United
Kingdom, Ireland, Belgium, Denmark, Sweden, Norway and Finland. The fund may
invest without limit in other European countries in the future if they become
developed countries. From time to time, the fund may have 25% or more of its
total assets invested in any major European industrial or developed country.
The fund's investment manager determines the appropriate distribution of
investments among various European countries and geographic regions by
considering numerous factors, including the following, among other things:
o prospects for relative economic growth of European countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to investors in
European companies.
Kemper Europe Fund 23
<PAGE> 24
In selecting its investments, the fund will look for companies with (i) strong
earnings growth, (ii) clean balance sheets, (iii) strong management and (iv)
increasing revenue.
A stock is typically sold when, in the opinion of the portfolio manager, (i) the
stock has reached a predetermined value, (ii) the company's fundamentals have
deteriorated, and (iii) the company deviates from a previously demonstrated
business plan.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in other types of securities including, but not limited to,
equity securities of non-European companies, bonds, notes, and other debt
securities of domestic or foreign companies and obligations of domestic or
foreign governments and their political subdivisions.
The fund considers European equity securities to include shares of closed-end
management investment companies, the assets of which are invested primarily in
equity securities of European companies and depository receipts where the
underlying or deposited securities are equity securities of European companies.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests primarily in one geographic region. Common economic forces and
other factors may affect investments in a single region, even though a
24 Kemper Europe Fund
<PAGE> 25
number of different countries within a region may be represented within the
fund. Factors affecting European investments may present a greater risk to the
fund than investments in a more geographically diversified fund.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1997................. 15.87%
1998................. 19.96%
</TABLE>
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 18.12% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -15.94% ( the third quarter of 1998).
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended FT/S&P World Europe
December 31, 1998 Class A Class B Class C Index
- ----------------- ------- ------- ------- -----
<S> <C> <C> <C> <C>
One Year 13.10% 15.63% 19.26% 27.55%
Five Years -- -- -- --
Ten Years -- -- -- --
Since Class
Inception** 17.39% 18.07% 19.19% *
</TABLE>
- -----------
* Index returns for the life of each class: 25.92% (4/30/96) for Class A, B,
and C shares, respectively.
** Inception date for the Class A, B and C shares is 5/1/96.
Kemper Europe Fund 25
<PAGE> 26
The Financial Times/Standard & Poor's Actuaries World Index - Europe is an
unmanaged index that is generally representative of the equity securities of
European Markets. Index returns assume reinvestment of dividends and unlike the
fund's returns, do not reflect any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.53% 2.92% 1.39%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.28% 4.42% 2.89%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended November 30, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.53%, Class B shares to 2.67%, and Class C shares to 2.08%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. As a result, for the fiscal year ended November 30, 1998,
"Total Annual Fund Operating Expenses" were reduced by 0.75%, 1.75% and 0.81%
for Class A, Class B and Class C and actual total annual fund operating expenses
were 1.53% for Class A, 2.67% for Class B and 2.08% for Class C.
26 Kemper Europe Fund
<PAGE> 27
Total Annual Fund Operating Expenses are currently limited to 1.75% for Class A
shares, 2.65% for Class B shares, and 2.62% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary to
current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. It is estimated that Total Annual
Fund Operating Expenses, without the effect of any waiver or reimbursement, will
be 1.73% for Class A shares, 3.27% for Class B shares and 2.38% for Class C
shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $793 $843 $392
3 Years $1,246 $1,638 $895
5 Years $1,725 $2,442 $1,523
10 Years $3,040 $3,695 $3,214
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $793 $443 $292
3 Years $1,246 $1,338 $895
5 Years $1,725 $2,242 $1,523
10 Years $3,040 $3,695 $3,214
</TABLE>
Kemper Europe Fund 27
<PAGE> 28
Proposed reorganization
The Board of Trustees of the Kemper Europe Fund has agreed in principle to
propose to shareholders that the Fund be reorganized into the Scudder New Europe
Fund, Inc. In connection with the reorganization, the Scudder New Europe Fund,
which is currently a closed-end investment company, will be converted to an
open-end investment company (mutual fund). After the reorganization, it is
expected that the Scudder New Europe Fund will change its name to the Kemper
Europe Fund, Inc. and will become a part of the Kemper family of funds.
The reorganization is expected to occur during the third quarter of 1999 and is
subject to a number of conditions, including final approval by the board and
approval by shareholders of each fund.
28 Kemper Europe Fund
<PAGE> 29
KEMPER GLOBAL BLUE CHIP FUND
INVESTMENT OBJECTIVE
Kemper Global Blue Chip Fund seeks long-term growth of capital. Unless otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
Main investment strategies
The fund will pursue its investment objective through a diversified worldwide
portfolio of marketable securities, primarily equity securities, including
common stock, preferred stocks and debt securities convertible into common
stocks.
The fund will emphasize investments in common stocks of large, well known
companies. Companies of this general type are often referred to as "blue chip"
companies. "Blue Chip" companies are generally identified by their:
o substantial capitalization;
o established history of earnings and dividends;
o easy access to credit;
o good industry position; and
o superior management structure.
Global "blue chip" companies are believed to generally exhibit less investment
risk and less price volatility, on average, than companies lacking these
characteristics, such as smaller, less seasoned companies. In addition, the
large market of publicly held shares for such companies and the generally high
trading volume in those shares usually results in a relatively high degree of
liquidity for such investments.
In general, the fund will seek to invest in companies that the investment
manager believes will benefit from global economic trends, promising
technologies or products and specific country opportunities resulting from
changing geopolitical, currency or economic relationships. The fund will also
invest in companies which possess attractive valuations.
A stock is typically sold when, in the opinion of the portfolio manager, (i) it
no longer has favorable fundamentals or valuations and (ii) it is not expected
to benefit from long-term changes in the global economy.
The fund will invest primarily in developed markets. The fund may be invested
100% in non-U.S. issues, although under normal circumstances, it is expected
that both foreign and U.S. investments will be represented in the fund's
portfolio.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Kemper Global Blue Chip Fund 29
<PAGE> 30
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest up to 15% of its total assets in debt or equity securities
of developing or emerging markets. The fund may invest in closed-end investment
companies that invest primarily in emerging market debt securities.
The fund may invest in securities traded over-the-counter. The fund may invest
in high-quality debt securities with credit ratings of Aaa/AAA through Baa/BBB
(and their unrated equivalents) of U.S. and foreign issuers. The fund may also
invest up to 5% of its total assets in debt securities rated Baa/BBB or below
(and their unrated equivalents), often referred to as "junk" bonds of U.S. and
foreign issuers.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in U.S. issues, high-grade debt securities, cash and cash equivalents. In such a
case, the fund would not be pursuing, and may not achieve, its investment
objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Convertible debt securities in which the fund may invest are subject to some of
the same interest rate risk as bonds; that is, their prices tend to drop when
interest rates rise.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
30 Kemper Global Blue Chip Fund
<PAGE> 31
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1998................. 13.79%
</TABLE>
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 10.32% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -8.00% (the third quarter of 1998).
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended
December 31, 1998 Class A Class B Class C MSCI World Index
- ----------------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C>
One Year* 7.24% 9.63% 12.84% 24.80%
Five Years -- -- -- --
Ten Years -- -- -- --
</TABLE>
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
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. Index returns
assume reinvestment of dividends and unlike the fund's returns, do not reflect
any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper Global Blue Chip Fund 31
<PAGE> 32
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 5.06% 5.94% 5.91%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 6.06% 7.69% 7.66%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.80%, Class B shares to 2.68%, and Class C shares to 2.65%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.15% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 4.26%, 5.01% and 5.01% for Class A, Class B and Class
C and actual total annual fund operating expenses were 1.80% for Class A, 2.68%
for Class B and 2.65% for Class C.
32 Kemper Global Blue Chip Fund
<PAGE> 33
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further, that such reimbursement may be discontinued
at any time. The investment manager has agreed to continue to waive 0.15% of its
management fee until December 31, 1999. It is estimated that Total Annual Fund
Operating Expenses, without the effect of any waiver or reimbursement, will be
3.63% for Class A shares, 4.53% for Class B shares and 5.81% for Class C shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $1,143 $1,159 $856
3 Years $2,261 $2,515 $2,208
5 Years $3,356 $3,795 $3,583
10 Years $5,993 $6,207 $6,715
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $1,143 $759 $756
3 Years $2,261 $2,215 $2,208
5 Years $3,356 $3,595 $3,583
10 Years $5,993 $6,207 $6,715
</TABLE>
Kemper Global Blue Chip Fund 33
<PAGE> 34
KEMPER GLOBAL DISCOVERY FUND*
* Kemper Global Discovery Fund refers to the Kemper shares of Global
Discovery Fund which are offered through this prospectus.
INVESTMENT OBJECTIVE
The fund seeks above-average capital appreciation over the long term. Unless
otherwise indicated, the fund's investment objective and strategies may be
changed without a vote of shareholders.
Main investment strategies
The fund invests primarily in a diversified portfolio of equity securities of
small rapidly growing companies throughout the world that the fund's management
believes offer the potential for above-average returns relative to large
companies, yet are frequently overlooked, and thus, undervalued by the market.
Under normal circumstances the fund invests at least 65% of its total assets in
the equity securities of small companies. These companies are similar in size to
the smallest 20% of world market capitalization as represented by the Salomon
Brothers Broad Market Index - typically these companies have a market value of
between approximately $50 million and $2 billion. However, the fund may invest
in companies with smaller market values. Under current market conditions, the
median market capitalizations of the companies in which the fund invests is not
expected to exceed $750 million.
The fund may invest in any region of the world. It can invest in the securities
of companies based in emerging markets, typically in the Far East, Latin America
and lesser developed countries in Europe, as well as in companies operating in
developed economies, such as some of those of the United States, Japan and
Western Europe. The fund intends to allocate investments among at least three
countries at all times, one of which may be the United States.
The fund's investment manager determines which securities to invest in by
evaluating potential investments from both a macroeconomic and microeconomic
perspective, using fundamental analysis, including field research. The fund's
investment manager determines which securities to sell using the same criteria.
In evaluating the growth potential and relative value of a possible investment,
the investment manager considers many factors, including, among other things:
o the depth and quality of management;
o a company's product line, business strategy and competitive position;
o research and development efforts;
o financial strength, including degree of leverage;
o cost structure;
o revenue and earnings growth potential;
o price-to-earnings ratios and other stock valuation measures; and
o the attractiveness of the country and region in which a company is
located.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
34 Global Discovery Fund
<PAGE> 35
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest up to 35% of its total assets in (i) equity securities of
larger companies located throughout the world and in (ii) debt securities if the
fund's investment adviser determines that the capital appreciation of debt
securities is likely to exceed the capital appreciation of equity securities.
The fund may purchase investment-grade bonds, those rated Aaa, Aa, A, Baa/AAA,
AA, A, BBB. The fund may also invest up to 5% of its net assets in debt
securities rated below investment-grade.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest, without limit, in cash
and cash equivalents. In such a case, the fund would not be pursuing, and may
not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities, primarily global small company stocks. You will find a discussion of
these risks under "Foreign Investing" at the front of this prospectus.
In pursuit of higher investment returns, this fund may incur greater risks and
more dramatic fluctuations in value than a fund that invests in stocks of larger
companies. The inherent business characteristics and risks of small companies
include such things as untested management, key personnel with varying degrees
of experience, less diversified product lines and weaker financial positions.
Also, small companies tend to have less predictable earnings and less liquid
securities than more established companies.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. Because
Classes A, B and C commenced operations during the course of 1998, the
performance information set forth below is for Class S shares. It does not
reflect sales charges, which reduce return.
Global Discovery Fund 35
<PAGE> 36
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1992................. -0.07%
1993................. 38.18%
1994................. -7.68%
1995................. 17.84%
1996................. 21.47%
1997................. 9.93%
1998................. 16.43%
</TABLE>
The fund currently offers four classes of shares. This prospectus sets forth
information about classes A, B and C. The original class of shares is designated
as Class S, and is not offered in this prospectus. All share classes invest in
the same underlying portfolio of securities and have the same management team.
Because of different fees and expenses, performance of share classes will
differ. Otherwise, the share classes will have substantially similar returns.
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 20.25% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -16.62% (the third quarter of 1998).
Average annual total returns
<TABLE>
<CAPTION>
Salomon Brothers
For periods ended Global World Equity
December 31, 1998 Discovery Fund Extended Market Index
- ----------------- -------------- ---------------------
<S> <C> <C>
One Year 16.43% 20.57%
Five Years 11.08% 15.94%
Since Inception (9/10/91) 12.83% 14.05%*
</TABLE>
* Index comparison begins August 30, 1991.
The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization index made up of holdings selected from a 22 country universe.
Index returns assume reinvestment of dividends and, unlike fund returns, do not
reflect any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
36 Global Discovery Fund
<PAGE> 37
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.10% 1.10% 1.10%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.10% 1.28% 1.38%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.20% 3.13% 3.23%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.95%, Class B shares to 2.83%, and Class C shares to 2.80%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. As a result, for the fiscal year ended October 31, 1998,
"Total Annual Fund Operating Expenses" were reduced by 0.25%, 0.30% and 0.43%
for Class A, Class B and Class C and actual total annual fund operating expenses
were 1.95% for Class A, 2.83% for Class B and 2.80% for Class C.
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further, that such reimbursement may be discontinued
at any time. It is estimated that Total Annual Fund Operating Expenses, without
the effect of any waiver or reimbursement, will be 2.07% for Class A shares,
2.81% for Class B shares and 2.75% for Class C shares.
Global Discovery Fund 37
<PAGE> 38
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $785 $716 $426
3 Years $1,224 $1,266 $995
5 Years $1,687 $1,840 $1,688
10 Years $2,963 $3,007 $3,531
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $785 $316 $326
3 Years $1,224 $966 $995
5 Years $1,687 $1,640 $1,688
10 Years $2,963 $3,007 $3,531
</TABLE>
38 Global Discovery Fund
<PAGE> 39
KEMPER GLOBAL INCOME FUND
INVESTMENT OBJECTIVE
Kemper Global Income Fund seeks to provide high current income consistent with
prudent total return asset management. Unless otherwise indicated, the fund's
investment objective and policies may be changed without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing primarily in
investment grade foreign and domestic fixed income securities. In managing the
fund's portfolio to provide a high level of current income, the investment
manager also seeks to protect net asset value and to provide investors with a
total return, which is measured by changes in net asset value as well as income
earned. The fund's weighted average maturity may vary from period to period.
The fund may invest in securities issued by any issuer and in any currency and
may hold foreign currency. Under normal market conditions, the fund will invest
at least 65% of its assets in the securities of issuers located in at least
three countries, one of which may be the United States. It is currently
anticipated that the fund's assets will be invested principally within
Australia, Canada, Japan, New Zealand, the United States, and Western Europe,
and in securities denominated in the currencies of these countries or
denominated in multinational currency units, such as the Euro.
In managing the fund's portfolio in an effort to reduce volatility and increase
returns, the fund may allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its investment objective based upon the following:
o relative interest rates among currencies;
o the outlook for changes in these interest rates; and
o anticipated changes in worldwide exchange rates.
In considering these factors, a country's economic and political state,
including such factors as inflation rate, growth prospects, global trade
patterns and government policies, will be evaluated.
The fund will buy and sell its investments on the basis of, among other things,
various economic fundamentals, including inflation rates, interest rates and
exchange rates.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Kemper Global Income Fund 39
<PAGE> 40
Other investments
To a more limited extent, the fund may, but is not required to, utilize other
investments and investment techniques that may impact fund performance,
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their value from other securities or commodities, or
that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the bond market, the
investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance. Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
40 Kemper Global Income Fund
<PAGE> 41
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
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%
</TABLE>
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 11.23% (the first quarter of 1995), and the fund's lowest
return for a calendar quarter was -4.32% (the first quarter of 1992).
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended SB World Government
December 31, 1998 Class A Class B Class C Bond Index
- ----------------- ------- ------- ------- ----------
<S> <C> <C> <C> <C>
One Year 5.56% 6.56% 9.72% 6.92%
Five Years 6.08% -- -- 7.34%
Ten Years -- -- -- --
Since Class
Inception** 8.21% 7.49% 7.93% *
</TABLE>
- -----------
* Index returns for the life of each class: 9.57% (10/1/89) for Class A
shares and 8.77% (5/31/94) for B, and C shares.
** Inception dates for Class A, B, and C shares are 10/1/89, 5/31/94 and
5/31/94, respectively.
The Salomon Smith Barney World Government Bond Index is an unmanaged index
comprised of government bonds from eighteen countries (United States, Japan,
United Kingdom, Germany, France, Canada, the Netherlands, Australia,
Switzerland, Denmark, Austria, Belgium, Finland, Ireland, Italy, Portugal, Spain
and Sweden) with maturities greater than one year. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees,
expenses or sales charges.
Fee and Expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
Kemper Global Income Fund 41
<PAGE> 42
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 4.5% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.83% 0.82% 0.63%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.58% 2.32% 2.13%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $603 $635 $316
3 Years $926 $1,024 $667
5 Years $1,272 $1,440 $1,144
10 Years $2,244 $2,302 $2,462
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $603 $235 $216
3 Years $926 $724 $667
5 Years $1,272 $1,240 $1,144
10 Years $2,244 $2,302 $2,462
</TABLE>
42 Kemper Global Income Fund
<PAGE> 43
KEMPER INTERNATIONAL FUND
INVESTMENT OBJECTIVE
Kemper International Fund seeks total return, a combination of capital growth
and income. Unless otherwise indicated, the fund's investment objective and
policies may be changed without a vote of shareholders.
Main investment strategies
In pursuing its investment objective, the fund invests primarily in common
stocks of established non-U.S. companies believed to have potential for capital
growth, income or both.
There is no limitation on the percentage or amount of the fund's assets that may
be invested in growth or income, and therefore at any particular time the
investment emphasis may be placed solely or primarily on growth of capital or on
income. In determining whether the fund will be invested for capital growth or
income, the investment manager analyzes the international equity and fixed
income markets and seeks to assess the degree of risk and level of return that
can be expected from each market.
The fund invests primarily in non-U.S. issuers, and under normal circumstances
more than 80% of the fund's total assets will be invested in non-U.S. issuers.
From time to time, the fund may have more than 25% of its assets invested in any
major industrial or developed country which in the view of the investment
manager poses no unique investment risk.
In determining the appropriate distribution of investments among various
countries and geographic regions, the investment manager ordinarily considers
the following factors, among other things:
o prospects for relative economic growth among foreign countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to the
international investor.
In selecting its investments, the fund will look for companies with (i) strong
earnings growth, (ii) clean balance sheets, (iii) strong management and (iv)
increasing revenue. The fund will also look for previously unmanaged companies
which are undergoing a turnaround as a result of new management, product focus
or balance sheet restructuring.
A stock is typically sold when the stock (i) has reached a predetermined value,
(ii) the company's fundamentals have deteriorated, and (iii) the company
deviates from a previously demonstrated business plan.
Kemper International Fund 43
<PAGE> 44
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in debt securities that can be converted into common stocks,
also known as convertibles. The fund may also invest in debt securities,
preferred stocks, bonds, notes and other debt securities of companies and
futures contracts.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in U.S. Government obligations or securities of companies incorporated in and
having their principal activities in the United States. In such cases, the fund
would not be pursuing, and may not achieve, its investment objective.
The fund may also establish and maintain reserves for defensive purposes and to
enable the fund to take advantage of buying opportunities. The fund's reserves
may be invested in domestic as well as foreign short-term money market
instruments.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
44 Kemper International Fund
<PAGE> 45
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1989................. 18.57%
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%
</TABLE>
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 14.53% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -17.89% (the third quarter of 1998).
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended
December 31, 1998 Class A Class B Class C MSCI EAFE Index
- ----------------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C>
One Year 1.65% 4.05% 6.79% 20.33%
Five Years 7.07% -- -- 9.50%
Ten Years 8.08% -- -- 5.85%
Since Class
Inception** 11.92% 8.29% 8.63% *
</TABLE>
- -----------
* Index returns for the life of each class: 14.02% (5/31/81) for Class A
shares and 8.71% (5/31/94) for Class B and C shares.
** Inception date for the Class A shares is 5/21/81 and Class B and C shares
is 5/31/94.
The EAFE Index (Morgan Stanley Capital International Europe, Austral-Asia, Far
East Index) is a generally accepted benchmark for performance of major overseas
markets. Index returns assume reinvestment of dividends and, unlike fund
returns, do not reflect any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper International Fund 45
<PAGE> 46
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.73% 0.73% 0.73%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.91% 1.14% 1.07%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.64% 2.62% 2.55%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $732 $665 $358
3 Years $1,063 $1,114 $794
5 Years $1,415 $1,590 $1,355
10 Years $2,407 $2,496 $2,885
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $732 $265 $258
3 Years $1,063 $814 $794
5 Years $1,415 $1,390 $1,355
10 Years $2,407 $2,496 $2,885
</TABLE>
46 Kemper International Fund
<PAGE> 47
KEMPER INTERNATIONAL GROWTH AND INCOME FUND
INVESTMENT OBJECTIVE
Kemper International Growth and Income Fund seeks long-term growth of capital
and current income. Unless otherwise indicated, the fund's investment objective
and policies may be changed without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing primarily in
foreign equity securities. The fund invests generally in common stocks of
established companies listed on foreign exchanges, which offer prospects for
growth of earnings while paying relatively high current dividends.
At least 80% of the fund's net assets will normally be invested in the equity
securities of established non-U.S. companies. The fund focuses its investments
on the developed foreign countries included in the Morgan Stanley Capital
International World ex-US Index.
Stocks are selected for the fund using a disciplined, multi-part investment
approach with four stages as follows:
o Stage 1: The investment manager analyzes the pool of dividend-paying
foreign securities, primarily from the world's more mature markets,
targeting stocks that have high relative yields compared to the average
for their markets.
o Stage 2: The investment manager identifies what it believes are the most
promising stocks for the fund's portfolio.
o Stage 3: The investment manager diversifies the fund's portfolio among
different industry sectors.
o Stage 4: The investment manager diversifies the fund's portfolio among
different countries.
A stock is typically sold when a company's dividend yield reaches a
predetermined level versus the market yield. A stock is also sold when, in the
opinion of the portfolio manager, a company's financial situation begins to
deteriorate, especially through the assumption of large amounts of debt.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Kemper International Growth and Income Fund 47
<PAGE> 48
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
Under normal conditions, the fund may also invest up to 20% of its net assets in
debt securities convertible into common stock and fixed income securities of
governments, governmental agencies, supranational agencies and private issuers
when the investment manager believes the potential for appreciation and income
will equal or exceed that available from investments in equity securities. These
securities will predominantly be "investment grade" securities which are those
rated Aaa/AAA through Baa/BBB (and their unrated equivalents).
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents which may include domestic and foreign money market
instruments, short-term government and corporate obligations and repurchase
agreements. The fund may also hold up to 20% of its net assets in the U.S. and
foreign fixed income securities for temporary defensive purposes. In such cases,
the fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
48 Kemper International Growth and Income Fund
<PAGE> 49
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1998................. 8.94%
</TABLE>
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 14.21% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -16.55% (the third quarter of 1998).
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended MSCI EAFE+Canada
December 31, 1998 Class A Class B Class C Index
- ----------------- ------- ------- ------- -----
<S> <C> <C> <C> <C>
One Year* 2.67% 5.03% 8.04% 19.11%
Five Years -- -- -- --
Ten Years -- -- -- --
</TABLE>
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
The Morgan Stanley Capital International World+Canada Index is an unmanaged
index of global stock markets, excluding the U.S. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees,
expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper International Growth and Income Fund 49
<PAGE> 50
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 12.58% 13.46% 13.43%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 13.58% 15.21% 15.18%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.81%, Class B shares to 2.69%, and Class C shares to 2.66%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.30% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 11.77%, 12.52% and 12.52% for Class A, Class B and
Class C and actual total annual fund operating expenses were 1.81% for Class A,
2.69% for Class B and 2.66% for Class C.
50 Kemper International Growth and Income Fund
<PAGE> 51
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further, that such reimbursement may be discontinued
at any time. The investment manager has agreed to continue to waive 0.30% of its
management fee until December 31, 1999. It is estimated that Total Annual Fund
Operating Expenses, without the effect of any waiver or reimbursement, will be
13.43% for Class A shares, 14.49% for Class B shares and 14.27% for Class C
shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $1,800 $1,843 $1,541
3 Years $3,944 $4,203 $3,897
5 Years $5,735 $6,086 $5,879
10 Years $9,031 $9,043 $9,316
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $1,800 $1,443 $1,441
3 Years $3,944 $3,903 $3,897
5 Years $5,735 $5,886 $5,879
10 Years $9,031 $9,043 $9,316
</TABLE>
Kemper International Growth and Income Fund 51
<PAGE> 52
KEMPER LATIN AMERICA FUND
INVESTMENT OBJECTIVE
Kemper Latin America Fund seeks long-term capital appreciation. Unless otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
Main investment strategies
The fund pursues its investment objective by investing at least 65% of its total
assets in Latin American equity securities. Latin America is defined as Mexico,
Central America, South America and the islands of the Caribbean.
The fund defines securities of Latin American issuers as follows:
o securities of companies organized under the laws of a Latin American
country or for which the principal trading market is in Latin America;
o securities issued or guaranteed by the government of a Latin American
country, its agencies or instrumentalities, political subdivisions or the
central bank of such country;
o securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents assets or
activities located in Latin America; or
o securities of Latin American issuers, as defined above, in the form of
depositary shares.
In managing its portfolio, the investment manager seeks out investment
opportunities created from changing economic and political trends in Latin
America. These trends are supported by governmental initiatives designed to
promote freer trade and market-oriented economies. The investment manager
believes that active management, based on disciplined fundamental research, will
yield promising investment opportunities for long-term capital appreciation.
In selecting companies for investment, the investment manager typically
evaluates, among other things, industry trends, a company's financial strength,
its competitive position in domestic and export markets, technology, recent
developments and profitability, together with overall growth prospects. Other
considerations generally include quality and depth of management, governmental
regulation, and availability and cost of labor and raw materials.
A stock is typically sold when, in the opinion of the portfolio manager, the
stock no longer falls within certain valuation parameters.
Presently, the fund expects to focus its investments in Argentina, Brazil,
Chile, Colombia, Mexico and Peru. However, the fund may invest in other
countries in Latin America when the investment manager deems it appropriate.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
52 Kemper Latin America Fund
<PAGE> 53
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in debt securities when the investment manager determines
that the capital appreciation of debt securities is likely to equal or exceed
that of equity securities. The fund may also invest in debt securities which are
rated below investment grade (commonly referred to as "junk bonds").
In addition, the fund may invest up to 35% of its total assets in the equity
securities of U.S. and other non-Latin American issuers. In evaluating non-Latin
American investments, the investment manager generally seeks investments where
an issuer's Latin American business activities and the impact of developments in
Latin America may have a positive and significant effect on the issuer's
business results.
The fund may invest in closed-end investment companies investing primarily in
Latin America.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash or
cash equivalents and money market instruments, or invest all or a portion of its
assets in securities of U.S. or other non-Latin American issuers. In such a
case, the fund would not be pursuing, and may not achieve, its investment
objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests primarily in one geographic region. Common economic forces and
other factors may affect investments in a single region, even though a number of
different countries within a region may be represented within the fund. Factors
affecting Latin American investments may present a greater risk to the fund than
investments in a more geographically diversified fund.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
Kemper Latin America Fund 53
<PAGE> 54
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<S> <C>
1998................. -24.32%
</TABLE>
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.14% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -19.35% (the third quarter of 1998).
Average Annual Total Returns
<TABLE>
<CAPTION>
IFC Latin America
For periods ended Investable
December 31, 1998 Class A Class B Class C Return Index
- ----------------- ------- ------- ------- ------------
<S> <C> <C> <C> <C>
One Year* -28.68% -27.20% -25.05% -38.10%
Five Years -- -- -- --
Ten Years -- -- -- --
</TABLE>
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
The IFC Latin America Investable Return Index is prepared by the International
Finance Corporation. It is an unmanaged, market capitalization-weighted
representation of stock performance in seven Latin American markets, and
measures the returns of stocks that are legally and practically available to
investors. Index returns assume reinvestment of dividends and, unlike fund
returns, do not reflect any fees, expenses or sales charges.
54 Kemper Latin America Fund
<PAGE> 55
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 11.50% 12.38% 12.34%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 12.75% 14.38% 14.34%
- --------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 2.21%, Class B shares to 3.09%, and Class C shares to 3.06%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.35% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 10.54%, 11.29% and 11.28% for Class A, Class B and
Class C and actual total annual fund operating expenses were 2.21% for Class A,
3.09% for Class B and 3.06% for Class C.
Kemper Latin America Fund 55
<PAGE> 56
Total Annual Fund Operating Expenses are currently limited to 2.19% for Class A
shares, 3.07% for Class B shares, and 3.04% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary to
current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. The investment manager has agreed
to continue to waive 0.35% of its management fee until December 31, 1999. It is
estimated that Total Annual Fund Operating Expenses, without the effect of any
waiver or reimbursement, will be 9.28% for Class A shares, 10.36% for Class B
shares and 11.02% for Class C shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $1,730 $1,771 $1,467
3 Years $3,779 $4,038 $3,730
5 Years $5,522 $5,882 $5,672
10 Years $8,827 $8,856 $9,146
</TABLE>
Fees and expenses if you did not sell your shares:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1 Year $1,730 $1,371 $1,367
3 Years $3,779 $3,738 $3,730
5 Years $5,522 $5,682 $5,672
10 Years $8,827 $8,856 $9,146
</TABLE>
56 Kemper Latin America Fund
<PAGE> 57
INVESTMENT MANAGER
Each fund retains the investment management firm of Scudder Kemper Investments,
Inc., 345 Park Avenue, New York, New York, to manage its daily
investment and business affairs subject to the policies established by the
funds' Boards. Scudder Kemper Investments, Inc. actively manages the funds'
investments. Professional management can be an important advantage for investors
who do not have the time or expertise to invest directly in individual
securities. Scudder Kemper Investments, Inc. is one of the largest and most
experienced investment management organizations worldwide, managing more than
$280 billion in assets globally for mutual fund investors, retirement and
pension plans, institutional and corporate clients, and private family and
individual accounts.
Each fund pays the investment manager a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are shown below:
<TABLE>
<CAPTION>
As a % of average
daily net assets
----------------
<S> <C>
Growth Fund Of Spain 0.75%
Kemper Asian Growth Fund 0.85%
Kemper Emerging Markets Growth Fund* 1.25%
Kemper Emerging Markets Income Fund* 1.00%
Kemper Europe Fund 0.75%
Kemper Global Blue Chip Fund* 1.00%
Global Discovery Fund 1.10%
Kemper Global Income Fund 0.75%
Kemper International Fund 0.73%
Kemper International Growth and Income Fund* 1.00%
Kemper Latin America Fund* 1.25%
</TABLE>
- ----------
* The investment manager has agreed to waive 0.15%, 0.30%, 0.70%, 0.35%, and
0.35% of its management fee until December 31, 1999 for Kemper Global Blue
Chip Fund, Kemper International Growth and Income Fund, Kemper Emerging
Markets Income Fund, Kemper Emerging Markets Growth Fund and Kemper Latin
America Fund, respectively.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-adviser for Kemper Europe Fund,
Kemper Global Income Fund, and Kemper International Fund. Scudder Investments
(U.K.) Limited has served as sub-adviser for mutual funds since December, 1996
and investment adviser for certain institutional accounts since August, 1998.
Investment Manager 57
<PAGE> 58
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of each 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.
For its services, Scudder Investments (U.K.) Limited will receive from Scudder
Kemper Investments, Inc. a monthly fee at the annual rate of 0.30% for Kemper
Global Income Fund and 0.35% for each of Kemper Europe Fund and Kemper
International Fund of the portion of the average daily net assets of each fund
allocated by the investment manager to the sub-adviser for management.
PORTFOLIO MANAGEMENT
The following investment professionals are associated with the funds as
indicated:
Growth Fund Of Spain
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Joan R. Gregory 1998 Joined Scudder Kemper in 1992.
Lead Manager She is a member of the firm's
Global Equity Group and is on
the portfolio management teams
for other affiliated
international mutual funds. She
began her investment career in
1989. Prior to joining Scudder
Kemper, she worked in the
international investment
department at a bank.
Nicholas Bratt 1998 Joined Scudder Kemper in 1976 as
Manager a portfolio manager. Since then
he has served as portfolio
manager for other affiliated
international mutual funds and
has over 20 years of
international investment
experience. He is Head of the
firm's Global Equity Group,
responsible for the strategic
direction of the firm's equity
management business.
- --------------------------------------------------------------------------------
</TABLE>
58 Investment Manager
<PAGE> 59
Kemper Asian Growth Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Theresa Gusman 1998 Joined Scudder Kemper in 1992 as an
Lead Manager equity analyst responsible for
China, Hong Kong, Indonesia and
Taiwan. She then joined the Pacific
Basin portfolio management team in
1996. She began her investment
career in 1983. Prior to joining
Scudder Kemper, she was an equity
research analyst at an unaffiliated
investment management company.
Elizabeth J. Allan 1998 Joined Scudder Kemper in 1987,
Manager researching investments for some of
the firm's other international
mutual funds. Since then she has
served as a portfolio manager for
other affiliated mutual funds. She
has numerous years of Pacific Basin
research and investing experience.
Prior to joining Scudder Kemper, she
spent several years working for an
unaffiliated investment management
company.
- --------------------------------------------------------------------------------
</TABLE>
Kemper Emerging Markets Growth Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Joyce E. Cornell 1998 Joined Scudder Kemper in 1991 and
Lead Manager has been a portfolio manager since
1993. She is a member of the firm's
Global Equity Group, focusing her
portfolio management and research
responsibilities on the emerging
markets. She began her investment
career in 1987. Prior to joining
Scudder Kemper, she was a security
analyst at an unaffiliated
investment management company.
Andre J. DeSimone 1998 Joined Scudder Kemper in 1997 as
Manager part of the firm's emerging markets
portfolio management teams. He began
his investment career in 1981. Prior
to joining Scudder Kemper, he was
the founder and Chief Executive
Officer of a stock brokerage company
in Kenya.
- --------------------------------------------------------------------------------
</TABLE>
Investment Manager 59
<PAGE> 60
Kemper Emerging Markets Growth Fund (continued)
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Tara C. Kenney 1998 Joined Scudder Kemper in 1995 as a
Manager portfolio manager. She is a member
of the firm's Global Equity Group,
focusing on portfolio management of
Latin American equity securities.
She has 15 years of experience in
the field. Prior to joining Scudder
Kemper, she was responsible for the
origination and execution of
corporate finance transactions in
Latin America at a banking trust
company.
Theresa Gusman 1998 Joined Scudder Kemper in 1992 as an
Manager equity analyst responsible for
China, Hong Kong, Indonesia and
Taiwan. She then joined the Pacific
Basin portfolio management team in
1996. She began her investment
career in 1983. Prior to joining
Scudder Kemper, she was an equity
research analyst at an unaffiliated
investment management company.
- --------------------------------------------------------------------------------
</TABLE>
Kemper Emerging Markets Income Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
M. Isabel Saltzman 1997 Joined Scudder Kemper in 1990 as a
Lead Manager portfolio manager. She is the
Product Leader and a Senior
Portfolio Manager for the firm's
Emerging Markets Bond Group. She
began her investment career in
1979. Prior to joining Scudder
Kemper, she worked in international
finance at a bank.
Susan E. Dahl 1997 Joined Scudder Kemper in 1987 as
Manager head of fixed income trading. She
has over seven years of emerging
markets investment experience as a
portfolio manager. She is the
Capital Markets Strategist and a
Senior Portfolio Manager for the
firm's Emerging Markets Bond Group.
She began her investment career in
1987.
- --------------------------------------------------------------------------------
</TABLE>
60 Investment Manager
<PAGE> 61
Kemper Europe Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Marc Slendebroek 1998 Joined Scudder Kemper in 1994 as a
Lead Manager European equity analyst. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He began his investment
career in 1990. Prior to joining
Scudder Kemper, he worked for an
unaffiliated investment management
company responsible for the Dutch
equity research product.
Carol L. Franklin 1999 Joined Scudder Kemper in 1981 as a
Manager portfolio manager. She is a member
of the firm's Global Equity Group
and is a portfolio manager for
other affiliated international
mutual funds. She began her
investment career in 1975. Prior to
joining Scudder Kemper, she worked
for an unaffiliated investment
management company.
Joan R. Gregory 1999 Joined Scudder Kemper in 1992. She
Manager is a member of the firm's Global
Equity Group and is on the portfolio
management teams for other
affiliated international mutual
funds. She began her investment
career in 1989. Prior to joining
Scudder Kemper, she worked in the
international investment department
at a bank.
- --------------------------------------------------------------------------------
</TABLE>
Investment Manager 61
<PAGE> 62
Kemper Global Blue Chip Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Diego Espinosa 1998 Joined Scudder Kemper in 1996 as an
Lead Manager analyst for Latin American equity
securities. He has over five years
of direct investment experience as
both an analyst and portfolio
manager. He began his investment
career in 1991. Prior to joining
Scudder Kemper, he was a Latin
American equities securities analyst
for an unaffiliated investment
management company.
William E. Holzer 1998 Joined Scudder Kemper in 1980 as an
Manager analyst and portfolio manager. He is
Product Leader of the firm's global
equity investment product and is on
the portfolio management teams for
other affiliated international
mutual funds. He began his
investment career in 1970. Prior to
joining Scudder Kemper, he was a
credit analyst in the international
department at a banking trust
company.
Nicholas Bratt 1998 Joined Scudder Kemper in 1976 as a
Manager portfolio manager. Since then he has
served as portfolio manager for
other affiliated international
mutual funds and has over 20 years
of international investment
experience. He is Head of the firm's
Global Equity Group, responsible for
the strategic direction of the
firm's equity management business.
- --------------------------------------------------------------------------------
</TABLE>
62 Investment Manager
<PAGE> 63
Global Discovery Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Gerald J. Moran 1991 Joined Scudder Kemper in 1968 as an
Lead Manager analyst. Since then he has worked
within the firm's research
department and has served as
portfolio manager for other
affiliated mutual funds. For the
last decade, he has worked
exclusively with small cap stocks.
He has over 30 years of industry
experience.
Sewall F. Hodges 1996 Joined Scudder Kemper in 1995 as a
Manager portfolio manager. He is a member of
the firm's Global Equity Group. He
began his investment career in 1978.
Prior to joining the firm, he was a
global equity portfolio manager and
research analyst at an unaffiliated
investment management company.
- --------------------------------------------------------------------------------
</TABLE>
Kemper Global Income Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Terence C. Prideaux 1998 Joined Scudder Kemper in 1989 as an
Lead Manager associate director. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He has over 20 years of
investment experience. Prior to
joining Scudder Kemper, he was a
fund manager for the fixed income
portfolios of a life insurance
company.
- --------------------------------------------------------------------------------
</TABLE>
Investment Manager 63
<PAGE> 64
Kemper International Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Stephen P. Dexter 1998 Joined Scudder Kemper in 1986 as an
Co-Lead Manager equity analyst. Since then he has
served as a portfolio manager for
other affiliated mutual funds. He
began his investment career in
1983. Prior to joining Scudder
Kemper, he worked for an
unaffiliated investment management
company where he followed venture
capital and small cap companies.
Marc J. Slendebroeck 1998 Joined Scudder Kemper in 1994 as a
Co-Lead Manager European equity analyst. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He began his investment
career in 1990. Prior to joining
Scudder Kemper, he worked for an
unaffiliated investment management
company responsible for the Dutch
equity research product.
- --------------------------------------------------------------------------------
</TABLE>
Kemper International Growth and Income Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Sheridan P. Reilly 1998 Joined Scudder Kemper in 1995 as an
Lead Manager analyst. He is a member of the
firm's Global Equity Group and is on
the portfolio management teams for
other affiliated international
mutual funds. He began his
investment career in 1987. Prior to
joining Scudder Kemper, he focused
on strategies for global bonds
portfolios, currency hedging, and
foreign equity markets at an
unaffiliated investment management
company.
- --------------------------------------------------------------------------------
</TABLE>
64 Investment Manager
<PAGE> 65
Kemper International Growth and Income Fund (continued)
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Irene T. Cheng 1998 Joined Scudder Kemper in 1993 as a
Manager portfolio manager. She is a member
of the firm's Global Equity Group
and has over six years of
experience as a portfolio manager.
She began her investment career in
1985. Prior to joining Scudder
Kemper, she spent three years in
merchant banking activities and
three years as an equity analyst.
Lauren C. Lambert 1999 Joined Scudder Kemper in 1994 as a
European equity analyst. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He began his investment
career in 1990. Prior to joining
Scudder Kemper, he worked for an
unaffiliated investment management
company responsible for the Dutch
equity research product.
- --------------------------------------------------------------------------------
</TABLE>
Investment Manager 65
<PAGE> 66
Kemper Latin America Fund
<TABLE>
<CAPTION>
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
<S> <C> <C>
Tara C. Kenney 1996 Joined Scudder Kemper in 1995 as a
Lead Manager portfolio manager. She is a member
of the firm's Global Equity Group,
focusing on portfolio management of
Latin American equity securities.
She has 15 years of experience in
the field. Prior to joining Scudder
Kemper, she was responsible for the
origination and execution of
corporate finance transactions in
Latin America at a banking trust
company.
Edmund B. Games, Jr. 1992 Joined Scudder Kemper in 1960. Since
Manager then he has served as portfolio
manager for other affiliated
international mutual funds and has
over 39 years of international
investment experience. He is a
member of the firm's Global Equity
Group.
Paul H. Rogers 1996 Joined Scudder Kemper in 1994 and
Manager was responsible for Latin American
corporate bond research in the
firm's Emerging Markets/High Yield
Bond Group. Since then he has served
as portfolio manager for other
affiliated international mutual
funds. He began his investment
career in 1985. Prior to joining
Scudder Kemper he worked in the
Latin American group for a bank.
- --------------------------------------------------------------------------------
</TABLE>
66 Investment Manager
<PAGE> 67
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund relies,
which primarily include those used by the investment manager, its affiliates or
other service providers, are unable to process correctly date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to address successfully the Year 2000 Issue could result in
interruptions to and other material adverse effects on the funds' business and
operations, such as problems with calculating net asset value and difficulties
in implementing a fund's purchase and redemption procedures. The investment
manager has commenced a review of the Year 2000 Issue as it may affect the funds
and is taking steps it believes are reasonably designed to address the Year 2000
Issue, although there can be no assurances that these steps will be sufficient.
In addition, there can be no assurances that the Year 2000 Issue will not have
an adverse effect on the issuers whose securities are held by a fund or on
global markets or economies generally.
Euro conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operation of each fund. The Euro
was introduced on January 1, 1999 by eleven European countries that are members
of the European Economic and Monetary Union (EMU). The introduction of the Euro
will require the redenomination of European debt and equity securities over a
period of time, which may result in various accounting differences and/or tax
treatments. Additional questions are raised by the fact that certain other
European community members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999.
The investment manager is actively working to address Euro-related issues and
understands that other key service providers are taking similar steps. At this
time, however, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on a fund's holdings is negative, it
could hurt the fund's performance.
Investment Manager 67
<PAGE> 68
ABOUT YOUR INVESTMENT
CHOOSING A SHARE CLASS
Each fund provides investors with the option of purchasing shares in the
following ways:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Class A Shares(1) Offered at net asset value plus a maximum sales charge of
5.75% of the offering price, or 4.5% of the offering price
in the cases of Kemper Global Income Fund and Kemper
Emerging Markets Income Fund.
Reduced sales charges apply to purchases of $50,000 or
more for all funds except Kemper Global Income Fund and
Kemper Emerging Markets Income Fund. Reduced sales charges
apply to purchases of $100,000 or more for Kemper Global
Income Fund and Kemper Emerging Markets Income Fund.
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
change if redeemed during the second year of purchase.
Class B Shares(1) Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee and a contingent deferred sales charge
that declines from 4% to zero on certain redemptions made
within six years of purchase. Class B shares
automatically convert into Class A shares (which have
lower ongoing expenses) six years after purchase.
Class C Shares(1) Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1 distribution fee
and a 1% contingent deferred sales charge on redemptions
made within one year of purchase. Class C shares do not
convert into another class.
- --------------------------------------------------------------------------------
</TABLE>
(1) Class A, B and C shares of Growth Fund Of Spain are subject to a 2%
redemption fee on shares redeemed or exchanged within one year after
purchase, with limited exceptions.
When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. For more information about these sales
arrangements, consult your financial representative or the Shareholder Service
Agent. Be aware that financial services firms may receive different compensation
depending upon which class of shares they sell.
68 About Your Investment
<PAGE> 69
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and other services provided to
shareholders of those classes. Because 12b-1 fees are paid out of fund assets on
an ongoing basis, they will, over time, increase the cost of investment and may
cost more than other types of sales charges. Long-term shareholders may pay more
than the economic equivalent of the maximum initial sales charges permitted by
the National Association of Securities Dealers, although Kemper Distributors,
Inc. believes that it is unlikely, in the case of Class B shares, because of the
automatic conversion feature of the shares.
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 most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors. 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.
Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
the above mentioned Kemper 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 -- Large Order NAV Purchase Privilege. Class A shares of a fund
may be purchased at net asset value by any purchaser provided that the amount
invested in such fund or other Kemper Funds 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 above (the "Large Order NAV
Purchase Privilege").
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Currently, shares of a Kemper Fund with a value in excess of
$1,000,000 (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 (the "15 Day Hold Policy"). Effective June 1,
1999, 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
About Your Investment 69
<PAGE> 70
be exchanged thereafter until they have been owned for 15 days if, in the
investment manager's judgement, 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 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.
For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
Upon the exchange of any class of shares of the Growth Fund Of Spain held for
less than one year, 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 (see "Redemption Fee" below). Redemptions for any one shareholder
during any 90-day period in excess of the lesser of $250,000 or 1% of the net
asset value of the fund at the beginning of the period are not eligible for the
exchange privilege, and will be effected pursuant to the fund's redemption
policies described in the fund's Statement of Additional Information under
"Redemption-in-kind."
BUYING SHARES
You may purchase shares of a fund by contacting the securities dealer or other
financial services firm from whom you received this prospectus.
CLASS A SHARES -- All funds, except Kemper Global Income Fund and Kemper
Emerging Markets Income Fund
Public Offering Price. Including Sales Charge
<TABLE>
<CAPTION>
Sales Charge
------------
As a % of As a % of
Amount of Purchase Offering Price Net Amount Invested*
- ------------------ -------------- --------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50 4.71
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00** 0.00**
</TABLE>
- -----------
* Rounded to nearest one hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
and, in the case of Growth Fund Of Spain, a redemption fee, as discussed
below.
70 About Your Investment
<PAGE> 71
CLASS A SHARES -- Kemper Global Income Fund and Kemper Emerging Markets Income
Fund
Public Offering Price. Including Sales Charge
<TABLE>
<CAPTION>
Sales Charge
------------
As a % of As a % of Net Amount
Amount of Purchase Offering Price Invested*
- ------------------ -------------- ---------
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00** 0.00**
</TABLE>
- -----------
* Rounded to nearest one hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
NAV Purchases
Class A shares of a fund may be purchased at net asset value by:
o shareholders in connection with the investment or reinvestment of income
and capital gain dividends;
o a participant-directed qualified retirement plan or a participant-directed
non-qualified deferred compensation plan or a participant-directed
qualified retirement plan which is not sponsored by a K-12 school
district, provided in each case that such plan has not less than 200
eligible employees;
o any purchaser with Kemper Funds investment totals of at least $1,000,000
o unitholders of unit investment trusts sponsored by Ranson & Associates,
Inc. or its predecessors through reinvestment programs described in the
prospectuses of such trusts that have such programs;
o officers, trustees, directors, employees (including retirees) and sales
representatives of a fund, its investment manager, its principal
underwriter or certain affiliated companies, for themselves or members of
their families, any trust, pension, profit-sharing or other benefit plan
for only such persons;
o persons who purchase shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm;
o registered representatives and employees of broker-dealers having selling
group agreements with Kemper Distributors or any trust, pension,
profit-sharing or other benefit plan for only such persons;
o officers, directors, and employees of service agents of the funds;
o 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);
About Your Investment 71
<PAGE> 72
o selected employees (including their spouses and dependent children) of
banks and other financial services firms that provide administrative
services related to the funds pursuant to an agreement with Kemper
Distributors or one of its affiliates;
o certain professionals who assist in the promotion of Kemper Funds pursuant
to personal services contracts with Kemper Distributors, for themselves or
members of their families;
o in connection with the acquisition of the assets of or merger or
consolidation with another investment company;
o 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, any trust, pension, profit-sharing or other
benefit plan for only such persons;
o persons who purchase shares of the fund through Kemper Distributors as
part of an automated billing and wage deduction program administered by
RewardsPlus of America;
o 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
Kemper Distributors, including a requirement that such shares be purchased
for the benefit of their clients participating in an investment advisory
program under which such clients pay a fee to the investment advisor or
other firm for portfolio management or agency brokerage services.
Contingent Deferred Sales Charge
A contingent deferred sales charge may be imposed upon redemption of Class A
shares purchased under the Large Order NAV Purchase Privilege as follows: 1% if
they are redeemed within one year of purchase and 0.50% if redeemed during the
second year following purchase. The charge will not be imposed upon redemption
of reinvested dividends or share appreciation. The contingent deferred sales
charge will be waived in the event of:
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account;
o redemption of shares of a shareholder (including a registered joint owner)
who has died;
o 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);
72 About Your Investment
<PAGE> 73
o redemptions by a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by a
K-12 school district;
o redemptions by employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder
Service Agent or its affiliates;
o redemptions of shares whose dealer of record at the time of the investment
notifies Kemper Distributors that the dealer waives the commission
applicable to such Large Order NAV Purchase.
Rule 12b-1 Fee
None
Exchange Privilege
Class A shares may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase Privilege may be
exchanged for Class A shares of any Kemper Fund or a Money Market Fund without
paying any contingent deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed.
Shares of Growth Fund Of Spain held for less than one year are subject to a 2%
redemption fee upon exchange.
Redemption fee
Upon the redemption of any class of shares of Growth Fund Of Spain held for less
than one year, 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.
CLASS B SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
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. The charge is computed at the following rates applied to
the value of the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year of Redemption
After Purchase: First Second Third Fourth Fifth Sixth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contingent Deferred
Sales Charge: 4% 3% 3% 2% 2% 1%
- --------------------------------------------------------------------------------
</TABLE>
About Your Investment 73
<PAGE> 74
The contingent deferred sales charge will be waived:
o 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);
o 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 Code Section
72(t)(2)(A)(iv) prior to age 59 1/2;
o for redemptions made pursuant to a systematic withdrawal plan;
o 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;
o in the event of the death of the shareholder (including a registered joint
owner).
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
Kemper Service Company, the Shareholder Service Agent:
o 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);
o redemptions in connection with retirement distributions (limited at any
one time to 10% of the total value of plan assets invested in a fund);
o redemptions in connection with distributions qualifying under the hardship
provisions of the Code;
o redemptions representing returns of excess contributions to such plans.
Rule 12b-1 Fee
0.75%
Conversion Feature
Class B shares of a fund will automatically convert to Class A shares of the
same fund six years after issuance on the basis of the relative net asset value
per share. 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.
Exchange Privilege
Class B shares of a fund and Class B shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without paying any
contingent deferred sales charge. Shares of Growth Fund Of Spain held for less
than one year are subject to a 2% redemption fee upon exchange.
74 About Your Investment
<PAGE> 75
Redemption fee
Upon the redemption of any class of shares of Growth Fund Of Spain held for less
than one year, 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.
CLASS C SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
A contingent deferred sales charge of 1% may be imposed upon redemption of Class
C shares redeemed within one year of purchase. The charge will not be imposed
upon redemption of reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
o redemptions by a participant-directed qualified retirement plan described
in Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457;
o redemptions by employer sponsored employee benefit plans (or their
participants) using the subaccount record keeping system made available
through the Shareholder Service Agent or its affiliates;
o redemption of shares of a shareholder (including a registered joint owner)
who has died;
o 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);
o redemptions under a fund's systematic withdrawal plan at a maximum of 10%
per year of the net asset value of the account;
o redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has
waived the advance of the first year administrative service and
distribution fees applicable to such shares and agrees to receive such
fees quarterly;
o redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer
of record has waived the advance of the first year administrative services
and distribution fees applicable to such shares and has agreed to receive
such fees quarterly.
Rule 12b-1 Fee
0.75%
Conversion Feature
None
About Your Investment 75
<PAGE> 76
Exchange Privilege
Class C shares of a fund and Class C shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without paying any
contingent deferred sales charge. Shares of Growth Fund Of Spain held for less
than one year are subject to a 2% redemption fee upon exchange.
Redemption fee
Upon the redemption of any class of shares of Growth Fund Of Spain held for less
than one year, 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.
SELLING AND EXCHANGING SHARES
General
Contact your securities dealer or other financial services firm to arrange for
share redemptions or exchanges.
Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557.
An exchange of shares entails the sale of fund shares and subsequent purchase of
shares of another Kemper Mutual Fund.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Service Company, 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.
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.
76 About Your Investment
<PAGE> 77
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
Each fund normally distributes dividends of net investment income as follows:
annually for Kemper Asian Growth Fund, Kemper Emerging Markets Growth Fund,
Kemper Europe Fund, Kemper Global Blue Chip Fund, Global Discovery Fund, Growth
Fund Of Spain, Kemper International Fund, and Kemper Latin America Fund;
semi-annually for Kemper International Growth and Income Fund; monthly for
Kemper Emerging Markets Income Fund and Kemper Global Income Fund. Each fund
distributes any net realized short-term and long-term capital gains at least
annually.
Income and capital gains dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, Kemper Service Company, a shareholder
may select one of the following options:
1. To receive income and short-term capital gains dividends in cash and
long-term capital gains dividends in shares of the same class at net asset
value; or
2. To receive income and capital gains dividends in cash.
Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, by writing to the
Shareholder Service Agent, you may choose to have dividends of a fund invested
in shares of the same class of another Kemper fund at the net asset value of
that class and fund. To use this privilege, you must maintain a minimum account
value of $1,000 in the fund distributing the dividends. The funds will reinvest
dividend checks (and future dividends) in shares of that same fund and class if
checks are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same fund unless you request that such policy not be applied to your account.
Distributions are generally taxable, whether received in cash or reinvested.
About Your Investment 77
<PAGE> 78
Taxes
Dividends representing net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individual shareholders as long-term capital gains, regardless of the length of
time shareholders have owned shares. Short-term capital gains and any other
taxable income distributions are taxable to you as ordinary income. A portion of
dividends from ordinary income may qualify for the dividends-received deduction
for corporations.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, is taxable to you.
A sale or exchange of your shares is a taxable event and may result in a capital
gain or loss which may be long-term or short-term, generally depending on how
long you owned the shares. Shareholders of a fund may be subject to state, local
and foreign taxes on fund distributions and dispositions of fund shares. You
should consult your tax advisor regarding the particular tax consequences of an
investment in a fund.
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
are taxable to you as if paid on December 31 of the calendar year in which they
were declared.
Each fund sends you detailed tax information about the amount and type of its
distributions by January 31 of the following year. In certain years, you may be
able to claim a credit or deduction on your income tax return for your share of
foreign taxes paid by a fund.
Each fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the fund with
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Any such withheld amounts may be credited against your U.S. federal
income tax liability.
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Market prices are used to determine the value of the funds' assets.
If market prices are not readily available for a security or if a security's
price is not considered to be market indicative, that security may be valued by
another method that the Board or its delegate believes accurately reflects fair
value. In those circumstances where a security's price is not considered to be
market indicative, the security's valuation may differ from an available market
quotation.
78 About Your Investment
<PAGE> 79
The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class, less all liabilities of that class, by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a fund will generally be lower than that of the
Class A shares of a fund because of the higher annual expenses borne by the
Class B and Class C shares.
To the extent that the funds invest in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the funds do not price
their shares. As a result, the net asset value per share of the funds may change
at a time when shareholders are not able to purchase or redeem their shares.
Redemption Fee
Upon the redemption or exchange of any class of shares of Growth Fund Of Spain
held for less than one year, 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. The fee is waived for all shares purchased through
certain retirement plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh
accounts, and other pension, profit-sharing and employee benefit plans. However,
if such shares are purchased through a broker, financial institution or
recordkeeper maintaining an omnibus account for the shares, such waiver may not
apply. (Before purchasing shares, please check with your account representative
concerning the availability of the fee waiver.) In addition this waiver does not
apply to any IRA or SEP-IRA accounts. This fee is intended to encourage
long-term investment in the fund, to avoid transaction and other expenses caused
by early redemptions, and to facilitate portfolio management. The fee is not a
deferred sales charge, is not a commission paid to the investment manager or its
subsidiaries, and does not benefit the investment manager in any way. The fund
reserves the right to modify the terms of or terminate this fee at any time.
The fee applies to redemptions from the fund and exchanges to other Kemper
Funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the fund. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased. In the event
that a shareholder has acquired shares of the fund in connection with the fund's
acquisition of the assets of or merger or consolidation with another investment
company, the shareholder will generally be permitted to add the period he or she
held shares of the acquired fund to the time he or she has held Class A shares
of the fund in determining the applicability of the redemption fee. In such a
case, the shareholder bears the burden of demonstrating to the fund the period
of ownership of the acquired fund. Proof of ownership for the required period
may be demonstrated by providing copies of brokerage account statements or other
appropriate share records in connection with a redemption under cover of the
redemption and certification form.
About Your Investment 79
<PAGE> 80
With respect to Growth Fund Of Spain, for redemptions in excess of the lesser of
$250,000 or 1% of the net asset value of the fund during any 90-day period, a
redemption request will be considered valid only if accompanied by a properly
completed redemption and certification form which can be obtained by contacting
the Shareholder Service Agent. The form details, among other things, the
shareholder's valid custodial arrangements in Spain, Portugal and the U.S. No
redemptions requests subject to in-kind redemption may be made other than by a
written request accompanied by a properly completed redemption and certification
form.
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load or contingent deferred
sales charge). Orders received by dealers or other financial services firms
prior to the determination of net asset value and received by the funds'
transfer agent prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which the fund may not
yet have received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), the fund may delay transmittal of the proceeds until it
has determined that collected funds have been received for the purchase of such
shares. This may be up to 10 days from receipt by a fund of the purchase amount.
The redemption of shares within certain time periods may be subject to
contingent deferred sales charges, as noted above.
Signature guarantees
A signature guarantee is required unless you sell $50,000 or less worth of
shares (prior to the imposition of any contingent deferred sales charge) and the
proceeds are payable to the shareholder of record at the address of record. You
can obtain a guarantee from most brokerage houses and financial institutions,
although not from a notary public. The funds will normally send you the proceeds
within one business day following your request, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and their transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price. Each fund reserves the right to
80 About Your Investment
<PAGE> 81
withdraw all or any part of the offering made by this prospectus and to reject
purchase orders. Also, from time to time, each fund may temporarily suspend the
offering of its shares or a class of its shares to new investors. During the
period of such suspension, persons who are already shareholders normally are
permitted to continue to purchase additional shares and to have dividends
reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' distributor,
Kemper Distributors), that member may charge a fee for that service. This
prospectus should be read in connection with such firms' material regarding
their fees and services.
Redemption-in-kind
Each fund reserves the right to honor any request for redemption or repurchase
by making payment in whole or in part in readily marketable securities
("redemption in kind"). These securities will be chosen by the fund and valued
as they are for purposes of computing the fund's net asset value. A shareholder
may incur transaction expenses in converting these securities to cash.
It is the policy of Growth Fund Of Spain to redeem its 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 the fund at the beginning of the
period. As an operating policy, the fund will satisfy redemption requests in
excess of such amount by distributing portfolio securities in lieu of cash.
Shareholders whose redemptions are effected in-kind may bear expenses in excess
of 1% of the net asset value of the shares of the fund redeemed, which expenses
are in addition to any applicable redemption fee or contingent deferred sales
charge (see the Statement of Additional Information about redemptions-in-kind).
About Your Investment 81
<PAGE> 82
With respect to Growth Fund Of Spain, for redemptions in excess of the lesser of
$250,000 or 1% of the net asset value of the fund during any 90-day period, a
redemption request will be considered valid only if accompanied by a properly
completed redemption and certification form which can be obtained by contacting
the Shareholder Service Agent. The form details, among other things, the
shareholder's valid custodial arrangements in Spain, Portugal and the U.S. No
redemptions requests subject to in-kind redemption may be made other than by a
written request accompanied by a properly completed redemption and certification
form.
82 About Your Investment
<PAGE> 83
FINANCIAL HIGHLIGHTS
The financial highlights tables below are intended to help you understand the
funds' financial performance for the periods reflected below. Certain
information reflects the financial results for a single fund share. The total
return figures show what a shareholder in a fund would have earned (or lost)
assuming reinvestment of all distributions. This information, for all funds
except Global Discovery Fund, has been audited by Ernst & Young LLP. With
respect to Global Discovery Fund, this information has been audited by
Pricewaterhouse Coopers LLP. The reports of each of the auditors, along with the
funds' financial statements, are included in the funds' annual reports, which
are available upon request by calling Kemper at 1-800-621-1048.
Growth Fund Of Spain is the successor entity to The Growth Fund of Spain, Inc.,
a closed-end management investment company that had one class of shares. In
connection with the December 11, 1998 reorganization of The Growth Fund of
Spain, Inc. as Growth Fund Of Spain, an open-end series of Kemper
Global/International Series, Inc., the shares of The Growth Fund of Spain, Inc.
were exchanged on that date for Class A shares of the fund. Accordingly, the
following table shows financial information for Growth Fund Of Spain's Class A
shares expressed in terms of one share outstanding throughout the relevant
period, and reflects the operations of The Growth Fund of Spain, Inc. as a
closed-end investment company. Financial information is not available for the
fund's Class B and Class C shares since the reorganization took place after the
close of the fund's most recent fiscal year. Effective as of the fund's 1998
fiscal year, the fund's fiscal year end was changed to October 31.
Financial Highlights 83
<PAGE> 84
The Growth Fund of Spain, Inc.
<TABLE>
<CAPTION>
Eleven
months
ended
October
31, Year ended November 30,
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $19.06 15.67 13.33 12.40 10.67
- ----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .11 .24 .36 .37 .32
- ----------------------------------------------------------------------------------
Net realized and
unrealized gain 5.72 4.15 2.69 1.01 1.41
- ----------------------------------------------------------------------------------
Total from investment
operations 5.83 4.39 3.05 1.38 1.73
- ----------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .11 .17 .42 .45 --
- ----------------------------------------------------------------------------------
Distribution from net
realized gain 1.36 .83 .29 -- --
- ----------------------------------------------------------------------------------
Total dividends 1.47 1.00 .71 .45 --
- ----------------------------------------------------------------------------------
Net asset value, end of period $23.42 19.06 15.67 13.33 12.40
- ----------------------------------------------------------------------------------
Total return (not annualized) 32.90% 29.86 24.12 11.62 16.21
- ----------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.43% 1.22 1.25 1.22 1.23
- ----------------------------------------------------------------------------------
Net investment income .58% 1.29 2.46 2.89 2.57
- ----------------------------------------------------------------------------------
Supplemental data
Net assets at end of period
(in thousands) $387,126 315,059 263,935 227,997 213,972
- ----------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 10% 29 45 69 85
- ----------------------------------------------------------------------------------
</TABLE>
Note: Total return reflects reinvestment of dividends.
84 Financial Highlights
<PAGE> 85
Kemper Asian Growth Fund
<TABLE>
<CAPTION>
October 21
Year ended to November
November 30, 30,
CLASS A 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.65 10.04 9.50
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .11 .08 --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.27) (3.47) .54
- ------------------------------------------------------------------------------
Total from investment operations (1.16) (3.39) .54
- ------------------------------------------------------------------------------
Less distribution from net investment income .08 -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $5.41 6.65 10.04
- ------------------------------------------------------------------------------
Total return (not annualized) (17.66)% (33.76) 5.68
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 1.80% 1.60 1.46
- ------------------------------------------------------------------------------
Net investment income 2.05% .97 .74
- ------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.65% 2.62 1.46
- ------------------------------------------------------------------------------
Net investment income (loss) 1.20% (.05) .74
- ------------------------------------------------------------------------------
<CAPTION>
October 21
Year ended to November
November 30, 30,
CLASS B 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.58 10.03 9.50
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.28) (3.45) .53
- --------------------------------------------------------------------------
Total from investment operations (1.22) (3.45) .53
- ------------------------------------------------------------------------------
Less distribution from net investment
income .02 -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $5.34 6.58 10.03
- ------------------------------------------------------------------------------
Total return (not annualized) (18.65)% (34.40) 5.58
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.78% 2.57 2.34
- ------------------------------------------------------------------------------
Net investment income (loss) 1.07% -- (.14)
- ------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 4.29% 3.51 2.34
- ------------------------------------------------------------------------------
Net investment loss (.44)% (.94) (.14)
- ------------------------------------------------------------------------------
</TABLE>
Financial Highlights 85
<PAGE> 86
<TABLE>
<CAPTION>
October 21
Year ended to November
November 30, 30,
CLASS C 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.60 10.03 9.50
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.28) (3.43) .53
- ------------------------------------------------------------------------------
Total from investment operations (1.23) (3.43) .53
- ------------------------------------------------------------------------------
Less distribution from net investment
income .02 -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $5.35 6.60 10.03
- ------------------------------------------------------------------------------
Total return (not annualized) (18.72)% (34.20) 5.58
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.71% 2.54 2.34
- ------------------------------------------------------------------------------
Net investment income (loss) 1.14% .03 (.14)
- ------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 4.56% 3.55 2.34
- ------------------------------------------------------------------------------
Net investment loss (.71)% (.98) (.14)
- ------------------------------------------------------------------------------
<CAPTION>
October 21
Year ended to November
November 30, 30,
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period $7,416,000 6,398,000 1,949,000
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 131% 155 74
- ------------------------------------------------------------------------------
</TABLE>
Notes: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. agreed to waive a portion of its management fee and
absorb certain operating expenses of the fund during the years ended November
30, 1998 and 1997. The Other Ratios to Average Net Assets are computed without
this expense waiver or absorption.
86 Financial Highlights
<PAGE> 87
Kemper Emerging Markets Growth Fund
<TABLE>
<CAPTION>
For the period from January 9, 1998
(commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .03 (.01) (.03)
- --------------------------------------------------------------------------------
Net realized and unrealized loss (1.73) (1.75) (1.71)
- --------------------------------------------------------------------------------
Total from investment operations (1.70) (1.76) (1.74)
- --------------------------------------------------------------------------------
Net asset value, end of period $7.80 7.74 7.76
- --------------------------------------------------------------------------------
Total return (not annualized) (17.89)% (18.53) (18.32)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 2.28% 3.18 3.15
- --------------------------------------------------------------------------------
Net investment income (loss) .40% (.50) (.47)
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 22.38% 24.06 24.03
- --------------------------------------------------------------------------------
Net investment loss (19.70)% (21.38) (21.35)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $1,771,222
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 69%
- --------------------------------------------------------------------------------
</TABLE>
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 Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 87
<PAGE> 88
Kemper Emerging Markets Income Fund
<TABLE>
<CAPTION>
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .64 .53 .54
- --------------------------------------------------------------------------------
Net realized and unrealized loss (4.14) (4.09) (4.09)
- --------------------------------------------------------------------------------
Total from investment operations (3.50) (3.56) (3.55)
- --------------------------------------------------------------------------------
Less distribution from net investment
income .61 .56 .56
- --------------------------------------------------------------------------------
Net asset value, end of period $5.39 5.38 5.39
- --------------------------------------------------------------------------------
Total return (not annualized) (38.39)% (38.87) (38.75)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund before
interest expense 1.68% 2.56 2.53
- --------------------------------------------------------------------------------
Expenses absorbed by the fund after
interest expense 2.46% 3.34 3.31
- --------------------------------------------------------------------------------
Net investment income 10.59% 9.71 9.74
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses before interest expense 5.12% 6.75 6.72
- --------------------------------------------------------------------------------
Expenses after interest expense 5.90% 7.53 7.50
- --------------------------------------------------------------------------------
Net investment income 7.15% 5.52 5.55
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $5,040,189
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 294%
- --------------------------------------------------------------------------------
</TABLE>
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 Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
88 Financial Highlights
<PAGE> 89
Kemper Europe Fund
<TABLE>
<CAPTION>
Year ended May 1 to
November 30, November 30,
CLASS A 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.43 11.02 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .03 .01
- --------------------------------------------------------------------------------
Net realized and unrealized gain 2.07 1.51 1.51
- --------------------------------------------------------------------------------
Total from investment operations 2.11 1.54 1.52
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .05 -- --
- --------------------------------------------------------------------------------
Distribution from net realized gain .15 .13 --
- --------------------------------------------------------------------------------
Total dividends .20 .13 --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.34 12.43 11.02
- --------------------------------------------------------------------------------
Total return (not annualized) 17.25% 14.18 16.00
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 1.53% 1.52 1.49
- --------------------------------------------------------------------------------
Net investment income .32% .34 .46
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.28% 1.75 4.74
- --------------------------------------------------------------------------------
Net investment income (loss) (.43)% .11 (2.79)
- --------------------------------------------------------------------------------
<CAPTION>
Year ended May 1 to
November 30, November 30,
CLASS B 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.27 10.97 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.05) (.05) (.02)
- --------------------------------------------------------------------------------
Net realized and unrealized gain 1.98 1.48 1.49
- --------------------------------------------------------------------------------
Total from investment operations 1.93 1.43 1.47
- --------------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.05 12.27 10.97
- --------------------------------------------------------------------------------
Total return (not annualized) 15.92% 13.23 15.47
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.67% 2.45 2.44
- --------------------------------------------------------------------------------
Net investment loss (.82)% (.59) (.49)
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 4.42% 2.66 5.63
- --------------------------------------------------------------------------------
Net investment loss (2.57)% (.80) (3.68)
- --------------------------------------------------------------------------------
</TABLE>
Financial Highlights 89
<PAGE> 90
<TABLE>
<CAPTION>
Year ended May 1 to
November 30, November 30,
CLASS C 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.28 10.97 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.05) (.01)
- --------------------------------------------------------------------------------
Net realized and unrealized gain 2.00 1.49 1.48
- --------------------------------------------------------------------------------
Total from investment operations 2.00 1.44 1.47
- --------------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.13 12.28 10.97
- --------------------------------------------------------------------------------
Total return (not annualized) 16.48% 13.32 15.47
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.08% 2.38 2.34
- --------------------------------------------------------------------------------
Net investment loss (.23)% (.52) (.39)
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.89% 2.59 5.50
- --------------------------------------------------------------------------------
Net investment loss (1.04)% (.73) (3.55)
- --------------------------------------------------------------------------------
<CAPTION>
Year ended May 1 to
November 30, November 30,
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental data for all classes
Net assets at end of period (in
thousands) $67,308 23,910 3,856
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 132% 101 96
- --------------------------------------------------------------------------------
</TABLE>
Notes: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive a portion of its
management fee and absorb certain operating expenses of the fund. The Other
Ratios to Average Net assets are computed without this expense waiver or
absorption.
90 Financial Highlights
<PAGE> 91
Kemper Global Blue Chip Fund
<TABLE>
<CAPTION>
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 -- --
- --------------------------------------------------------------------------------
Net realized and unrealized gain .66 .63 .64
- --------------------------------------------------------------------------------
Total from investment operations .71 .63 .64
- --------------------------------------------------------------------------------
Net asset value, end of period $10.21 10.13 10.14
- --------------------------------------------------------------------------------
Total return (not annualized) 7.47% 6.63 6.74
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 1.80% 2.68 2.65
- --------------------------------------------------------------------------------
Net investment income .92% .04 .07
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 6.06% 7.69 7.66
- --------------------------------------------------------------------------------
Net investment loss (3.34)% (4.97) (4.94)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $9,539,623
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 84%
- --------------------------------------------------------------------------------
</TABLE>
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 Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 91
<PAGE> 92
Global Discovery Fund
<TABLE>
<CAPTION>
For the For the For the
Period Period Period
April 16, April 16, April 16,
1998 1998 1998
(commence- (commence- (commence-
ment sale ment sale ment sale
of Class A of Class B of Class C
shares) to shares) to shares) to
October 31, October October 31,
1998 31, 1998 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $23.98 $23.98 $23.98
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.09) (.18) (.17)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments transactions (4.11) (4.10) (4.11)
- --------------------------------------------------------------------------------
Total from investment operations (4.20) (4.28) (4.28)
- --------------------------------------------------------------------------------
Net asset value, end of period $19.78 $19.70 $19.70
- --------------------------------------------------------------------------------
Total return (%)(b)(c) (17.51)** (17.85)** (17.85)**
- --------------------------------------------------------------------------------
Ratios and Supplemental Data
Net assets, end of period ($ millions) 11 6 2
- --------------------------------------------------------------------------------
Ratio of operating expenses, net to
average daily
net assets (%) 1.95* 2.83* 2.80*
- --------------------------------------------------------------------------------
Ratio of operating expenses before expense
reductions, to average daily net assets (%) 2.20* 3.13* 3.23*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average daily net assets (%) (1.00)* (1.87)* (1.88)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 40.6 40.6 40.6
- --------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
92 Financial Highlights
<PAGE> 93
Kemper Global Income Fund
<TABLE>
<CAPTION>
Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of year $8.58 8.97 9.05 8.55 9.29
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .37 .48 .52 .61 .60
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) .50 (.33) (.02) 1.05 (.74)
- --------------------------------------------------------------------------------
Total from investment
operations .87 .15 .50 1.66 (.14)
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .40 .47 .58 1.16 .38
- --------------------------------------------------------------------------------
Tax return of capital
distribution .11 .07 -- -- .22
- --------------------------------------------------------------------------------
Total dividends .51 .54 .58 1.16 .60
- --------------------------------------------------------------------------------
Net asset value, end of
year $8.94 8.58 8.97 9.05 8.55
- --------------------------------------------------------------------------------
Total return 10.48% 1.80 5.87 19.89 (1.47)
- --------------------------------------------------------------------------------
Ratios to average net assets
Expenses 1.58% 1.32 1.48 1.34 1.53
- --------------------------------------------------------------------------------
Net investment income 4.31% 5.56 5.77 6.43 6.67
- --------------------------------------------------------------------------------
<CAPTION>
May 31 to
December
Year ended December 31, 31,
CLASS B 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $8.60 9.00 9.09 8.56 8.70
- -------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .31 .41 .46 .56 .30
- -------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) .49 (.33) (.02) 1.05 (.14)
- -------------------------------------------------------------------------------
Total from investment
operations .80 .08 .44 1.61 .16
- -------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .34 .42 .53 1.08 .19
- -------------------------------------------------------------------------------
Tax return of capital
distribution .10 .06 -- -- .11
- -------------------------------------------------------------------------------
Total dividends .44 .48 .53 1.08 .30
- -------------------------------------------------------------------------------
Net asset value, end of
period $8.96 8.60 9.00 9.09 8.56
- -------------------------------------------------------------------------------
Total return (not
annualized) 9.56% 1.03 5.11 19.21 1.89
- -------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.32% 2.18 2.14 1.98 2.27
- -------------------------------------------------------------------------------
Net investment income 3.57% 4.70 5.11 5.79 5.89
- -------------------------------------------------------------------------------
</TABLE>
Financial Highlights 93
<PAGE> 94
<TABLE>
<CAPTION>
May 31 to
December
Year ended December 31, 31,
CLASS C 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $8.62 9.02 9.09 8.56 8.70
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .32 .42 .48 .57 .30
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) .49 (.33) (.02) 1.05 (.14)
- --------------------------------------------------------------------------------
Total from investment
operations .81 .09 .46 1.62 .16
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .34 .43 .53 1.09 .19
- --------------------------------------------------------------------------------
Tax return of capital
distribution .10 .06 -- -- .11
- --------------------------------------------------------------------------------
Total dividends .44 .49 .53 1.09 .30
- --------------------------------------------------------------------------------
Net asset value, end of
period $8.99 8.62 9.02 9.09 8.56
- --------------------------------------------------------------------------------
Total return (not
annualized) 9.72% 1.09 5.31 19.26 1.91
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.13% 2.11 2.06 2.06 2.23
- --------------------------------------------------------------------------------
Net investment income 3.76% 4.77 5.19 5.71 5.93
- --------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of year
(in thousands) $84,795 99,054 131,761 152,959 170,700
- --------------------------------------------------------------------------------
Portfolio turnover rate 313% 283 276 220 378
- --------------------------------------------------------------------------------
</TABLE>
Notes: Total return does not reflect the effect of any sales charges. Per share
data for 1998, 1997 and 1996 were determined based on average shares
outstanding.
94 Financial Highlights
<PAGE> 95
Kemper International Fund
<TABLE>
<CAPTION>
Year ended October 31,
CLASS A 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of year $12.68 11.96 10.59 11.13 10.56
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .04 -- .04 .07 --
- --------------------------------------------------------------------------------
Net realized and
unrealized gain .01 1.52 1.50 .05 .86
- --------------------------------------------------------------------------------
Total from investment
operations .05 1.52 1.54 .12 .86
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .08 .12 .12 -- --
- --------------------------------------------------------------------------------
Distribution from net
realized gain .55 .68 .05 .66 .29
- --------------------------------------------------------------------------------
Total dividends .63 .80 .17 .66 .29
- --------------------------------------------------------------------------------
Net asset value, end of
year $12.10 12.68 11.96 10.59 11.13
- --------------------------------------------------------------------------------
Total return .45% 13.49 14.70 1.69 8.32
- --------------------------------------------------------------------------------
Ratios to average net assets
Expenses 1.64% 1.57 1.64 1.57 1.54
- --------------------------------------------------------------------------------
Net investment income .36% .16 .34 .83 .02
- --------------------------------------------------------------------------------
<CAPTION>
May 31 to
October
Year ended October 31, 31,
CLASS B 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $12.50 11.81 10.46 11.09 10.58
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (.08) (.12) (.06) (.02) (.04)
- --------------------------------------------------------------------------------
Net realized and
unrealized gain .03 1.51 1.47 .05 .55
- --------------------------------------------------------------------------------
Total from investment
operations (.05) 1.39 1.41 .03 .51
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- .02 .01 -- --
- --------------------------------------------------------------------------------
Distribution from net
realized gain .55 .68 .05 .66 --
- --------------------------------------------------------------------------------
Total dividends .55 .70 .06 .66 --
- --------------------------------------------------------------------------------
Net asset value, end of
period $11.90 12.50 11.81 10.46 11.09
- --------------------------------------------------------------------------------
Total return (not
annualized) (.37)% 12.32 13.59 .84 4.82
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.62% 2.57 2.53 2.50 2.58
- --------------------------------------------------------------------------------
Net investment loss (.62)% (.84) (.55) (.10) (.97)
- --------------------------------------------------------------------------------
</TABLE>
Financial Highlights 95
<PAGE> 96
<TABLE>
<CAPTION>
May 31 to
October
Year ended October 31, 31,
CLASS C 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $12.51 11.81 10.46 11.09 10.58
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (.08) (.09) (.06) (.02) (.04)
- --------------------------------------------------------------------------------
Net realized and
unrealized gain .03 1.49 1.47 .05 .55
- --------------------------------------------------------------------------------
Total from investment
operations (.05) 1.40 1.41 .03 .51
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- .02 .01 -- --
- --------------------------------------------------------------------------------
Distribution from net
realized gain .55 .68 .05 .66 --
- --------------------------------------------------------------------------------
Total dividends .55 .70 .06 .66 --
- --------------------------------------------------------------------------------
Net asset value, end of
period $11.91 12.51 11.81 10.46 11.09
- --------------------------------------------------------------------------------
Total return (not
annualized) (.37)% 12.45 13.59 .84 4.82
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.55% 2.49 2.50 2.50 2.52
- --------------------------------------------------------------------------------
Net investment loss (.55)% (.76) (.52) (.10) (.91)
- --------------------------------------------------------------------------------
<CAPTION>
Year ended October 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of year
(in thousands) $604,684 588,069 472,243 364,708 418,282
- --------------------------------------------------------------------------------
Portfolio turnover rate 105% 76 104 114 103
- --------------------------------------------------------------------------------
</TABLE>
Notes: 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.
96 Financial Highlights
<PAGE> 97
Kemper International Growth and Income Fund
<TABLE>
<CAPTION>
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .04 .05
- --------------------------------------------------------------------------------
Net realized and unrealized gain .20 .22 .21
- --------------------------------------------------------------------------------
Total from investment operations .33 .26 .26
- --------------------------------------------------------------------------------
Less distribution from net investment
income .10 .05 .05
- --------------------------------------------------------------------------------
Net asset value, end of period $9.73 9.71 9.71
- --------------------------------------------------------------------------------
Total return (not annualized) 3.31% 2.64 2.65
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 1.81% 2.69 2.66
- --------------------------------------------------------------------------------
Net investment income 1.54% .66 .69
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 13.58% 15.21 15.18
- --------------------------------------------------------------------------------
Net investment loss (10.23)% (11.86) (11.83)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $4,270,979
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 97%
- --------------------------------------------------------------------------------
</TABLE>
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 Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 97
<PAGE> 98
Kemper Latin America Fund
<TABLE>
<CAPTION>
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .04 .04
- --------------------------------------------------------------------------------
Net realized and unrealized loss (2.25) (2.28) (2.28)
- --------------------------------------------------------------------------------
Total from investment operations (2.19) (2.24) (2.24)
- --------------------------------------------------------------------------------
Net asset value, end of period $7.31 7.26 7.26
- --------------------------------------------------------------------------------
Total return (not annualized) (23.05)% (23.58) (23.58)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 2.21% 3.09 3.06
- --------------------------------------------------------------------------------
Net investment income 1.38% .50 .53
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 12.75% 14.38 14.34
- --------------------------------------------------------------------------------
Net investment loss (9.16)% (10.79) (10.75)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $1,460,498
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 55%
- --------------------------------------------------------------------------------
</TABLE>
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 Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
98 Financial Highlights
<PAGE> 99
This Page
intentionally
left blank.
<PAGE> 100
This Page
intentionally
left blank.
<PAGE> 101
1
Additional information about each fund may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling the toll-free telephone
number listed below. The Statement of Additional Information contains more
detailed information on fund investments and operations. The Shareholder
Services Guide contains more information about purchases and sales of fund
shares. The semiannual and annual shareholder reports contain a discussion of
the market conditions and the investment strategies that significantly affected
the funds' performance during the last fiscal year, as well as a listing of
portfolio holdings and financial statements. These and other fund documents may
be obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By Telephone Call the Kemper Funds at: 1-800-621-1048
- --------------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section,
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
In Person Public Reference Room
Securities and Exchange Commission
Washington, D.C.
(Call 1-800-SEC-0330
for more information.)
- --------------------------------------------------------------------------------
By Internet http://www.sec.gov
http://www.kemper.com
- --------------------------------------------------------------------------------
For each of the funds, the respective Statement of Additional Information dated
March 1, 1999 is incorporated by reference into this prospectus (is legally a
part of this prospectus).
Investment Company Act file numbers:
Growth Fund Of Spain 811-08395
Kemper Asian Growth Fund 811-7731
Kemper Emerging Markets Growth Fund 811-08395
Kemper Emerging Markets Income Fund 811-08395
Kemper Europe Fund 811-7479
Kemper Global Blue Chip Fund 811-08395
Global Discovery Fund 811-4670
Kemper Global Income Fund 811-5829
Kemper International Fund 811-3136
Kemper International Growth and Income Fund 811-08395
Kemper Latin America Fund 811-08395
<PAGE> 1
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
KEMPER ASIAN GROWTH FUND (the "Asian Fund")
KEMPER EUROPE FUND (the "Europe Fund")
KEMPER GLOBAL INCOME FUND (the "Global Fund")
KEMPER INTERNATIONAL FUND (the "International Fund")
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for the Asian, Europe, Global and
International Funds (the "Funds"). It should be read in conjunction with the
combined prospectus of the Funds dated March 1, 1999. The prospectus may be
obtained without charge from the Funds and is also available along with other
related materials on the SEC's Internet web site (http://www.sec.gov).
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions............................... 2
Investment Policies and Techniques.................... 5
Dividends and Taxes................................... 20
Performance........................................... 26
Investment Manager and Underwriter.................... 33
Portfolio Transactions................................ 40
Purchase, Repurchase and Redemption of Shares......... 41
Officers and Trustees................................. 55
Shareholder Rights.................................... 60
Appendix--Ratings of Investments....................... 62
</TABLE>
The financial statements appearing in each Fund's Annual Report to
Shareholders are incorporated herein by reference. The Report for the Fund for
which this Statement of Additional Information is requested accompanies this
document.
1
<PAGE> 2
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which cannot
be changed without approval of a "majority" of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of (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.
The Asian Growth, Europe, and International Funds are classified as diversified
open-end management investment companies. The Global Income Fund is a
non-diversified open-end investment management company.
Each Fund, with the exception of the International Fund, may not, as a
fundamental policy:
1. Make loans except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
2. Borrow money, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
3. Concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
4. Purchase physical commodities or contracts relating to physical
commodities.
5. Engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities.
6. Issue senior securities except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
7. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. Each Fund has
also adopted the following non-fundamental restrictions, which may be changed by
the Board of Trustees without shareholder approval.
The Asian Fund may not, as a non-fundamental policy:
i. Invest for the purpose of exercising control or management of
another issuer.
ii. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer's
commission or profit, other than customary broker's commission, is
involved and only if immediately thereafter not more than (i) 3% of
the total outstanding voting stock of such company is owned by the
Fund, (ii) 5% of the Fund's total assets would be invested in any
one such company, and (iii) 10% of the Fund's total assets would be
invested in such securities; except that all or substantially all of
the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund.
iii. Invest more than 15% of its net assets in illiquid securities.
2
<PAGE> 3
iv. Purchase more than 10% of any class of voting securities of any
issuer, except that all or substantially all of the assets of the
Fund may be invested in another registered investment company having
the same investment objective and substantially similar investment
policies as the Fund.
v. Pledge, hypothecate, mortgage or otherwise encumber more than 15% of
its total assets and then only to secure borrowings. (The collateral
arrangements with respect to options and financial futures
transactions and any margin payments in connection therewith are not
deemed to be pledges or other encumbrances.)
vi. Make short sales of securities, or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions; however, the Fund may make margin
deposits in connection with options and financial futures
transactions.
vii. Write or sell put or call options, combinations thereof or similar
options on more than 25% of the Fund's net assets; nor may it
purchase put or call options if more than 5% of the Fund's net
assets would be invested in premiums on put and call options,
combinations thereof or similar options; however, the Fund may buy
or sell options on financial futures contracts.
The Europe Fund may not, as a non-fundamental policy:
i. Invest for the purpose of exercising control or management of
another issuer.
ii. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer's
commission or profit, other than customary broker's commission, is
involved and only if immediately thereafter not more than (i) 3% of
the total outstanding voting stock of such company is owned by the
Fund, (ii) 5% of the Fund's total assets would be invested in any
one such company, and (iii) 10% of the Fund's total assets would be
invested in such securities.
iii. Invest more than 15% of its net assets in illiquid securities.
iv. Purchase more than 10% of any class of voting securities of any
issuer.
v. Pledge, hypothecate, mortgage or otherwise encumber more than 15% of
its total assets and then only to secure borrowings. (The collateral
arrangements with respect to options and financial futures
transactions and any margin payments in connection therewith are not
deemed to be pledges or other encumbrances.)
vi. Make short sales of securities, or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions; however, the Fund may make margin
deposits in connection with options and financial futures
transactions.
vii. Write or sell put or call options, combinations thereof or similar
options on more than 25% of the Fund's net assets; nor may it
purchase put or call options if more than 5% of the Fund's net
assets would be invested in premiums on put and call options,
combinations thereof or similar options; however, the Fund may buy
or sell options on financial futures contracts.
The Global Fund may not, as a non-fundamental policy:
i. Invest for the purpose of exercising control or management of
another issuer.
ii. Invest more than 15% of its net assets in illiquid securities.
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iii. Purchase securities of other open-end investment companies, except
in connection with a merger, consolidation, reorganization or
acquisition of assets; except that all or substantially all of the
assets of the Fund may be invested in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund.
iv. Purchase more than 10% of any class of voting securities of any
issuer, except that all or substantially all of the assets of the
Fund may be invested in another registered investment company having
the same investment objective and substantially similar investment
policies as the Fund.
v. Pledge, hypothecate, mortgage or otherwise encumber more than 15% of
its total assets and then only to secure borrowings. (The collateral
arrangements with respect to options, financial futures and delayed
delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
vi. Purchase securities on margin, except to obtain such short-term
credits as may be necessary for the clearance of transactions;
however, the Fund may make margin deposits in connection with
options and financial futures transactions.
vii. Make short sales of securities or other assets or maintain a short
position for the account of the Fund unless at all times when a
short position is open it owns an equal amount of such securities or
other assets or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for
securities or other assets of the same issue as, and equal in amount
to, the securities or other assets sold short and unless not more
than 10% of the Fund's total assets is held as collateral for such
sales at any one time.
viii. Write or sell put or call options, combinations thereof or similar
options on more than 25% of the Fund's net assets; nor may the Fund
purchase put or call options if more than 5% of the Fund's net
assets would be invested in premiums on put and call options,
combinations thereof or similar options; however, the Fund may buy
or sell options on financial futures contracts.
The International Fund may not, as a fundamental policy:
1. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities. All debt securities and all preferred
stocks are each considered as one class.
2. Make loans except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
3. Borrow money, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
4. Concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
5. Purchase physical commodities or contracts relating to physical
commodities.
6. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities.
7. Engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities.
8. Issue senior securities except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
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If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The
International Fund did not borrow money as permitted by investment restriction
number 4 in the latest fiscal year and it has no present intention of borrowing
during the current year. The International Fund has adopted the following
non-fundamental restrictions, which may be changed by the Board of Trustees
without shareholder approval.
The International Fund may not, as a non-fundamental policy:
i. Invest for the purpose of exercising control or management of
another issuer.
ii. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer's
commission or profit, other than customary broker's commission, is
involved and only if immediately thereafter not more than (i) 3% of
the total outstanding voting stock of such company is owned by the
Fund, (ii) 5% of the Fund's total assets would be invested in any
one such company, and (iii) 10% of the Fund's total assets would be
invested in such securities.
iii. Invest more than 15% of its net assets in illiquid securities.
iv. Purchase more than 10% of any class of securities of any issuer
except securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities. All debt securities and all
preferred stocks are each considered as one class.
v. Make short sales of securities, or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions; however, the Fund may make margin
deposits in connection with financial futures and options
transactions.
vi. Write or sell put or call options, combinations thereof or similar
options on more than 25% of the Fund's net assets; nor may it
purchase put or call options if more than 5% of the Fund's net
assets would be invested in premiums on put and call options,
combinations thereof or similar options; however, the Fund may buy
or sell options on financial futures contracts.
vii. Pledge the Fund's securities or receivables or transfer or assign or
otherwise encumber them in an amount exceeding the amount of the
borrowing secured thereby.
INVESTMENT POLICIES AND TECHNIQUES
The following information sets forth each Fund's investment objective and
policies. Each Fund's returns and net asset value will fluctuate and there is no
assurance that a Fund will achieve its objective.
ASIAN FUND. The objective of the Asian Fund is long-term capital growth. The
Fund seeks to achieve its objective by investing in a diversified portfolio
consisting primarily of equity securities of Asian companies ("Asian Equity
Securities"). Asian Equity Securities include common stocks, preferred stocks,
securities convertible into or exchangeable for common or preferred stocks,
equity investments in partnerships, joint ventures and other forms of
non-corporate investment and warrants, options and rights exercisable for equity
securities that are issued by Asian companies as defined below.
The Fund considers an issuer of securities to be an Asian company if: (i) it is
organized under the laws of an Asian country and has a principal office in an
Asian country; (ii) it derives 50% or more of its total revenues from business
in Asia; or (iii) its equity securities are traded principally on a stock
exchange in Asia. Under normal circumstances, the Fund will invest at least 85%
of its total assets in Asian Equity Securities and will invest at least 65% of
its total assets in Asian Equity Securities of issuers meeting at least one of
the first two criteria described in the preceding sentence. For purposes of the
foregoing policies, the Fund also considers Asian Equity Securities to include:
(i)
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shares of closed-end management investment companies, the assets of which are
invested primarily in Asian Equity Securities and (ii) depository receipts (such
as American Depository Receipts) where the underlying or deposited securities
are Asian Equity Securities.
Currently, the Fund invests principally in developing or "emerging" countries
(see "Special Risk Factors -- Emerging Markets" below). Some examples of
emerging countries in which the Fund may invest without limit include China,
Indonesia, Korea, Malaysia, Philippines, Thailand and Taiwan. The Fund may, in
the discretion of the Fund's investment manager, invest without limit in
developed Asian countries such as Hong Kong, Japan and Singapore; however, the
Fund will only invest in Japan when economic conditions warrant and then only in
limited amounts.
In pursuing its objective, the Fund invests primarily in Asian Equity Securities
believed to have potential for capital growth. However, there is no requirement
that the Fund invest exclusively in Asian Equity Securities. Subject to limits
described above, the Fund may invest in any other type of security including,
but not limited to, equity securities of non-Asian companies, bonds, notes and
other debt securities of domestic or foreign companies (including Asian-currency
instruments and securities) and obligations of domestic or foreign governments
and their political subdivisions. Currently, the Fund does not intend to invest
more than 5% of its net assets in debt securities (except for temporary
defensive investments described below).
The Fund makes investments in various Asian countries. Under normal
circumstances, business activities in not less than four different Asian
countries will be represented in the Fund's portfolio. The Fund may, from time
to time, have 40% or more of its assets invested in any major Asian industrial
or developed country which, in the view of the Fund's investment manager, poses
no unique investment risk. Investments may include securities issued by
enterprises that have undergone or are currently undergoing privatization.
In determining the appropriate distribution of investments among various Asian
countries and geographic regions, the Fund's investment manager ordinarily
considers such factors as prospects for relative economic growth among Asian
countries; expected levels of inflation; relative price levels of the various
capital markets; government policies influencing business conditions; the
outlook for currency relationships and the range of individual investment
opportunities available to investors in Asian companies.
When the investment manager deems it appropriate to invest for temporary
defensive purposes, such as during periods of adverse market conditions, up to
100% of the Fund's assets may be invested in cash (including foreign currency)
or cash equivalent short-term obligations, either rated as high quality or
considered to be of comparable quality in the opinion of the investment manager,
including, but not limited to, certificates of deposit, commercial paper,
short-term notes, obligations issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, and repurchase agreements secured thereby.
In particular, for temporary defensive purposes the Fund's assets may be
invested without limitation in U.S. Dollar-denominated obligations to reduce the
risks inherent in non-U.S. Dollar-denominated assets.
Generally, the Fund will not trade in securities for short-term profits but,
when circumstances warrant, securities may be sold without regard to the length
of time held.
The Fund may purchase and write (sell) options and engage in financial futures
and foreign currency transactions and may lend its portfolio securities. See
"Additional Investment Information" below.
EUROPE FUND. The objective of the Europe Fund is long-term capital growth. The
Fund seeks to achieve its objective by investing in a diversified portfolio
consisting primarily of equity securities of European companies ("European
Equity Securities"). European Equity Securities include common stocks, preferred
stocks, securities convertible into or exchangeable for common or preferred
stocks, equity investments in partnerships, joint ventures and other forms of
non-corporate investments and warrants, options and rights exercisable for
equity securities that are issued by European companies as defined below.
The Fund considers an issuer of securities to be a European company if: (i) it
is organized under the laws of a European country and has a principal office in
a European country; (ii) it derives 50% or more of its total revenues from
business in Europe; or (iii) its equity securities are traded principally on a
stock exchange in Europe. Under
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normal circumstances, the Fund will invest at least 85% of its total assets in
European Equity Securities and will invest at least 65% of its total assets in
European Equity Securities of issuers meeting at least one of the first two
criteria described in the preceding sentence. For purposes of the foregoing
policies, the Fund also considers European Equity Securities to include: (i)
shares of closed-end management investment companies, the assets of which are
invested primarily in European Equity Securities and (ii) depository receipts
(such as American Depository Receipts and European Depository Receipts) where
the underlying or deposited securities are European Equity Securities.
The Fund invests principally in developed countries, but it may invest up to 25%
of its total assets in developing or "emerging" countries (see "Special Risk
Factors -- Emerging Markets" below). Currently, the developed European countries
in which the Fund may invest without limit include Austria, France, Germany, the
Netherlands, Switzerland, Spain, Italy, Luxembourg, United Kingdom, Ireland,
Belgium, Denmark, Sweden, Norway and Finland. The Fund may, in the discretion of
the Fund's investment manager, invest without limit in other European countries
in the future if they become developed countries. Some examples of emerging
European countries are Portugal, Greece, Turkey, Hungary, Poland and the Czech
Republic.
In pursuing its objective, the Fund invests primarily in European Equity
Securities believed to have potential for capital growth. However, there is no
requirement that the Fund invest exclusively in European Equity Securities.
Subject to limits described above, the Fund may invest in any other type of
security including, but not limited to, equity securities of non-European
companies, bonds, notes and other debt securities of domestic or foreign
companies (including Euro-currency instruments and securities) and obligations
of domestic or foreign governments and their political subdivisions. Currently,
the Fund does not intend to invest more than 5% of its net assets in debt
securities during the coming year (except for temporary defensive investments
described below).
The Fund makes investments in various European countries. Under normal
circumstances, business activities in not less than five different European
countries will be represented in the Fund's portfolio. The Fund may, from time
to time, have 25% or more of its assets invested in any major European
industrial or developed country which, in the view of the Fund's investment
manager, poses no unique investment risk. Investments may include securities
issued by enterprises that have undergone or are currently undergoing
privatization.
In determining the appropriate distribution of investments among various
European countries and geographic regions, the Fund's investment manager
ordinarily considers such factors as prospects for relative economic growth
among European countries; expected levels of inflation; relative price levels of
the various capital markets; government policies influencing business
conditions; the outlook for currency relationships and the range of individual
investment opportunities available to investors in European companies.
When the investment manager deems it appropriate to invest for temporary
defensive purposes, such as during periods of adverse market conditions, up to
100% of the Fund's assets may be invested in cash (including foreign currency)
or cash equivalent short-term obligations, either rated as high quality or
considered to be of comparable quality in the opinion of the investment manager,
including, but not limited to, certificates of deposit, commercial paper,
short-term notes, obligations issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, and repurchase agreements secured thereby.
In particular, for temporary defensive purposes the Fund's assets may be
invested without limitation in U.S. Dollar-denominated obligations to reduce the
risks inherent in non-U.S. Dollar-denominated assets.
Generally, the Fund will not trade in securities for short-term profits but,
when circumstances warrant, securities may be sold without regard to the length
of time held.
The Fund may purchase and write (sell) options and engage in financial futures
and foreign currency transactions and may lend its portfolio securities. See
"Additional Investment Information" below.
GLOBAL FUND. The objective of the Global Fund is to provide high current income
consistent with prudent total return asset management. In seeking to achieve its
objective, the Fund will invest primarily in investment grade foreign and
domestic fixed income securities. In managing the Fund's portfolio to provide a
high level of current income, the investment manager will also be seeking to
protect net asset value and to provide investors with a total return, which is
measured by changes in net asset value as well as income earned. In so managing
the Fund's
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portfolio in an effort to reduce volatility and increase returns, the investment
manager may, as is discussed more fully below, adjust the Fund's portfolio
across various global markets, maturity ranges, quality ratings and issuers
based upon its view of interest rates and other market conditions prevailing
throughout the world.
As a global fund, the Fund may invest in securities issued by any issuer and in
any currency and may hold foreign currency. Under normal market conditions, as a
non-fundamental policy, at least 65% of the Fund's assets will be invested in
the securities of issuers located in at least three countries, one of which may
be the United States. Securities of issuers within a given country may be
denominated in the currency of another country, or in multinational currency
units such as the European Currency Unit ("ECU"). Since the Fund invests in
foreign securities, the net asset value of the Fund will be affected by
fluctuations in currency exchange rates. See "Special Risk Factors" below.
The Fund may seek to capitalize on investment opportunities presented throughout
the world and in international financial markets influenced by the increasing
interdependence of economic cycles and currency exchange rates. Currently, more
than 50% of the value of the world's debt securities is represented by
securities denominated in currencies other than the U.S. Dollar. Over the past
ten years, debt securities offered by certain foreign governments provided
higher investment returns than U.S. Government debt securities. Such returns
reflect interest rates prevailing in those countries and the effect of gains and
losses in the denominated currencies, which have had a substantial impact on
investment in foreign fixed income securities. The relative performance of
various countries' fixed income markets historically has reflected wide
variations relating to the unique characteristics of each country's economy.
Year-to-year fluctuations in certain markets have been significant, and negative
returns have been experienced in various markets from time to time. The
investment manager believes that investment in a global portfolio can provide
investors with more opportunities for attractive returns than investment in a
portfolio comprised exclusively of U.S. debt securities. Also, the flexibility
to invest in fixed income markets around the world can reduce risk since, as
noted above, different world markets have often performed, at a given time, in
radically different ways.
The Fund will allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its objective based upon relative interest rates among currencies, the
outlook for changes in these interest rates, and anticipated changes in
worldwide exchange rates. In considering these factors, a country's economic and
political state, including such factors as inflation rate, growth prospects,
global trade patterns and government policies, will be evaluated.
It is currently anticipated that the Fund's assets will be invested principally
within Australia, Canada, Japan, New Zealand, the United States and Western
Europe, and in securities denominated in the currencies of these countries or
denominated in multinational currency units such as the ECU. The Fund may also
acquire securities and currency in less developed countries and in developing
countries.
The Fund may invest in debt securities of supranational entities denominated in
any currency. A supranational entity is an entity designated or supported by the
national governments of two or more countries to promote economic reconstruction
or development. Examples of supranational entities include, among others, the
World Bank, the European Investment Bank and the Asian Development Bank. The
Fund may, in addition, invest in debt securities denominated in the ECU of an
issuer in any country (including supranational issuers). The Fund is further
authorized to invest in "semi-governmental securities," which are debt
securities issued by entities owned by either a national, state or equivalent
government or are obligations of such a government jurisdiction that are not
backed by its full faith and credit and general taxing powers.
The Fund is authorized to invest in the securities of any foreign or domestic
issuer. Investments by the Fund in fixed income securities may include
obligations issued or guaranteed by United States or foreign governments
(including foreign states, provinces and municipalities) or their agencies and
instrumentalities; obligations issued or guaranteed by supranational entities;
debt obligations of foreign and domestic corporations, banks and other business
organizations; and other foreign and domestic debt securities such as
convertible securities and preferred stocks, cash and cash equivalents and
repurchase agreements. Under normal market conditions, the Fund, as a
non-fundamental policy, will invest at least 65%, and may invest up to 100%, of
its total assets in fixed income securities. Some of the Fund's fixed income
securities may be convertible into common stock or be traded together with
warrants for the purchase of common stock, and the Fund may convert such
securities into equities and hold
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them as equity upon conversion. Investments may include securities issued by
enterprises that have undergone or are currently undergoing privatization.
The securities in which the Fund may invest will be "investment grade"
securities. Investment grade securities are those rated at the time of purchase
within the four highest grades assigned by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P") or IBCA Limited (including
its affiliate IBCA, Inc.) ("IBCA"); or that are unrated but are of comparable
quality in the opinion of the investment manager. Most foreign fixed income
securities are unrated. The characteristics of the securities in the Fund's
portfolio, such as the maturity and the type of issuer, will affect yields and
yield differentials, which vary over time. The actual yield realized by the
investor is subject, among other things, to the Fund's expenses and the
investor's transaction costs.
When the investment manager deems it appropriate to invest for temporary
defensive purposes, such as during periods of adverse market conditions, or when
relative yields in other securities are not deemed attractive, part or all of
the Fund's assets may be invested in cash (including foreign currency) or cash
equivalent short-term obligations, either rated as high quality or considered to
be of comparable quality in the opinion of the investment manager, including,
but not limited to, certificates of deposit, commercial paper, short-term notes,
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities, and repurchase agreements secured thereby. In particular,
for defensive purposes a larger portion of the Fund's assets may be invested in
U.S. Dollar-denominated obligations to reduce the risks inherent in non-U.S.
Dollar-denominated assets.
The Fund will not normally engage in the trading of securities for the purpose
of realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, the Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities for inclusion
in its portfolio in anticipation of a decline in interest rates.
The Fund may purchase and sell options on securities, index options, financial
futures contracts and options on financial futures contracts, may enter into
forward foreign currency exchange contracts, foreign currency options and
foreign currency futures contracts and options thereon and may engage in delayed
delivery transactions. See "Additional Investment Information" below.
INTERNATIONAL FUND. The International Fund seeks a total return, a combination
of capital growth and income, principally through an internationally diversified
portfolio of equity securities. Investments may be made for capital growth or
for income or any combination thereof for the purpose of achieving a high
overall return. There is no limitation on the percentage or amount of the Fund's
assets that may be invested in growth or income, and therefore at any particular
time the investment emphasis may be placed solely or primarily on growth of
capital or on income. While the Fund invests principally in equity securities of
non-U.S. issuers, it may also invest in convertible and debt securities and
foreign currencies. The Fund invests primarily in non-U.S. issuers, and under
normal circumstances more than 80% of the Fund's total assets will be invested
in non-U.S. issuers. In determining whether the Fund will be invested for
capital growth or income, the investment manager analyzes the international
equity and fixed income markets and seeks to assess the degree of risk and level
of return that can be expected from each market. See "Special Risk Factors."
In pursuing its objective, the Fund invests primarily in common stocks of
established non-U.S. companies believed to have potential for capital growth,
income or both. However, there is no requirement that the Fund invest
exclusively in common stocks or other equity securities. The Fund may invest in
any other type of security including, but not limited to, convertible securities
(including warrants), preferred stocks, bonds, notes and other debt securities
of companies (including Euro-currency instruments and securities) or obligations
of domestic or foreign governments and their political subdivisions. When the
investment manager believes that the total return potential in debt securities
equals or exceeds the potential return on equity securities, the Fund may
substantially increase its holdings in such debt securities. The Fund may
establish and maintain reserves for defensive purposes or to enable it to take
advantage of buying opportunities. The Fund's reserves may be invested in
domestic as well as foreign short-term money market instruments including, but
not limited to, government obligations, certificates of deposit, bankers'
acceptances, time deposits, commercial paper, short-term corporate debt
securities and repurchase agreements.
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The Fund makes investments in various countries. Under normal circumstances,
business activities in not less than three different foreign countries will be
represented in the Fund's portfolio. The Fund may, from time to time, have more
than 25% of its assets invested in any major industrial or developed country
which in the view of the investment manager poses no unique investment risk. The
Fund may purchase securities of companies, wherever organized, that have their
principal activities and interests outside the United States. Investments may
include securities issued by enterprises that have undergone or are currently
undergoing privatization. Under exceptional economic or market conditions
abroad, the Fund may, for defensive purposes, invest all or a major portion of
its assets in U.S. Government obligations or securities of companies
incorporated in and having their principal activities in the United States. The
Fund may also invest its reserves in domestic short-term money-market
instruments as described above.
In determining the appropriate distribution of investments among various
countries and geographic regions, the investment manager ordinarily considers
such factors as prospects for relative economic growth among foreign countries;
expected levels of inflation; relative price levels of the various capital
markets; government policies influencing business conditions; the outlook for
currency relationships and the range of individual investment opportunities
available to the international investor.
Generally, the Fund will not trade in securities for short-term profits but,
when circumstances warrant, securities may be sold without regard to the length
of time held.
The Fund may purchase and write (sell) options and engage in financial futures
and foreign currency transactions. See "Additional Investment Information"
below.
SPECIAL RISK FACTORS. There are risks inherent in investing in any security,
including shares of each Fund. The investment manager attempts to reduce risk
through fundamental research; however, there is no guarantee that such efforts
will be successful and each Fund's returns and net asset value will fluctuate
over time. There are special risks associated with each Fund's investments that
are discussed below.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based upon the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.
Because the Asian Fund concentrates its investments in Asian companies, the
performance of the Asian Fund is closely tied to economic and political
conditions within Asia. The current economies and political structures of many
of the countries the Asian Fund may invest in do not compare favorably with the
United States or other mature economies in terms of wealth and stability. As a
result, such investments will be subject to more risk and erratic and abrupt
price movements; particularly in the emerging Asian countries. Concentration of
the Asian Fund's investments in Asian companies presents greater risk than
investment in a more diversified portfolio of foreign securities.
Because the Europe Fund concentrates its investments in European companies, the
performance of the Europe Fund is closely tied to economic and political
conditions within Europe. Some European countries, particularly those in
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Eastern Europe, have less stable economies than those in Western Europe. The
movement of many Eastern European countries toward market economies and the
movement toward a unified common market may significantly affect European
economies and markets. Economic growth transformation and renewal are currently
taking place in different areas and different ways including: a trend toward
privatizations and corporate restructurings, deregulation and modernization of
securities markets; reduction in trade barriers and currency restrictions;
global expansion by major European companies of both exports and production;
steps toward the broadening of the European Community; economic reform and
modernization of the former communist countries of Eastern Europe; expected
further growth of an already large middle class and a general increase in
consumer spending; and anticipated labor market restructuring. There can be no
assurance, of course, that these trends and conditions will continue or that
anticipated economic benefits will be realized. Concentration of the Europe
Fund's investments in European companies may present greater risk than
investment in a more diversified portfolio of foreign securities.
EMERGING MARKETS. While the Europe, Global and International Funds' investments
in foreign securities will principally be in developed countries, a Fund may,
and in the case of the Asian Fund will principally, invest in countries
considered by the Fund's investment manager to be developing or "emerging"
markets. The Europe Fund may invest up to 25% of its total assets in such
countries and, while no specific limits apply, it is currently anticipated that
less than 25% of the total assets for each of the Global and International Funds
will be invested in such countries. Developing or emerging markets involve
exposure to economic structures that are generally less diverse and mature than
in the United States, and to political systems that may be less stable. A
developing country or emerging market country can be considered to be a country
that is in the initial stages of its industrialization cycle. Currently,
emerging markets generally include every country in the world other than the
United States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and
most Western European countries. Currently, investing in many emerging markets
may not be desirable or feasible because of the lack of adequate custody
arrangements for a Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or other reasons. As opportunities to invest in securities in
emerging markets develop, a Fund may expand and further broaden the group of
emerging markets in which it invests. In the past, markets of developing
countries have been more volatile than the markets of developed countries;
however, such markets often have provided higher rates of return to investors.
The investment manager believes that these characteristics can be expected to
continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain developing markets.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries with which they
trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a
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contract to sell the security, could result in possible liability to the
purchaser. Certain emerging markets may lack clearing facilities equivalent to
those in developed countries. Accordingly, settlements can pose additional risks
in such markets and ultimately can expose a Fund to the risk of losses resulting
from a Fund's inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. A Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of its Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
FIXED INCOME. Since most foreign fixed income securities are not rated, a Fund
will invest in foreign fixed income securities based upon the investment
manager's analysis without relying on published ratings. Since such investments
will be based upon the investment manager's analysis rather than upon published
ratings, achievement of a Fund's goals may depend more upon the abilities of the
investment manager than would otherwise be the case.
The value of the fixed income securities held by a Fund, and thus the net asset
value of the Fund's shares, generally will fluctuate with (a) changes in the
perceived creditworthiness of the issuers of those securities, (b) movements in
interest rates, and (c) changes in the relative values of the currencies in
which a Fund's investments in fixed income securities are denominated with
respect to the U.S. Dollar. The extent of the fluctuation will depend on various
factors, such as the average maturity of a Fund's investments in foreign fixed
income securities, and the extent to which a Fund hedges its interest rate,
credit and currency exchange rate risks. Many of the foreign fixed income
obligations in which a Fund will invest will have long maturities. A longer
average maturity generally is associated with a higher level of volatility in
the market value of such securities in response to changes in market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Fund may be unable to
collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceed of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Fund. A significant
portion of the sovereign debt in which a Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
PRIVATIZED ENTERPRISES. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government- or state-owned or controlled company or enterprise that has not
yet conducted an initial equity
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offering, investments in the initial offering of equity securities of a state
enterprise or former state enterprise and investments in the securities of a
state enterprise following its initial equity offering.
In certain jurisdictions, the ability of foreign entities, such as a Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which a Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Fund may invest
enjoy the protection of and receive preferential treatment from the respective
sovereigns that own or control them. After making an initial equity offering
these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
DEPOSITORY RECEIPTS. Each Fund may invest in securities of foreign issuers in
the form of American Depository Receipts ("ADRs"). For many foreign securities,
there are U.S. Dollar denominated ADRs, which are bought and sold in the United
States and are issued by domestic banks. ADRs represent the right to receive
securities of foreign issuers deposited in the domestic bank or a correspondent
bank. ADRs do not eliminate all the risk inherent in investing in the securities
of foreign issuers, such as changes in foreign currency exchange rates. However,
by investing in ADRs rather than directly in foreign issuers' stock, a Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. The Funds may also
invest in securities of foreign issuers in the form of Global Depository
Receipts ("GDRs"), and European Depository Receipts ("EDRs") for the Europe,
Global and International Funds, which are receipts evidencing an arrangement
with a bank, similar to that for ADRs, and are designed for use in other foreign
securities markets. EDRs and GDRs are not necessarily denominated in the
currency of the underlying security.
ADDITIONAL INVESTMENT INFORMATION. The Funds will have increased opportunities
to adjust their portfolios across various markets and may experience a high
portfolio turnover rate (over 100%), which involves correspondingly greater
brokerage commissions or other transaction costs. Higher portfolio turnover may
result in the realization of greater net short-term capital gains. See
"Dividends and Taxes" below.
The Global Fund has registered as a "non-diversified" investment company so that
it will be able to invest more than 5% of its assets in the obligations of an
issuer, subject to the diversification requirements of Subchapter M of the
Internal Revenue Code applicable to the Fund. This allows the Global Fund, as to
50% of its assets, to invest more than 5% of its assets, but not more than 25%,
in the fixed income securities of an individual foreign government or corporate
issuer. Currently, the Fund does not intend to invest more than 5% of its assets
in any individual corporate issuer. Since the Fund may invest a relatively high
percentage of its assets in the obligations of a limited number of issuers, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence than a diversified investment company.
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As noted above, the Global Fund may invest in securities that are rated within
the four highest grades by S&P, Moody's or IBCA or, if unrated, are of
comparable quality as determined by the investment manager. Securities rated
within the four highest grades are generally considered to be "investment
grade." Like higher rated securities, securities rated in the fourth grade are
considered to have adequate capacity to pay principal and interest, although
they may have fewer protective provisions than higher rated securities and thus
may be adversely affected by severe economic circumstances and are considered to
have speculative characteristics. The characteristics of the rating categories
are described in the "Appendix -- Ratings of Investments."
Since interest rates vary with changes in economic, market, political and other
conditions, there can be no assurance that past interest rates are indicative of
future rates. The values of fixed income securities in a Fund's portfolio will
fluctuate depending upon market factors and inversely with current interest rate
levels.
The Global Fund may take full advantage of the entire range of maturities of
fixed income securities and may adjust the average maturity of its portfolio
from time to time, depending upon its assessment of relative yields on
securities of different maturities and its expectations of future changes in
interest rates. Thus, the average maturity of the Fund's portfolio may be
relatively short (under five years, for example) at some times and relatively
long (over 10 years, for example) at other times. Generally, since shorter term
debt securities tend to be more stable than longer term debt securities, the
portfolio's average maturity will be shorter when interest rates are expected to
rise and longer when interest rates are expected to fall. Since in most foreign
markets debt securities generally are issued with maturities of ten years or
less, it is currently anticipated that the average maturity of the Fund's
portfolio will normally be in the intermediate range (three to ten years).
A Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets valued at the time of the transaction would be invested in
such securities. If the Fund holds a material percentage of its assets in
illiquid securities, there may be a question concerning the ability of the Fund
to make payment within seven days of the date its shares are tendered for
redemption. SEC guidelines provide that the usual limit on aggregate holdings by
an open-end investment company of illiquid assets is 15% of its net assets. See
"Investment Policies and Techniques -- Over-the-Counter Options" for a
description of the extent to which over- the-counter traded options are in
effect considered as illiquid for purposes of each Fund's limit on illiquid
securities. A Fund may invest in securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933. This rule permits otherwise restricted
securities to be sold to certain institutional buyers, such as the Funds. Such
securities may be illiquid and subject to a Fund's limitation on illiquid
securities. A "Rule 144A" security may be treated as liquid, however, if so
determined pursuant to procedures adopted by the Board of Trustees. Investing in
Rule 144A securities could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A securities.
Each Fund has adopted certain fundamental investment restrictions, which are
presented above and that, together with any policies of the Fund specifically
designated in this statement of additional information as fundamental, cannot be
changed without approval by holders of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940 ("1940 Act"), this
means the lesser of the vote of (a) 67% of the shares of the Fund present at a
meeting where more than 50% of the outstanding shares are present in person or
by proxy; or (b) more than 50% of the outstanding shares of the Fund. Policies
of a Fund that are neither designated as fundamental nor incorporated into any
of the fundamental investment restrictions referred to above may be changed by
the Board of Trustees of the applicable Fund without shareholder approval.
GENERAL. Each Fund may engage in futures, options and other derivatives
transactions in accordance with its investment objective and policies. The Funds
intends to engage in such transactions if it appears to the investment manager
to be advantageous for the Funds to do so, in order to pursue its investment
objective, to hedge against the effects of fluctuating interest rates and to
stabilize the value of its assets and not for speculation. The use of futures
and options, and possible benefits and attendant risks, are discussed below,
along with information concerning certain other investment policies and
techniques.
FINANCIAL FUTURES CONTRACTS. Each Fund may enter into financial futures
contracts for the future delivery of a financial instrument, such as a security,
or an amount of foreign currency, or the cash value of a securities index or
other appropriate index, as available, such as a foreign currency index. This
investment technique
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is designed primarily to hedge (i.e., protect) against anticipated future
changes in market conditions or foreign exchange rates which otherwise might
adversely affect the value of securities or other assets which the Fund holds or
intends to purchase. A "sale" of a futures contract means the undertaking of a
contractual obligation to deliver the securities or the cash value of an index
or foreign currency called for by the contract at a specified price during a
specified delivery period. A "purchase" of a futures contract means the
undertaking of a contractual obligation to acquire the securities or cash value
of an index or foreign currency at a specified price during a specified delivery
period. At the time of delivery in the case of fixed income securities pursuant
to the contract, adjustments are made to recognize differences in value arising
from the delivery of securities with a different interest rate than that
specified in the contract. In some cases, securities called for by a futures
contract may not have been issued at the time the contract was written.
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities or other assets, in most cases a party
will close out the contractual commitment before delivery of the underlying
assets by purchasing (or selling, as the case may be) on a commodities exchange
an identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the underlying securities or other assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded. A
Fund will incur brokerage fees when it purchases or sells contracts, and will be
required to maintain margin deposits. At the time a Fund enters into a futures
contract, it is required to deposit with its custodian, on behalf of the broker,
a specified amount of cash or eligible securities, called "initial margin." The
initial margin required for a futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin," to and
from the broker are made on a daily basis as the market price of the futures
contract fluctuates. The costs incurred in connection with futures transactions
could reduce a Fund's return. Futures contracts entail risks. If the investment
manager's judgment about the general direction of markets or exchange rates is
wrong, the overall performance may be poorer than if no such contracts had been
entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions also could result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, from the point of view of speculators, the margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities or other assets and movements in
the prices of futures contracts, a correct forecast of market trends by the
investment manager still may not result in a successful hedging transaction. If
any of these events should occur, the Fund could lose money on the financial
futures contracts and also on the value of its portfolio assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each Fund may purchase and write call
and put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. A Fund would be required
to deposit with its custodian initial margin and maintenance margin with respect
to put and call options on futures contracts written by it. Each Fund will
establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities." Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by a Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
OPTIONS ON SECURITIES. Each Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option or
an option to purchase the same underlying securities, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain for the term of the option a segregated account
consisting of cash or other liquid securities ("eligible securities") to the
extent required by applicable regulation in connection with the optioned
securities. A Fund may write "covered" put
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options provided that, as long as the Fund is obligated as a writer of a put
option, the Fund will own an option to sell the underlying securities subject to
the option, having an exercise price equal to or greater than the exercise price
of the "covered" option, or it will deposit and maintain in a segregated account
eligible securities having a value equal to or greater than the exercise price
of the option. A call option gives the purchaser the right to buy, and the
writer the obligation to sell, the underlying security at the exercise price
during or at the end of the option period. A put option gives the purchaser the
right to sell, and the writer has the obligation to buy, the underlying security
at the exercise price during or at the end of the option period. The premium
received for writing an option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the price volatility of the underlying security, the
option period, supply and demand and interest rates. The Funds may write or
purchase spread options, which are options for which the exercise price may be a
fixed dollar spread or yield spread between the security underlying the option
and another security that is used as a bench mark. The exercise price of an
option may be below, equal to or above the current market value of the
underlying security at the time the option is written. The buyer of a put who
also owns the related security is protected by ownership of a put option against
any decline in that security's price below the exercise price less the amount
paid for the option. The ability to purchase put options allows a Fund to
protect capital gains in an appreciated security it owns, without being required
to actually sell that security. At times a Fund would like to establish a
position in a security upon which call options are available. By purchasing a
call option, a Fund is able to fix the cost of acquiring the security, this
being the cost of the call plus the exercise price of the option. This procedure
also provides some protection from an unexpected downturn in the market because
a Fund is only at risk for the amount of the premium paid for the call option
which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying asset rise
in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying asset would result in the security
being "called away." For the secured put writer, substantial depreciation in the
value of the underlying security would result in the security being "put to" the
writer. If a covered call option expires unexercised, the writer realizes a gain
in the amount of the premium received. If the covered call option writer has to
sell the underlying security because of the exercise of a call option, it
realizes a gain or loss from the sale of the underlying security, with the
proceeds being increased by the amount of the premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received.
OVER-THE-COUNTER OPTIONS. As indicated herein (see "Investment Objectives,
Policies and Risk Factors"), each Fund may deal in over-the-counter traded
options ("OTC options"). OTC options differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event a Fund may
experience material losses. However, in writing options the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities, and a wider range of expiration dates and exercise prices, than are
exchange traded options. Since there is no exchange, pricing is normally done by
reference to information from market makers, which information is carefully
monitored by the investment manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put
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writer. Similarly, a purchaser of such put or call option might also find it
difficult to terminate its position on a timely basis in the absence of a
secondary market.
The Funds understand the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the securities used as
"cover" for written OTC options are illiquid securities. The investment manager
disagrees with this position and has found the dealers with which it engages in
OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Funds have adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Funds' portfolios. A brief description of
such procedures is set forth below.
A Fund will only engage in OTC options transactions with dealers approved by the
investment manager pursuant to procedures adopted by the Fund's Board of
Trustees. The investment manager believes that the approved dealers should be
able to enter into closing transactions if necessary and, therefore, present
minimal credit risks to a Fund. The investment manager will monitor the
creditworthiness of the approved dealers on an ongoing basis. A Fund currently
will not engage in OTC options transactions if the amount invested by the Fund
in OTC options, plus a "liquidity charge" related to OTC options written by the
Fund, plus the amount invested by the Fund in illiquid securities, would exceed
15% of the Fund's net assets. The "liquidity charge" referred to above is
computed as described below.
The Funds anticipate entering into agreements with dealers to which a Fund sells
OTC options. Under these agreements a Fund would have the absolute right to
repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the securities serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. Each Fund also may purchase and write call and
put options on securities indices in an attempt to hedge against market
conditions affecting the value of securities that the Fund owns or intends to
purchase, and not for speculation. Through the writing or purchase of index
options, a Fund can achieve many of the same objectives as through the use of
options on individual securities. Options on securities indices are similar to
options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike security options, all settlements are in cash
and gain or loss depends upon price movements in the market generally (or in a
particular industry or segment of the market), rather than upon price movements
in individual securities. Price movements in securities that the Fund owns or
intends to purchase will probably not correlate perfectly with movements in the
level of an index since the prices of such securities may be affected by
somewhat different factors and, therefore, the Fund bears the risk that a loss
on an index option would not be completely offset by movements in the price of
such securities.
When a Fund writes an option on a securities index, it will segregate and
mark-to-market eligible securities to the extent required by applicable
regulation. In addition, where the Fund writes a call option on a securities
index at a time when the contract value exceeds the exercise price, the Fund
will segregate and mark-to-market, until the option expires or is closed out,
cash or cash equivalents equal in value to such excess.
Each Fund may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on a securities index
involve risks similar to those risks relating to transactions in financial
futures contracts described above. Also, an option purchased by a Fund may
expire worthless, in which case the Fund would lose the premium paid therefor.
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FOREIGN CURRENCY OPTIONS. Each Fund may engage in foreign currency options
transactions. A foreign currency option provides the option buyer with the right
to buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if a Fund were
holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund has
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of its financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), each Fund may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, a Fund may be able to achieve many of the same objectives as through
forward foreign currency exchange contracts more effectively and possibly at a
lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund may engage in forward
foreign currency transactions. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days ("term") from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually large commercial
banks) and their customers. The investment manager believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that to do so is in the best interests of a Fund. A Fund will not speculate in
foreign currency exchange.
If a Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of foreign currency and the date it enters into
an offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Fund will have to convert its holdings of foreign currencies into U.S.
Dollars from time to time in order to meet such needs as Fund expenses and
redemption requests. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
A Fund will not enter into forward contracts or maintain a net exposure in such
contracts when the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
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denominated in that currency. See "Foreign Currency Transactions" under
"Investment Objectives, Policies and Risk Factors--Additional Investment
Information" herein. There is no limitation as to the percentage of the Global
Fund's assets that may be committed to forward contracts for the purchase of a
foreign currency; each of the Asian, Europe and International Funds does not
intend to enter into such forward contracts if it would have more than 15% of
the value of its total assets committed to such contracts. A Fund segregates
eligible securities to the extent required by applicable regulation in
connection with forward foreign currency exchange contracts entered into for the
purchase of a foreign currency. If the value of the securities segregated
declines, additional cash or securities are added so that the segregated amount
is not less than the amount of the Fund's commitments with respect to such
contracts. A Fund generally does not enter into a forward contract with a term
longer than one year.
DELAYED DELIVERY TRANSACTIONS. The Global Fund may purchase or sell portfolio
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by the Fund to purchase or sell
securities with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price or yield to the Fund at
the time of entering into the transaction. When the Fund enters into a delayed
delivery purchase, it becomes obligated to purchase securities and it has all
the rights and risks attendant to ownership of a security, although delivery and
payment occur at a later date. The value of fixed income securities to be
delivered in the future will fluctuate as interest rates vary. At the time the
Fund makes the commitment to purchase a security on a when-issued or delayed
delivery basis, it will record the transaction and reflect the liability for the
purchase and the value of the security in determining its net asset value.
Likewise, at the time the Fund makes the commitment to sell a security on a
delayed delivery basis, it will record the transaction and include the proceeds
to be received in determining its net asset value; accordingly, any fluctuations
in the value of the security sold pursuant to a delayed delivery commitment are
ignored in calculating net asset value so long as the commitment remains in
effect. The Fund generally has the ability to close out a purchase obligation on
or before the settlement date, rather than take delivery of the security.
To the extent the Global Fund engages in when-issued or delayed delivery
purchases, it will do so for the purpose of acquiring portfolio securities
consistent with the Fund's investment objective and policies. The Fund reserves
the right to sell these securities before the settlement date if deemed
advisable.
DERIVATIVES. In addition to options and financial futures transactions,
consistent with its objective, a Fund may invest in a broad array of financial
instruments and securities in which the value of the instrument or security is
"derived" from the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate or a foreign currency ("derivatives").
Derivatives are most often used to manage investment risk, to increase or
decrease exposure to an asset class or benchmark (as a hedge or to enhance
return), or to create an investment position directly (often because it is more
efficient or less costly than direct investment). There is no guarantee that
these results can be achieved through the use of derivatives. The types of
derivatives used by a Fund and the techniques employed by the investment manager
may change over time as new derivatives and strategies are developed or
regulatory changes occur.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract, writing a put option or entering
into a delayed delivery purchase or a forward foreign currency exchange
purchase, a Fund will maintain eligible securities in a segregated account. A
Fund will use cover in connection with selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in market
conditions affecting the values of securities or other assets which the Fund
holds or intends to purchase.
REPURCHASE AGREEMENTS. A Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of
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the repurchase agreement, including any accrued interest thereon. Each Fund
currently does not intend to invest more than 5% of its net assets in repurchase
agreements during the current year.
SHORT SALES AGAINST-THE-BOX. Each of the Asian, Europe and Global Funds may make
short sales against-the-box for the purpose of, but not limited to, deferring
realization of loss when deemed advantageous for federal income tax purposes. A
short sale "against-the-box" is a short sale in which the Fund owns at least an
equal amount of the securities sold short or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and at least equal in amount to, the securities or other
assets sold short. The Fund may engage in such short sales only to the extent
that not more than 10% of the Fund's total assets (determined at the time of the
short sale) is held as collateral for such sales. The Fund currently does not
intend, however, to engage in such short sales to the extent that more than 5%
of its net assets will be held as collateral therefor during the current year.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each of the Asian, Europe and Global Funds may lend its portfolio
securities (principally to broker-dealers) without limit where such loans are
callable at any time and are continuously secured by segregated collateral (cash
or other liquid securities) equal to no less than the market value, determined
daily, of the securities loaned. A Fund will receive amounts equal to dividends
or interest on the securities loaned. It also will earn income for having made
the loan. Any cash collateral pursuant to these loans will be invested in
short-term money market instruments. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. However, the loans would be
made only to firms deemed by the Fund's investment manager to be of good
standing, and when the Fund's investment manager believes the potential earnings
justify the attendant risk. Management will limit such lending to not more than
one-third of the value of a Fund's total assets.
DIVIDENDS AND TAXES
DIVIDENDS. The Global Fund normally distributes monthly dividends of net
investment income, the Asian, Europe and International Funds normally distribute
annual dividends of net investment income and each Fund distributes any net
realized short-term and long-term capital gains at least annually.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
A Fund may at any time vary the foregoing dividend practice and, therefore,
reserves the right from time to time either to distribute or to retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Trustees of the Fund determines
appropriate under then current circumstances. In particular, and without
limiting the foregoing, a Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").
Income dividends and capital gain dividends, if any, of a Fund will be credited
to shareholder accounts in full and fractional Fund shares of the same class at
net asset value except that, upon written request to the Shareholder Service
Agent, a shareholder may select one of the following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset value;
or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested in Fund
shares of the same class. However, upon written request to the Shareholder
Service Agent, a shareholder may elect to have dividends of a Fund invested
without sales charge in shares of the same class of another Kemper Fund at the
net asset value of such class of such other fund. See "Special Features -- Class
A Shares -- Combined Purchases" for a list of such other Kemper Funds. To use
this privilege of investing dividends of a Fund in shares of another Kemper
Fund, shareholders must maintain
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a minimum account value of $1,000 in the Fund distributing the dividends. The
Funds reinvest dividend checks (and future dividends) in shares of that same
class of the Fund and class if checks are returned as undeliverable. Dividends
and other distributions in the aggregate amount of $10 or less are automatically
reinvested in shares of the same Fund unless the shareholder requests that such
policy not be applied to the shareholder's account.
TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed. Such
qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including net short-term capital gain) and generally is
not subject to federal income tax to the extent that it distributes annually its
investment company taxable income and net realized capital gains in the manner
required under the Code. Dividends derived from net investment income and net
short-term capital gains are taxable to shareholders as ordinary income and
long-term capital gain dividends are taxable to shareholders as long-term
capital gain regardless of how long the shares have been held and whether
received in cash or shares. Long-term capital gain dividends received by
individual shareholders are taxed at a maximum rate of 20% on gains realized by
a Fund from securities held more than 18 months and at a maximum rate of 28% on
gains realized by a Fund from securities held more than 12 months but not more
than 18 months. Dividends declared in October, November or December to
shareholders of record as of a date in one of those months and paid during the
following January are treated as paid on December 31 of the calendar year
declared. A portion of the dividends paid by the Funds may qualify for the
dividends received deduction available to corporate shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
A Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options and futures held by the Fund at the end of
the fiscal year. Under these provisions, 60% of any capital gain or loss
recognized will generally be treated as long-term and 40% as short-term.
However, although certain forward contracts on foreign currency are
marked-to-market, the gain or loss is generally ordinary under Section 988 of
the Code. In addition, the straddle rules of the Code would require deferral of
certain losses realized on positions of a straddle to the extent that the Fund
had unrealized gains in offsetting positions at year end.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Funds intend to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax. 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
a 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 a pro rata share of
such gains owned and the individual tax credit.
It is anticipated that only a small portion, if any, of the ordinary income
dividends from the Funds will be eligible for the
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dividends received deduction available to corporate shareholders. The aggregate
amount eligible for the dividends received deduction may not exceed the
aggregate qualifying dividends received by a Fund for the fiscal year.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of a Fund or 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 describedherein under "Redemption or
Repurchase of Shares--Reinvestment Privilege." If redeemed shares were held less
than 91 days, then the lesser of (a) the sales charge waived on the reinvested
shares, or (b) the sales charge incurred on the redeemed shares, is included in
the basis of the reinvested shares and is not included in the basis of the
redeemed shares. If a shareholder realizes a loss on the redemption or exchange
of a Fund's shares and reinvests in shares of the same Fund within 30 days
before or after the redemption or exchange, the transactions may be subject to
the wash sale rules resulting in a postponement of the recognition of such loss
for federal income tax purposes. An exchange of a Fund's shares for shares of
another fund is treated as a redemption and reinvestment for federal income tax
purposes upon which gain or loss may be recognized.
Investment income derived from foreign securities may be subject to foreign
income taxes withheld at the source. Because the amount of a Fund's investments
in various countries will change from time to time, it is not possible to
determine the effective rate of such taxes in advance.
A Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
a Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which 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.
A Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, a 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) and
over-the-counter options on debt securities written or purchased by a Fund will
be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by a Fund upon payment of a 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 a put option, on the Fund's holding period for the underlying
stock. 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 stock or substantially identical stock in the Fund's portfolio. If a
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
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holding period of the underlying stock. The exercise of a put option written by
a Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts entered
into by a Fund and all listed non-equity options written or purchased by a Fund
(including options on futures contracts and options on broad-based stock
indices) will be governed by Section 1256 of the Code. Absent a tax election to
the contrary, gain or loss attributable to the lapse, exercise or closing out of
any such position generally will be treated as 60% long-term and 40% short-term
capital gain or loss, and on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e. treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts and similar financial instruments
entered into or acquired by a Fund will be treated as ordinary income. Under
certain circumstances, entry into a futures contract to sell a security may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or a substantially identical
security in the Fund's portfolio.
Positions of a Fund which consist of at least one stock and at least one other
position with respect to a related security which substantially diminishes a
Fund's risk of loss with respect to such stock could be treated as a "straddle"
which is governed by Section 1092 of the Code, the operation of which may cause
deferral of losses, adjustments in the holding periods of stock or securities
and conversion of short-term capital losses into long-term capital losses. An
exception to these straddle rules exists for certain "qualified covered call
options" on stock written by the Fund.
Positions of a Fund which consist of at least one position not governed by
Section 1256 and at least one futures or forward contract or non-equity option
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. The Fund intends to monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require a Fund
to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if a 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 a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time 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 options, futures contracts and
forward contracts, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition are also treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a substantial part
of each Fund's gross income. To the extent that such dividends constitute a
portion of a Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of a
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Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law, and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by a Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gain, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
The Funds will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of a Fund may be subject to state and local taxes on distributions
received from a Fund and on redemptions of the Fund's shares. Each distribution
is accompanied by a brief explanation of the form and character of the
distribution. In January of each year the Fund issues to each shareholder a
statement of the federal income tax status of all distributions.
Each Fund is organized as a Massachusetts business trust and is not liable for
any income or franchise tax in the Commonwealth of Massachusetts, provided that
it qualifies as a regulated investment company for federal income tax purposes.
An individual may make a deductible IRA contribution for any taxable year only
if (i) the individual is not an active participant in an employer's retirement
plan, or (ii) the individual has an adjusted gross income below a certain level
($50,000 for married individuals filing a joint return, with a phase-out of the
deduction for adjusted gross income between $50,000 and $60,000; $30,000 for a
single individual, with a phase-out for adjusted gross income between $30,000
and $40,000). An individual is not considered an active participant in an
employer's retirement plan if the individual's spouse is an active participant
in such a plan. However, in the case of a joint return, the amount of the
deductible contribution by the individual who is not an active participant (but
whose spouse is) is phased out for adjusted gross income between $150,000 and
$160,000. However, an individual not permitted to make a deductible contribution
to an IRA for any such taxable year may nonetheless make nondeductible
contributions up to $2,000 to an IRA (up to $2,000 per individual for married
couples if only one spouse has earned income) for that year. There are special
rules for determining how withdrawals are to be taxed if an IRA contains both
deductible and nondeductible
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amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Also, annual contributions may
be made to a spousal IRA even if the spouse has earnings in a given year if the
spouse elects to be treated as having no earnings (for IRA contribution
purposes) for the year.
Distributions by a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty. Each Fund is
required by law to withhold 31% of taxable dividends and redemption proceeds
paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over". The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
(IRAs) or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax Advisors regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes,
including, when appropriate, information regarding any foreign taxes and
credits, will be provided after the end of the calendar year. Shareholders are
encouraged to retain copies of their account confirmation statements or year-end
statements for tax reporting purposes. However, those who have incomplete
records may obtain historical account transaction information at a reasonable
fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Dividend and interest income received by a Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Shareholders should consult their tax advisors about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
NET ASSET VALUE
25
<PAGE> 26
The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A shares of a Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of a Fund is computed as of the close of regular trading
(the "value time") on the New York Stock Exchange (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.
Portfolio securities for which market quotations are readily available are
generally valued at market value as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board.
With respect to the Funds with securities listed primarily on foreign exchanges,
such securities may trade on days when the Fund's net asset value is not
computed; and therefore, the net asset value of a Fund may be significantly
affected on days when the investor has no access to the Fund.
An exchange-traded equity security is valued at its most recent sale price.
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"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market Inc.
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, 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. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by a pricing agent(s) which
reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the investment manager of the particular fund may calculate the price
of that debt security, subject to limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Board of Trustees, 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 a Fund is determined
in a manner which, in the discretion of the Valuation Committee, most fairly
reflects market value of the property on the valuation date.
Following the valuations of securities or other portfolios 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
26
<PAGE> 27
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
PERFORMANCE
A Fund may advertise several types of performance information for a class of
shares, including "yield" and "average annual total return" and "total return."
Performance information will be computed separately for each class. Each of
these figures is based upon historical results and is not representative of the
future performance of any class of a Fund. A Fund with fees or expenses being
waived or absorbed by Scudder Kemper may also advertise performance information
before and after the effect of the fee waiver or expense absorption.
A 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, and for
the Global Fund may be shown in the form of "yield" figures. These various
measures of performance are described below. Performance information will be
computed separately for each class.
Yield is a measure of the net investment income per share earned over a specific
one month or 30-day period expressed as a percentage of the maximum offering
price of the Global Fund's shares (which is net asset value for Class B and
Class C shares) at the end of the period. 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 Global Fund's yield is computed in accordance with a standardized method
prescribed by rules of the Securities and Exchange Commission. The Fund's Class
A, Class B and Class C shares' yields based upon the one-month period ended
December 31, 1998 were 2.09%, 1.25%, and 2.50%, respectively. The Fund's yield
is computed by dividing the net investment income per share earned during the
specified one month or 30-day period by the maximum offering price per share
(which is net asset value for Class B and Class C shares) on the last day of the
period, according to the following formula:
YIELD = 2 [(a - b + 1)6 - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (which is net asset value for Class B and Class C
shares).
In computing the foregoing yield, the Global Fund follows certain standardized
accounting practices specified by Securities and Exchange Commission rules.
These practices are not necessarily consistent with those that the Fund uses to
prepare its annual and interim financial statements in conformity with generally
accepted accounting principles.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B 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 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
27
<PAGE> 28
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Average annual total return figures
may also be calculated without deducting the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for the Fund's "Financial Highlights" table in the Fund's
financial statements and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("initial
investment") in the Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge (in the case of
Class A shares), and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of Class B and Class C shares may or may not include the effect of
the applicable contingent deferred sales charge that may be imposed at the end
of the period. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B shares would be
reduced if such charge were included.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one-, five- and ten-year periods ending on a recent calendar quarter
(or if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
A Fund's performance figures are based upon historical results and are not
representative of future performance. The Global Fund's Class A shares are sold
at net asset value plus a maximum sales charge of 4.5% of the offering price and
each of the Asian, Europe and International Funds' 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
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 each Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services firm would reduce returns described in this section.
Shares of each Fund are redeemable at the then current net asset value, which
may be more or less than original cost.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged bond indexes including, but not limited to, the Salomon
Brothers High Grade Corporate Bond Index, the Lehman Brothers Adjustable Rate
Index, the Lehman Brothers Aggregate Bond Index, the Lehman Brothers Government/
Corporate Bond Index, the Salomon Brothers Long-Term High Yield Index, the
Salomon Brothers 30 Year GNMA Index and the Merrill Lynch Market Weighted Index
and may also be compared to the performance of other mutual funds or mutual fund
indexes with similar objectives and policies as reported by independent mutual
fund reporting services such as Lipper Analytical Services, Inc. ("Lipper").
Lipper performance calculations are based upon changes in net asset value with
all dividends reinvested and do not include the effect of any sales charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit and other bank products, money market
funds and U.S. Treasury obligations. Bank product performance may be based upon,
among
28
<PAGE> 29
other things, the BANK RATE MONITOR National Index(TM) or various certificate of
deposit indexes. Money market fund performance may be based upon, among other
things, the IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R),
reporting services on money market funds. Performance of U.S. Treasury
obligations may be based upon, among other things, various U.S. Treasury bill
indexes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured. Economic indicators may
include, without limitation, indicators of market rate trends and cost of funds,
such as Federal Home Loan Bank Board 11th District Cost of Funds Index ("COFI").
A Fund may depict the historical performance of the securities in which the Fund
may invest over periods reflecting a variety of market or economic conditions
either alone or in comparison with alternative investments, performance indexes
of those investments or economic indicators. A Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund.
Each Fund's returns and net asset value will fluctuate and shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information about each Fund's performance also appears in its Annual Report to
Shareholders, which is available without charge from the applicable Fund.
The figures below show performance information for various periods.
The net asset value and returns of the Funds will fluctuate. No adjustment has
been made for taxes payable on dividends. The periods indicated were ones of
fluctuating securities prices and interest rates.
ASIAN FUND--NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Fund Fund Fund
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURN TABLE Shares Shares Shares
------------------ ------ ------ ------
<S> <C> <C> <C>
Life of Class(+) (25.11) (24.88) (23.72)
One Year (22.44) (21.08) (18.72)
</TABLE>
(+) Since October 21, 1996 for all classes.
EUROPE FUND--NOVEMBER 30, 1998
29
<PAGE> 30
<TABLE>
<CAPTION>
Fund Fund Fund
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURN TABLE Shares Shares Shares
------------------ ------ ------ ------
<S> <C> <C> <C>
Life of Class(+) 15.88 16.55 17.71
One Year 10.49 12.92 16.48
</TABLE>
(+) Since May 1, 1996 for all classes.
GLOBAL FUND--DECEMBER 31, 1998
<TABLE>
<CAPTION>
Fund Fund Fund
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURN TABLE Shares Shares Shares
------------------ ------ ------ ------
<S> <C> <C> <C>
Life of Class(+) 8.09 6.89 7.70
Five Years 5.70 * *
Three Years 4.33 4.58 5.30
One Year 3.90 (1.84) 8.30
</TABLE>
(+) Since October 1, 1989 for Class A shares. Since May 31, 1994 for Class B
and Class C shares.
* Does not apply
INTERNATIONAL FUND--OCTOBER 31, 1998
<TABLE>
<CAPTION>
Fund Fund Fund
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURN TABLE Shares Shares Shares
------------------ ------ ------ ------
<S> <C> <C> <C>
Life of Class(+) 11.49% 6.55 (0.37)
Ten Years 7.51 * *
Five Years 6.31 * *
One Year (5.31) (0.37) (6.94)
</TABLE>
(+) Since May 21, 1981 for Class A shares. Since May 31, 1994 for Class B and
Class C shares.
* Does not apply.
FOOTNOTES FOR ALL FUNDS
30
<PAGE> 31
(1) The Initial Investment and adjusted amounts for Class A shares were
adjusted for the maximum initial sales charge at the beginning of the
period, which is 5.75% for the Asian, Europe and International Funds and
4.5% for the Global Fund. The Initial Investment for Class B and Class C
shares was not adjusted. Amounts were adjusted for Class B shares for the
contingent deferred sales charge that may be imposed at the end of the
period based upon the schedule for shares sold currently, see "Redemption
or Repurchase of Shares" herein. No adjustments were made to Class C
shares.
Investors may want to compare a Fund's performance to that of 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 the deposit prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution. The
shares of the Fund are not insured and net asset value as well as yield will
fluctuate. Shares of a Fund are redeemable at net asset value which may be more
or less than original cost. Redemption of Class B and Class C shares may be
subject to a contingent deferred sales charge. The bonds in the Global Fund's
portfolio are generally of longer term than most certificates of deposit and may
reflect longer term market interest rate fluctuations.
Investors may also want to compare a Fund's performance to that of U.S. Treasury
bills, notes or bonds. 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. Shares of a Fund are redeemable at net asset value, which may
be more or less than original cost. The Funds' returns will also fluctuate.
In order to appreciate more fully the opportunities for income throughout the
world and the potential advantages of investing in the Global Fund, investors
may want to compare the historical performance of various bond markets around
the world. Such performance, of course, would not necessarily be representative
of future actual or relative performance of such markets, or of the past or
future performance of the Fund.
The following table compares the performance of the Class A shares of each Fund
over various periods with that of other mutual funds within the category
described below according to data reported by Lipper Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service. Lipper
performance figures are based on changes in net asset value, with all income and
capital gain dividends reinvested. Such calculations do not include the effect
of any sales charges. Future performance cannot be guaranteed. Lipper publishes
performance analyses on a regular basis.
<TABLE>
<S> <C>
ASIAN FUND
Lipper Mutual Fund
Performance Analysis
--------------------
Pacific Ex-Japan Funds
----------------------
One Year (Period ended 11/30/98).......................................... #58 of 87 funds
The Lipper Pacific Ex-Japan Fund category includes funds that concentrate
their investments in equity securities with primary trading markets or
operations concentrated in the Pacific region (including Asian countries)
and that specifically does not invest in Japan.
EUROPE FUND
Lipper Mutual Fund
Performance Analysis
--------------------
European Region Funds
---------------------
One Year (Period ended 11/30/98).......................................... #64 of 95 funds
</TABLE>
The Lipper European Region Fund category includes funds that concentrate their
investments in equity securities whose primary trading markets
31
<PAGE> 32
or operations are concentrated in the European region or a single country
within this region.
<TABLE>
<S> <C>
GLOBAL FUND
Lipper Mutual Fund
Performance Analysis
--------------------
Global Income Funds
-------------------
Five Years (Period ended 12/31/98)........................................ #40 of 145 funds
Three Years (Period ended 12/31/98)....................................... #72 of 111 funds
One Year (Period ended 12/31/98).......................................... #18 of 67 funds
</TABLE>
The Lipper Global Income Fund category includes funds which by prospectus or
portfolio practice invest primarily in U.S. Dollar and non-U.S. Dollar debt
instruments of issuers located in at least 3 countries, one of which may be in
the United States. This category includes funds with a variety of objectives,
policies and market and credit risks that should be considered in reviewing
these rankings.
<TABLE>
<S> <C>
INTERNATIONAL FUND
Lipper Mutual Fund
Performance Analysis
--------------------
International Funds
-------------------
Fifteen Years (Period ended 11/30/98)..................................... #7 of 12 funds
Ten Years (Period ended 11/30/98)......................................... #18 of 36 funds
Five Years (Period ended 11/30/98)........................................ #61 of 145 funds
One Year (Period ended 11/30/98).......................................... #370 of 489 funds
</TABLE>
The Lipper International Funds category includes funds which invest their assets
in securities whose primary trading markets are outside of the United States.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper" or "the
Adviser"), 345 Park Avenue, New York, New York, is each Fund's investment
manager. Scudder Kemper is approximately 70% owned by Zurich Financial Services,
a newly formed global insurance and financial services company. The balance of
the Adviser is owned by its officers and employees. Pursuant to investment
management agreements, Scudder Kemper acts as each Fund's investment adviser,
manages its investments, administers its business affairs, furnishes office
facilities and equipment, provides clerical and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of a Fund if elected to such positions. The investment
management agreements provide that the Fund shall pay the charges and expenses
of its operations, including the fees and expenses of the trustees (except those
who are affiliated with officers or employees of Scudder Kemper), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value and maintaining all
accounting records related thereto, taxes and membership dues. Each Fund bears
the expenses of registration of its shares with the Securities and Exchange
Commission, while Kemper Distributors, Inc., ("KDI") as principal underwriter,
pays the cost of qualifying and maintaining the qualification of each Fund's
shares for sale under the securities laws of the various states.
The investment management agreements provide that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by a Fund
in connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the
32
<PAGE> 33
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under each agreement.
Each Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually by a majority of
the trustees who are not parties to such agreement or interested persons of any
such party except in their capacity as trustees of the Fund and by the
shareholders of the Fund subject thereto or the Board of Trustees. Each Fund's
investment management agreement may be terminated at any time upon 60 days'
notice by either party, or by a majority vote of the outstanding shares of the
Fund subject thereto, and will terminate automatically upon assignment. If
additional Funds become subject to an investment management agreement, the
provisions concerning continuation, amendment and termination shall be on a Fund
by Fund basis. Additional Funds may be subject to a different agreement.
Responsibility for overall management of each Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by
Scudder Kemper. The investment management agreements provide that Scudder Kemper
shall act as each Fund's investment Advisor, manage its investments and provide
it with various services and facilities.
On December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed a new
global organization by combining Scudder with Zurich Kemper Investments, Inc., a
former subsidiary of Zurich and the former investment manager to each Fund, and
Scudder changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owned approximately 70% of the Advisor, with the balance
owned by the Advisor's officers and employees.
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, Inc. By way of a dual
holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, each Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the current
investment management agreement, except for the date of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and was approved by shareholders at a
special meeting which concluded in December 1998.
Each Fund pays Scudder Kemper an investment management fee, payable monthly, at
1/12 of the annual rates shown below:
<TABLE>
<CAPTION>
Annual Management Fee Rates
---------------------------
Europe, Global and
Average Daily Net Assets of the Fund International Asian
- ------------------------------------ ------------- -----
<S> <C> <C>
$0 - $250 million 0.75% 0.85%
$250 million - $1 billion 0.72 0.82
$1 billion - $2.5 billion 0.70 0.80
$2.5 billion - $5 billion 0.68 0.78
$5 billion - $7.5 billion 0.65 0.75
$7.5 billion - $10 billion 0.64 0.74
$10 billion - $12.5 billion 0.63 0.73
Over $12.5 billion 0.62 0.72
</TABLE>
The expenses of each Fund, and of other investment companies investing in
foreign securities, can be expected to be higher than for investment companies
investing primarily in domestic securities since the costs of operation are
higher, including custody and transaction costs for foreign securities and
investment management fees.
33
<PAGE> 34
The investment management fees incurred by each Fund for its last three fiscal
years are shown in the table below.
<TABLE>
<CAPTION>
Fund Fiscal 1998 Fiscal 1997 Fiscal 1996
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Asian................................ None* $45,000 $1,000o
Europe............................... None** $95,000 $7,000oo
Global............................... $675,000 $858,000 $1,050,000
International........................ $4,612,000 $4,131,000 $3,177,000
</TABLE>
* After waiver of $58,000.
** After waiver of $349,000.
o For the period October 21, 1996 (commencement of operations) to November
30, 1996.
oo For the period May 1, 1996 (commencement of operations) to November 30,
1996.
Fund Sub-Adviser. Scudder Investments U.K., Limited ("Scudder UK"), 1 South
Place, London, U.K. EC42M 2ZS, an affiliate of Scudder Kemper, is the
sub-adviser for the Europe, Global Income, and International Funds. Scudder UK
acts as sub-adviser pursuant to the terms of the sub-advisory agreement between
it and Scudder Kemper for each Fund. Scudder UK is subject to regulations by the
Investment Management Regulatory Organization (IMRO) in England as well as the
U.S. Securities and Exchange Commission.
Under the terms of the sub-advisory agreement for a Fund, Scudder UK renders
investment advisory and management services with regard to that portion of the
Fund's portfolio as may be allocated to Scudder UK by the Adviser from time to
time for management, including services related to foreign securities, foreign
currency transactions and related investments. Scudder UK may, under the terms
of each sub-advisory agreement, render similar services to others including
other investment companies. For its services, Scudder UK will receive from the
Adviser a monthly fee at the annual rate of 0.30% for the Global Income Fund and
0.35% for each of the Europe and International Funds of the portion of the
average daily net assets of each Fund allocated by the Adviser to Scudder UK for
management. Scudder UK permits any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
Each sub-advisory agreement provides that Scudder UK will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the sub-advisory agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Scudder UK in the performance of its duties or from reckless disregard
by Scudder UK of its obligations and duties under the sub-advisory agreement.
Each sub-advisory agreement continues in effect from year to year so long as its
continuation is approved at least annually by a majority of the trustees who are
not parties to such agreement or interested persons of any such party except in
their capacity as trustees of the Fund and by the shareholders of the Fund
subject thereto or the Board of Trustees. Each sub-advisory agreement may be
terminated at any time for a Fund upon 60 days notice by Scudder Kemper, Scudder
UK or the Board of Trustees, or by a majority vote of the outstanding shares of
the Fund subject thereto, and will terminate automatically upon assignment or
upon the termination of the Fund's investment management agreement. If
additional Funds become subject to a sub-advisory agreement, the provisions
concerning continuation, amendment and termination shall be on a Fund-by-Fund
basis. Additional Funds may be subject to a different agreement. No sub-advisory
fees were paid by the Adviser to Scudder UK for periods prior to the 1997 fiscal
year, although in such periods the Adviser has paid Scudder UK for its services
to Scudder Kemper with respect to foreign securities investments of the Funds.
The sub-advisory fees paid by each Fund for its last fiscal year are shown
below.
<TABLE>
<CAPTION>
Fund Fiscal 1998*
- ---- ------------
<S> <C>
Europe................................................ $163,000
Global................................................ $270,000
International......................................... $1,890,000
</TABLE>
34
<PAGE> 35
* Estimated.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
the Funds and maintaining all accounting records related thereto. Currently,
SFAC receives no fee for its services to the Funds; however, subject to Board
approval, some time in the future, SFAC may seek payment for its services under
this agreement.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of
Scudder Kemper, is the principal underwriter and distributor for the shares of
each Fund and acts as agent of the Fund in the continuous offering of its
shares. KDI bears all of its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. Each Fund pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI pays for the printing and
distribution of copies thereof used in connection with the offering of shares to
prospective investors. KDI also pays for supplementary sales literature and
advertising costs.
Each distribution agreement continues in effect from year to year so long as
such continuance is approved for each class at least annually by a vote of the
Board of Trustees of the Fund, including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
agreement. Each agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
Fund or by KDI upon 60 days' notice. Termination by a Fund with respect to a
class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
Investment Company Act of 1940. The agreement may not be amended for a class to
increase the fee to be paid by a Fund with respect to such class without
approval by a majority of the outstanding voting securities of such class of the
Fund and all material amendments must in any event be approved by the Board of
Trustees in the manner described above with respect to the continuation of the
agreement. The provisions concerning the continuation, amendment and termination
of the distribution agreement are on a Fund by Fund basis and for each Fund on a
class by class basis.
CLASS A SHARES. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares. The
following information concerns the underwriting commissions paid in connection
with the distribution of each Fund's Class A shares for the fiscal years noted.
<TABLE>
<CAPTION>
Commissions Commissions Commissions Paid To
Retained By Underwriter Paid Kemper Affiliated
Fund Fiscal Year Underwriter To All Firms Firms
---- ----------- ----------- ------------ -----
<S> <C> <C> <C> <C>
Asian 1998 $3,000 $37,000 --
1997 $14,000 $59,000 --
1996* $1,000 $3,000 --
Europe 1998 $22,000 $217,000 --
1997 $20,000 $99,000 --
1996** $5,000 $24,000 $1,000
Global 1998 $3,000 $24,000 --
1997 $9,000 $49,000 --
1996 $31,000 $72,000 $1,000
International 1998 $105,000 $887,000 --
1997 $96,000 $959,000 --
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
1996 $95,000 $714,000 $26,000
</TABLE>
- -------------------
* For the period October 21, 1996 (commencement of operations) to November
30, 1996.
** For the period May 1, 1996 (commencement of operations) to November 30,
1996.
Class B Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% of average daily net assets of each Fund attributable to Class B
shares. This fee is accrued daily as an expense of Class B shares. KDI also
receives any contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class B Shares." KDI currently
compensates firms for sales of Class B shares at a commission rate of 3.75%.
Class C Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund under a Rule 12b-1 Plan, payable monthly, at the annual
rate of 0.75% of average daily net assets of each Fund attributable to Class C
shares. This fee is accrued daily as an expense of Class C shares. KDI currently
advances to firms the first year distribution fee at a rate of 0.75% of the
purchase price of Class C shares. For periods after the first year, KDI
currently pays firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or a Fund. KDI also receives any contingent deferred sales
charges. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charges--Class C Shares".
CLASS B SHARES AND CLASS C SHARES. Each Fund has adopted a plan under Rule 12b-1
that provides for fees payable as an expense of the Class B shares and Class C
shares that are used by KDI to pay for distribution and services for those
classes. Because 12b-1 fees are paid out of fund assets on an ongoing basis,
they will, over time, increase the cost of an investment and cost more than
other types of sales charges.
Expenses of the Funds and of KDI, in connection with the Rule 12b-1 Plans for
the Class B and Class C shares are set forth below. A portion of the marketing,
sales and operating expenses shown below could be considered overhead expense.
<TABLE>
<CAPTION>
Commissions
Distribution Contingent Total Paid By
Fees Paid By Deferred Sales Commissions Paid Underwriter To
Fund Class B Fiscal Fund To Charges To By Underwriter Affiliated
Shares Year Underwriter Underwriter To Firms Firms
------ ---- ----------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Asian 1998 $21,000 $6,000 $53,000 --
1997 $18,000 $7,000 $103,000 --
1996* -- -- $2,000 --
Europe 1998 $103,000 $43,000 $408,000 --
1997 $41,000 $15,000 $253,000 --
1996** $3,000 -- $29,000 --
Global 1998 $120,000 $52,000 $58,000 --
1997 $270,000 $62,000 $147,000 --
1996 $347,000 $84,000 $173,000 $1,000
International 1998 $1,234,000 $285,000 $1,313,000 --
1997 $970,000 $227,000 $1,709,000 --
1996 $541,000 $127,000 $972,000 $15,000
<CAPTION>
Other Distribution Expenses Paid By
Underwriter
------------------------------------------------------
Misc. Interest
Fund Class B Advertising and Prospectus Marketing and Operating Fund
Shares Literature Printing Sales Expenses Expenses Expenses
------ ---------- -------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Asian $7,000 $1,000 $14,000 $28,000 $18,000
$12,000 $1,000 $25,000 $4,000 $9,000
$1,000 -- $2,000 $3,000 --
Europe $43,000 $5,000 $84,000 $50,000 $75,000
$19,000 $1,000 $56,000 $21,000 $18,000
$3,000 -- $7,000 $6,000 $1,000
Global $7,000 $1,000 $12,000 $19,000 ($41,000)
$22,000 $2,000 $64,000 $25,000 --
$39,000 $3,000 $83,000 $27,000 --
International $173,000 $20,000 $358,000 $74,000 $509,000
$219,000 $15,000 $595,000 $94,000 $395,000
$229,000 $22,000 $463,000 $98,000 $212,000
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
Distribution Contingent Total Commissions Paid
Fees Paid By Deferred Sales Commissions Paid By Underwriter
Fund Class Fiscal Fund To Charges To By Underwriter To Affiliated
C Shares Year Underwriter Underwriter To Firms Firms
-------- ---- ----------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Asian 1998 $2,000 -- $4,000 --
1997 $2,000 -- $3,000 --
1996* -- -- -- --
Europe 1998 $18,000 $1,000 $17,000 --
1997 $4,000 -- $6,000 --
1996** $1,000 -- $1,000 --
Global 1998 $12,000 -- $13,000 --
1997 $9,000 $1,000 $8,000 --
1996 $4,000 -- $8,000 --
International 1998 $162,000 $7,000 $171,000 --
1997 $96,000 $3,000 $117,000 --
1996 $32,000 -- $46,000 --
<CAPTION>
Other Distribution Expenses Paid By Underwriter
----------------------------------------------------------------
Advertising Misc. Interest
Fund Class and Prospectus Marketing and Operating Fund
C Shares Literature Printing Sales Expenses Expenses Expenses
------ ---------- -------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Asian $1,000 -- $1,000 $12,000 $3,000
$2,000 -- $4,000 $10,000 $1,000
-- -- $1,000 $1,000 --
Europe $5,000 $1,000 $12,000 $15,000 $4,000
$2,000 -- $5,000 $8,000 $2,000
$1,000 -- $3,000 $2,000 --
Global $3,000 -- $5,000 $12,000 $8,000
$4,000 -- $11,000 $4,000 $6,000
$5,000 -- $11,000 $3,000 $3,000
International $48,000 $7,000 $103,000 $27,000 $45,000
$45,000 $3,000 $118,000 $4,000 $26,000
$30,000 $3,000 $53,000 $7,000 $11,000
</TABLE>
- -------------------
* For the period October 21, 1996 (commencement of operations) to November
30, 1996.
** For the period May 1, 1996 (commencement of operations) to November 30,
1996.
If a Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of a Fund to make payments to KDI pursuant to the Plan will cease
and the Fund will not be required to make any payments past the termination
date. Thus, there is no legal obligation for the Fund to pay any expenses
incurred by KDI in excess of its fees under a Plan, if for any reason the Plan
is terminated in accordance with its terms. Future fees under a Plan may or may
not be sufficient to reimburse KDI for its expenses incurred.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. For
the services under the administrative agreement, each Fund pays KDI an
administrative services fee, payable monthly, at the annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of the Fund.
KDI enters into related arrangements with various broker-dealers and other
service or administrative firms ("firms"), that provide services and facilities
for their customers or clients who are investors of a Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Funds, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. With respect to Class A
shares, KDI pays each firm a service fee, normally payable quarterly, at an
annual rate of (a) up to 0.15% of the net assets for the Global and 0.25% of the
net assets for the International Fund of these accounts in the fund that it
maintains and services that are attributable to Class A shares acquired prior to
October 1, 1993, and (b) up to 0.25% of the net assets in Fund accounts that it
maintains and services attributable to Class A shares acquired on or after
October 1, 1993, in each case commencing with the month after investment. With
respect to Class B shares and Class C shares, KDI currently advances to firms
the first-year service fee at a rate of up to 0.25% of the purchase price of
such shares. For periods after the first year, KDI currently intends to pay
firms a service fee at an annual rate of up to 0.25% (calculated monthly and
normally paid quarterly) of the net assets attributable to Class B and Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or the Fund. Firms to which service fees may be paid include
broker-dealers affiliated with KDI.
The following information concerns the administrative services fee paid by each
Fund.
37
<PAGE> 38
<TABLE>
<CAPTION>
Administrative Service Fees Paid By Fund Service Fees Paid By Service Fees Paid By
---------------------------------------- Administrator Administrator
Fund Fiscal Period Class A Class B Class C To Firms To Affiliated Firms
---- ------------- ------- ------- ------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Asian 1998 $8,000 $6,000 -- $20,000 --
1997* $1,000 $5,000 $1,000 $19,000 --
1996 o -- -- -- -- --
Europe 1998 $46,000 -- $5,000 $113,000 --
1997* $7,000 $13,000 -- $37,000 --
1996 oo $1,000 $1,000 -- $4,000 --
Global 1998 $147,000 $38,000 $4,000 $192,000 --
1997 $149,000 $86,000 $3,000 $239,000 --
1996 $173,000 $113,000 $1,000 $291,000 $12,000
International 1998 $1,013,000 $360,000 $51,000 $1,438,000 --
1997 $926,000 $322,000 $32,000 $1,301,000 --
1996 $772,000 $179,000 $11,000 $984,000 $16,000
</TABLE>
- ----------------
o For the period October 21, 1996 (commencement of operations) to November
30, 1996.
oo For the period May 1, 1996 (commencement of operations) to November 30,
1996.
* Amounts shown after expense waiver.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for a Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of each 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 as well as, with respect to the
Global Fund's Class A shares, the date when shares representing such assets were
purchased. The Board of Trustees of a Fund, in its discretion, may approve
basing the fee to KDI on all Fund assets in the future.
Certain trustees or officers of each Fund are also directors or officers of
Scudder Kemper, Scudder UK or KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. The Chase Manhattan
Bank, Chase MetroTech Center, Brooklyn, New York 11245, as custodian, has
custody of all securities and cash of each Fund held outside the United States.
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas
City, Missouri 64105, as custodian, and State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as sub-custodian, have custody of
all securities and cash of each Fund maintained in the United States. They
attend to the collection of principal and income, and payment for and collection
of proceeds of securities bought and sold by each Fund. IFTC is also each Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSvC"), an affiliate of Scudder Kemper, serves as
"Shareholder Service Agent" of each Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives as transfer
agent, and pays to KSvC as follows: prior to January 1, 1999, annual account
fees at a maximum rate of $6 per account plus account set up, transaction,
maintenance charges, annual fees associated with the contingent deferred sales
charge (Class B only) and out-of-pocket expense reimbursement and effective
January 1, 1999, for the Asian, Europe, and International Funds 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, and for the Global
Fund annual account fees of $14.00 ($23.00 for retirement accounts) plus set up
charges, annual fees associated with the contingent deferred sales charges
(Class B only), an asset-based fee of 0.05% and out-of-pocket reimbursement.
IFTC's fee is reduced by certain earnings credits in favor of each Fund.
38
<PAGE> 39
The following shows for each Fund's 1998 fiscal year the shareholder service
fees IFTC remitted to KSvC.
<TABLE>
<CAPTION>
Fees IFTC
Fund Paid to KSVC
- ---- ------------
<S> <C>
Asian $78,000
Europe $581,000
Global $197,000
International $2,432,000
</TABLE>
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Funds.
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage is supervised by the Adviser (which also includes
Scudder UK for purposes of the following disclosure).
The primary objective of the Adviser in placing orders for the purchase and sale
of securities for a Fund's portfolio is to obtain the most favorable net results
taking into account such factors as price, commission 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
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Funds' purchases and sales of fixed-income securities are generally placed
by the Advisor with primary market makers for these securities on a net basis,
without any brokerage commission being paid by a Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for a Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction solely on account of the receipt of research,
market or statistical information. The Adviser may place orders with
broker/dealers on the basis that the broker/dealer has or has not sold shares of
a 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 Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Funds for this service.
39
<PAGE> 40
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements its own research effort since
the information must still be analyzed, weighed and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Funds and not all such information is used by the Adviser
in connection with a 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 a Fund.
The Board members review from time to time whether the recapture for the benefit
of a Fund of some portion of the brokerage commissions or similar fees paid by a
Fund on portfolio transactions is legally permissible and advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for a Fund's portfolio whenever necessary, in
management's opinion, to meet a Fund's objective.
The table below shows total brokerage commissions paid by each Fund for the last
three fiscal periods and for the most recent fiscal year, the percentage thereof
that was allocated to firms based upon research information provided.
<TABLE>
<CAPTION>
Allocated to
------------
Firms Based on
--------------
Research in
-----------
Fiscal 1998 Fiscal 1998 Fiscal 1997 Fiscal 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Asian $99,000* 100%* $142,000 $15,000o
Europe $340,000* 93%* $89,000 $9,000oo
Global $0 0% $0 $0
International $2,888,000* 96%* $2,339,000 $2,982,000
</TABLE>
- --------------------
* Estimated.
o For the period October 21, 1996 (commencement of operations) to November
30, 1996.
oo For the period May 1, 1996 (commencement of operations) to November 30,
1996.
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
40
<PAGE> 41
<TABLE>
<CAPTION>
Annual 12b-1 Fees (As a % of
Sales Charge Average Daily Net Assets) Other Information
------------ ------------------------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived or
4.5% (for the Global Fund) and reduced for certain purchases
5.75% (for each of the Asian,
Europe and International Funds)
of the public offering price
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of redemption shares six years after issuance
proceeds; declines to zero after
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The public offering price of
Class A shares for purchasers of the Global Fund choosing the initial sales
charge alternative is the net asset value plus a sales charge, as set forth
below.
<TABLE>
<CAPTION>
Global Fund -- Sales Charge
--------------------------------------------------------
As A Percentage As A Percentage Allowed To Dealers As
Of Offering of Net Asset A Percentage Of
Amount of Purchase Price Value* Offering Price
------------------ --------------- --------------- ---------------------
<S> <C> <C> <C>
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 public offering price of Class A shares for purchasers of the Asian, Europe
or International Fund choosing the initial sales charge alternative is the net
asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Asian, Europe And International Funds -- Sales Charge
---------------------------------------------------------------------------------
As A Percentage As A Percentage Allowed To Dealers As A
Amount of Purchase Of Offering Price of Net Asset Value* Percentage Of 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
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
$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.
Each Fund receives the entire net asset value of all Class A shares sold. KDI,
the Funds' principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may reallow up to the full applicable sales charge, as shown in
the above table, during periods and for transactions specified in such notice
and such reallowances may be based upon attainment of minimum sales levels.
During periods when 90% or more of the sales charge is reallowed, such dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which Scudder Kemper or an affiliate does not serve as
investment manager ("non-Kemper Fund") provided that: (a) the investor has
previously paid either an initial sales charge in connection with the purchase
of the non-Kemper Fund shares redeemed or a contingent deferred sales charge in
connection with the redemption of the non-Kemper Fund shares, and (b) the
purchase of Fund shares is made within 90 days after the date of such
redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. The
redemption of the shares of the non-Kemper fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized. KDI may in its
discretion compensate firms for sales of Class A shares under this privilege at
a commission rate of 0.50% of the amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in the Fund or other Kemper Mutual
Funds listed under "Special Features -- Class A Shares -- Combined Purchases"
totals at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district provided in each case
that such plan has not less than 200 eligible employees (the "Large Order NAV
Purchase Privilege"). Redemption within two years of shares purchased under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge. See "Redemption or Repurchase of Shares -- Contingent Deferred Sales
Charge -- Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of each Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount recordkeeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale, KDI will consider the cumulative amount
invested by the purchaser in the Fund and other Kemper Mutual Funds listed under
"Special Features -- Class A Shares -- Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of a Fund at net asset value under the Large Order NAV Purchase Privilege is not
available if another net asset value purchase privilege also applies.
Class A shares of a Fund or any other Kemper Mutual Fund listed under "Special
Features -- Class A Shares -- Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the
42
<PAGE> 43
proceeding known as HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER SHORT-TERM
GLOBAL INCOME FUND, ET AL., Case No. 93 C 5231 (N.D.IL). This privilege is
generally non-transferrable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement dated August 31, 1995, issued 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 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 each Fund
for their clients pursuant to an agreement with KDI or one of its affiliates.
Only those employees of such banks and other firms who as part of their usual
duties provide services related to transactions in Fund shares may purchase Fund
Class A shares at net asset value hereunder. Class A shares may also 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 Fund Class A shares
at net asset value through reinvestment programs described hereines of such
trusts that have such programs. Class A shares of a Fund may be sold at net
asset value through certain investment advisers registered under the 1940 Act
and other financial services firms that adhere to certain standards established
by KDI, including a requirement that such shares be sold for the benefit of
their clients participating in an investment advisory program under which such
clients pay a fee to the investment adviser or other firm for portfolio
management and other services. Such shares are sold for investment purposes and
on the condition that they will not be resold except through redemption or
repurchase by the Fund. Each 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.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
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
43
<PAGE> 44
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 each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share. The purpose of the conversion feature is to relieve holders of Class
B shares from the distribution services fee when they have been outstanding long
enough for KDI to have been compensated for distribution related expenses. For
purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and other distributions paid with respect to Class B
shares in a shareholder's Fund account will be converted to Class A shares on a
pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at the rate of 0.75% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" is in
excess of $5 million including purchases pursuant to the "Combined Purchases,"
"Letter of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the three sales arrangements, consult your
financial representative or the Shareholder Service Agent. Financial services
firms may receive different compensation depending upon which class of shares
they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers as
described above. Banks currently are prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution
44
<PAGE> 45
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 a Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
KSvC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by KDI in acknowledgement 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 a Fund or other funds underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other firms
prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day ("trade date"). The
Funds reserve the right to determine the net asset value more frequently than
once a day if deemed desirable. Dealers and other financial services firms are
obligated to transmit orders promptly. Collection may take significantly longer
for a check drawn on a foreign bank than for a check drawn on a domestic bank.
Therefore, if an order is accompanied by a check drawn on a foreign bank, funds
must normally be collected before shares will be purchased.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund 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
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase, repurchase and redemption of shares or the
reinvestment of dividends may not be available through such firms. Some firms
may participate in a program allowing them access to their clients' accounts for
servicing including, without limitation, transfers of registration and dividend
payee changes; and may perform functions such as generation of confirmation
statements and disbursement of cash dividends. Such firms, including affiliates
of KDI, may receive compensation from the Funds through the Shareholder Service
Agent for these services.
Each Fund reserves the right to withdraw all or any part of the offering made by
the prospectus and this statement of additional information and to reject
purchase orders. Also, from time to time, a Fund may temporarily suspend the
offering of any class of its shares to new investors. During the period of such
suspension, persons who are already shareholders of such class of such Fund
normally are permitted to continue to purchase additional shares of such class
and to have dividends reinvested.
Shareholders should direct their inquiries to KSvC, 811 Main Street, Kansas
City, Missouri 64105-2005 or to the firm from which they received this statement
of additional information.
As described herein, Fund shares are sold at their public offering price, which
is the net asset value next determined after an order is received in proper form
plus, with respect to Class A shares, an initial sales charge. The minimum
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<PAGE> 46
initial investment is $1,000 and the minimum subsequent investment is $100 but
such minimum amounts may be changed at any time. An order for the purchase of
shares that is accompanied by a check drawn on a foreign bank (other than a
check drawn on a Canadian bank in U.S. Dollars) will not be considered in proper
form and will not be processed unless and until 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. The amount received
by a shareholder upon redemption or repurchase may be more or less than the
amount paid for such shares depending on the market value of the Fund's
portfolio securities at the time.
The Funds have authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than Kemper Distributors, Inc. ("KDI")
to accept purchase and redemption orders for the Fund's shares. Those brokers
may also designate other parties to accept purchase and redemption orders on the
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the Fund and the broker,
ordinarily orders will be priced as the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the Fund's shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
member may, at its discretion, charge a fee for that service. The Board of
Trustees or Directors as the case may be ("Board") of the Fund and KDI each has
the right to limit the amount of purchases by, and to refuse to sell to, any
person. The Board and KDI may suspend or terminate the offering of shares of the
Fund at any time for any reason.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet received
good payment (i.e., purchases by check, EXPRESS-Transfer or Bank Direct
Deposit), it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by 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") and 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 Funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
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<PAGE> 47
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephone instructions are genuine. The shareholder will bear the risk of loss
including loss resulting from fraudulent or unauthorized transactions, so long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without signature guarantee is sufficient for redemptions by individual or joint
account holders, and trust, executor and guardian account holders (excluding
custodial accounts for gifts and transfers to minors), provided the trustee,
executor or guardian is named in the account registration. Other institutional
account holders and guardian account holders of custodial accounts for gifts and
transfers to minors may exercise this special privilege of redeeming shares by
telephone request or written request without signature guarantee subject to the
same conditions as individual account holders and subject to the limitations on
liability described under "General" above, provided that this privilege has been
pre-authorized by the institutional account holder or guardian account holder by
written instruction to the Shareholder Service Agent with signatures guaranteed.
Telephone requests may be made by calling 1-800-621-1048. Shares purchased by
check or through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed
under this privilege of redeeming shares by telephone request until such shares
have been owned for at least 10 days. This privilege of redeeming shares by
telephone request or by written request without a signature guarantee may not be
used to redeem shares held in certificated form and may not be used if the
shareholder's account has had an address change within 30 days of the redemption
request. During periods when it is difficult to contact the Shareholder Service
Agent by telephone, it may be difficult to use the telephone redemption
privilege, although investors can still redeem by mail. The Funds reserve the
right to terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which a Fund has authorized to act as its agent. There is
no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by KDI.
However, requests for repurchases received by dealers or other firms prior to
the determination of net asset value (see "Net Asset Value") and received by KDI
prior to the close of KDI's business day will be confirmed at the net asset
value effective on that day. The offer to repurchase may be suspended at any
time. Requirements as to stock powers, certificates, payments and delay of
payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value effective on
that day and normally the proceeds will be sent to the designated account the
following business day. Delivery of the proceeds of a wire redemption request of
$250,000 or more may be delayed by the Fund for up to seven days if Scudder
Kemper deems it appropriate under then current market conditions. Once
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. The Funds are not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Funds currently do not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
47
<PAGE> 48
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. The Funds reserve the right to terminate or
modify this privilege at any time.
CONTINGENT DEFERRED SALES CHARGE -- LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
Contingent Deferred
Year Of Redemption After Purchase Sales Charge
- --------------------------------- ------------
<S> <C>
First....................................................... 4%
Second...................................................... 3%
Third....................................................... 3%
Fourth...................................................... 2%
Fifth....................................................... 2%
Sixth....................................................... 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
- -- Systematic Withdrawal Plan" below), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions
to satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in a Fund), (c) redemptions in connection with distributions qualifying
under the hardship provisions of the Internal Revenue Code and (d) redemptions
representing returns of excess contributions to such plans.
CONTINGENT DEFERRED SALES CHARGE -- CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The
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<PAGE> 49
charge will not be imposed upon redemption of reinvested dividends or share
appreciation. The charge is applied to the value of the shares redeemed
excluding amounts not subject to the charge. The contingent deferred sales
charge will be waived: (a) in the event of the total disability (as evidenced by
a determination by the federal Social Security Administration) of the
shareholder (including a registered joint owner) occurring after the purchase of
the shares being redeemed, (b) in the event of the death of the shareholder
(including a registered joint owner), (c) for redemptions made pursuant to a
systematic withdrawal plan (limited to 10% of the net asset value of the account
during the first year, see "Special Features -- Systematic Withdrawal Plan"),
(d) for redemptions made pursuant to any IRA systematic withdrawal based on the
shareholder's life expectancy including, but not limited to, substantially equal
periodic payments described in Internal Revenue Code Section 72(t)(2)(A)(iv)
prior to age 59 1/2, (e) for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account (with the maximum amount
subject to this waiver being based only upon the shareholder's Kemper IRA
accounts), (f) for any participant-directed redemption of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent and (g)
redemption of shares by an employer sponsored employee benefit plan that offers
funds in addition to Kemper Funds and whose dealer of record has waived the
advance of the first year administrative service and distribution fees
applicable to such shares and agrees to receive such fees quarterly.
CONTINGENT DEFERRED SALES CHARGE -- GENERAL. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of a Fund's Class B shares and that
16 months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 in appreciation to a total of $12,000. If
the investor were then to redeem the entire $12,000 in share value, the
contingent deferred sales charge would be payable only with respect to $10,000
because neither the $1,000 of reinvested dividends nor the $1,000 of share
appreciation is subject to the charge. The charge would be at the rate of 3%
($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in March
1999 will be eligible for the second year's charge if redeemed on or after March
1, 2000. In the event no specific order is requested, the redemption will be
made first from shares representing reinvested dividends and then from the
earliest purchase of shares. KDI receives any contingent deferred sales charge
directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper Mutual Fund listed under "Special Features -- Class A Shares
- -- Combined Purchases" (other than shares of Kemper Cash Reserves Fund purchased
directly at net asset value) may reinvest up to the full amount redeemed at net
asset value at the time of the reinvestment in Class A shares of the Fund or of
the other listed Kemper Mutual Funds. A shareholder of a Fund or any other
Kemper Mutual Fund who redeems Class A shares purchased under the Large Order
NAV Purchase Privilege (see "Purchase of Shares -- Initial Sales Charge
Alternative -- Class A Shares"), Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment in Class A shares, Class B
shares or Class C shares, as the case may be, of a Fund or of other Kemper
Mutual Funds. The amount of any contingent deferred sales charge also will be
reinvested. These reinvested shares will retain their original cost and purchase
date for purposes of the contingent deferred sales charge. Also, a holder of
Class B shares who has redeemed shares may reinvest up to the full amount
redeemed, less any applicable contingent deferred sales charge that may have
been imposed upon the redemption of such shares, at net asset value in Class A
shares of a Fund or of the other Kemper Mutual Funds listed under "Special
Features -- Class A Shares -- Combined Purchases." Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Mutual
Funds available for sale in the shareholder's state of residence as listed under
"Special Features -- Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of Fund
shares, the reinvestment in the same Fund may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. The reinvestment
privilege may be terminated or modified at any time.
SPECIAL FEATURES
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<PAGE> 50
CLASS A SHARES -- COMBINED PURCHASES. A Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Strategic Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Blue Chip Fund,
Kemper Global Income Fund, Kemper Target Equity Fund (series are subject to a
limited offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash
Reserves Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government
Fund, Kemper Value Series, Inc., Kemper Value Plus Growth Fund, Kemper Horizon
Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive Growth
Fund, Kemper Global/International Series, Inc., Kemper Equity Trust, Kemper
Income Trust, Kemper Funds Trust, and Kemper Securities Trust ("Kemper Mutual
Funds"). Except as noted below, there is no combined purchase credit for direct
purchases of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
or Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Mutual Funds" for purposes hereof. For purposes of the Combined Purchases
feature described above as well as for the Letter of Intent and Cumulative
Discount features described below, employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent may include: (a) Money Market Funds as "Kemper Mutual
Funds", (b) all classes of shares of any Kemper Mutual Fund and (c) the value of
any other plan investments, such as guaranteed investment contracts and employer
stock, maintained on such subaccount record keeping system.
CLASS A SHARES -- LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares of a Fund are included for this privilege.
CLASS A SHARES -- CUMULATIVE DISCOUNT. Each Fund's Class A shares also may be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of Fund shares being purchased the value of all Class A shares of the
above mentioned Kemper Mutual Funds (computed at the maximum offering price at
the time of the purchase for which the discount is applicable) already owned by
the investor.
CLASS A SHARES -- AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features -- Class A Shares -- Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and 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
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<PAGE> 51
series as described in the applicable prospectus or 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.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Mutual Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of the contingent deferred sales charge.
CLASS B SHARES. Class B shares of a Fund and Class B shares of any other Kemper
Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class B shares may be exchanged without any contingent deferred sales charge
being imposed at the time of exchange. For purposes of the contingent deferred
sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.
CLASS C SHARES. Class C shares of a Fund and Class C shares of any other Kemper
Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" may be exchanged for each other at their relative net asset values.
Class C shares may be exchanged without a contingent deferred sales charge being
imposed at the time of exchange. For determining whether there is a contingent
deferred sales charge that may be imposed upon the redemption of the Class C
shares received by exchange, the cost and purchase date of the shares that were
originally purchased and exchanged are retained.
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"). Effective June 1,
1999, each fund reserves the right to invoke the 15-Day Hold Policy for accounts
of $1,000,000 or less if, in the investment manager's judgement, 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 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 "Redemption or Repurchase of Shares -- General." Any share
certificates must be deposited prior to any exchange of such shares. During
periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to implement the telephone exchange privilege.
The exchange privilege is not a right and may be suspended, terminated or
modified at any time. Exchanges may only be made for Kemper Funds that are
eligible for sale in the shareholder's state of residence. Currently Tax-Exempt
California Money Market Fund is available for sale only in California and the
portfolios of Investors Municipal Cash Fund are available for sale only in
certain states.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum)
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<PAGE> 52
of such shares for shares of the same class of another such Kemper Fund. If
selected, exchanges will be made automatically until the privilege is terminated
by the shareholder or the other 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 $5,000) 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 KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as
Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional Fund shares through
an automatic investment program. With the Bank Direct Deposit Purchase Plan,
investments are made automatically (minimum $50, maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to KSvC, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination by a shareholder will become effective within thirty
days after the Shareholder Service Agent has received the request. A Fund may
immediately terminate a shareholder's Plan in the event that any item is unpaid
by the shareholder's financial institution. A Fund may terminate or modify this
privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares 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.
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<PAGE> 53
The purchase of Class A shares while participating in a systematic withdrawal
plan ordinarily will 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 already have been
paid. Therefore, the Funds 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 redemption
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Funds.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts ("IRAs")
with IFTC as custodian. This includes Savings Incentive Match Plan for
Employees of Small Employers ("SIMPLE") IRA accounts and Simplified
Employee Pension Plan ("SEP") IRA accounts and prototype documents.
o 403(b)(7) Custodial Accounts also with IFTC as custodian. This type of
plan is available to employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of such Fund as described in the Funds' prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares by certain classes of persons or
through certain types of transactions as described herein are provided because
of anticipated economies in sales and sales-related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange ("Exchange") is closed
other than customary weekend and holiday closings or during any period in which
trading on the Exchange is restricted, (b) during any period when an emergency
exists as a result of which (i) disposal of a Fund's investments is not
reasonably practicable, or (ii) it is not reasonably practicable for the Fund to
determine the value of its net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of a
Fund's shareholders.
Although it is each of the Asian, Europe and Global Funds' present policy to
redeem in cash, if the Board of Trustees 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 Trustees 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. Each of the Asian, Europe and
Global Funds has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 pursuant to which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund
during any 90-day period for any one shareholder of record.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that (a) the
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<PAGE> 54
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.
OFFICERS AND TRUSTEES
The officers and trustees of each Fund, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper, the investment
manager, Scudder UK, the sub-adviser of the Funds, and KDI, principal
underwriter, are listed below. All persons named as trustees also serve in
similar capacities for other funds advised by Scudder Kemper.
TRUSTEES--ASIAN, GLOBAL AND INTERNATIONAL FUNDS
LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Blvd., Naples, Florida;
Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 800 North Lindbergh Boulevard, St. Louis,
Missouri; Vice Chairman and Chief Financial Officer, Monsanto Company
(agricultural, pharmaceutical and nutritional/food products); prior thereto,
Vice President, Head of International Operations, FMC Corporation (manufacturer
of machinery and chemicals).
DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
THOMAS W. LITTAUER (4/26/55), Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper; formerly, Head of Broker
Dealer Division of an unaffiliated investment management firm during 1997; prior
thereto, President of Client Management Services of an unaffiliated investment
management firm from 1991 to 1996.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, Partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General, U.S. Department of Justice; Director, Bethlehem Steel Corp.
DANIEL PIERCE (3/18/34), Trustee*, 345 Park Avenue, New York, New York; Chairman
of the Board and Managing Director, Scudder Kemper; Director, Fiduciary Trust
Company and Fiduciary Company Incorporated.
WILLIAM P. SOMMERS (7/22/33), Trustee, 24717 Harbour View Drive, Ponte Vedra
Beach, Florida; Consultant and Director, SRI International (research and
development); prior thereto, President and Chief Executive Officer, SRI
International; prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) ; Director, PSI Inc., Evergreen Solar, Inc., and Litton Industries.
TRUSTEES--EUROPE FUND
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JAMES E. AKINS (10/15/26), Trustee, 2904 Garfield Terrace N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly, a
career United States Foreign Service Officer; Energy Adviser for the White
House; United States Ambassador to Saudi Arabia, 1973-1976.
ARTHUR R. GOTTSCHALK (2/13/25), Trustee, 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelley Corp.; formerly, attorney.
FREDERICK T. KELSEY (4/25/27), Trustee, 4010 Arbor Lane, Unit 102, Northfield,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Northern Institutional Funds; formerly,
Trustee of the Pilot Funds.
THOMAS W. LITTAUER (4/26/55), Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper; formerly, Head of Broker
Dealer Division of an unaffiliated investment management firm during 1997; prior
thereto, President of Client Management Services of an unaffiliated investment
management firm from 1991 to 1996.
DANIEL PIERCE (3/18/34), Trustee*, 345 Park Avenue, New York, New York; Chairman
of the Board and Managing Director, Scudder Kemper; Director, Fiduciary Trust
Company and Fiduciary Company Incorporated.
FRED B. RENWICK (2/1/30), Trustee, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of
Pensions, Evangelical Lutheran Church in America.
JOHN B. TINGLEFF (5/4/35), Trustee, 2015 South Lake Shore Drive, Harbor Springs,
Michigan; Retired; formerly, President, Tingleff & Associates (management
consulting firm); formerly, Senior Vice President, Continental Illinois National
Bank & Trust Company. JOHN G. WEITHERS (8/8/33), Trustee, 311 Spring Lake,
Hinsdale, Illinois; Retired; formerly, Chairman of the Board and Chief Executive
Officer, Chicago Stock Exchange; Director, Federal Life Insurance Company;
President of the Members of the Corporation and Trustee, DePaul University;
Director, Systems Imagineering, Inc.
OFFICERS -- ALL FUNDS
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, Scudder Kemper. THOMAS W. LITTAUER (4/26/55), Vice President*, Two
International Place, Boston, Massachusetts; Managing Director, Scudder Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
55
<PAGE> 56
BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper; Vice President and Director
of State Registrations, KDI.
Additional Officer for Global Fund only:
ROBERT C. PECK, JR. (10/1/46), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper; formerly, Executive Vice
President and Chief Investment Officer with an unaffiliated investment
management firm from 1988 to June 1997.
Additional Officers for Asian Fund only:
THERESA GUSMAN (2/29/60), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
CORNELIA M. SMALL (7/28/44), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
Additional Officers for Europe Fund only:
CORNELIA M. SMALL*, See above.
Additional Officers for International Fund only:
STEPHEN P. DEXTER, Vice President*, 345 Park Avenue, New York, New York; Senior
Vice President, Scudder Kemper.
CORNELIA M. SMALL*, See above.
* Interested persons of the Fund as defined in the Investment Company Act of
1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Funds. The tables below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during
each Fund's 1998 fiscal year except that the information in the last column is
for calendar year 1998.
Trustees -- Asian, Global and International Funds
<TABLE>
<CAPTION>
Aggregate Compensation From Funds Total Compensation
From Funds and Kemper
Fund Complex
Name of Trustee Asian Global International Paid To Trustees**
- --------------- ----- ------ ------------- ------------------
<S> <C> <C> <C> <C>
Lewis A. Burnham............. $400 $2,000 $3,300 $126,100
Donald L. Dunaway*........... $400 $2,200 $3,600 $135,000
Robert B. Hoffman............ $400 $1,900 $3,200 $116,100
Donald R. Jones.............. $400 $2,100 $3,400 $129,600
Shirley D. Peterson.......... $400 $1,800 $3,000 $108,800
William P. Sommers........... $400 $1,800 $3,000 $108,800
</TABLE>
56
<PAGE> 57
- ---------------------
* Includes deferred fees. Pursuant to deferred compensation agreements with
the funds, deferred amounts accrue interest monthly at a rate equal to the
yield of Zurich Money Funds -- Zurich Money Market Fund. Total deferred
fees (including interest thereon) payable from Asian, Global and
International Funds, respectively are $0, $16,200 and $18,000 for Mr.
Dunaway.
** Includes compensation for service on the boards of 26 Kemper funds with 48
fund portfolios. Each trustee currently serves as a trustee of 26 Kemper
Funds with 45 fund portfolios.
Trustees -- Europe Fund
<TABLE>
<CAPTION>
Aggregate Total Compensation From Kemper
Compensation Fund Complex Paid
Name Of Trustee From Fund To Board Members(2)
--------------- --------- -------------------
<S> <C> <C>
James E. Akins............................... $1,700 $130,000
Arthur R. Gottschalk(1)...................... $1,800 $133,200
Frederick T. Kelsey.......................... $1,700 $130,500
Fred B. Renwick.............................. $1,700 $130,500
John B. Tingleff............................. $1,800 $134,800
John G. Weithers............................. $1,800 $134,800
</TABLE>
- --------------------
(1) Includes deferred fees. Pursuant to deferred compensation agreements with
the fund, deferred amounts accrue interest monthly at a rate equal to the
yield of Zurich Money Funds--Zurich Money Market Fund. Total deferred fees
(including interest thereon) payable from the fund are $3,700 for Mr.
Gottschalk.
(2) Includes compensation for service on the Boards of 15 Kemper Funds with 53
fund portfolios. Each trustee currently serves as a board member of 15
Kemper funds with 53 fund portfolios.
As of January 29, 1999, the trustees and officers as a group owned less than 1%
of the then outstanding shares of each Fund and no person owned of record more
than 5% of the outstanding shares of any class of either Fund, except as shown
below:
<TABLE>
<CAPTION>
Kemper International Fund
-------------------------
Name and Address Class Percentage
- ---------------- ----- ----------
<S> <C> <C>
National Financial Svcs Corp., C 5.07
200 Liberty Street
New York, NY 10281
Kemper Europe Fund
- ------------------
<CAPTION>
Name and Address Class Percentage
- ---------------- ----- ----------
<S> <C> <C>
National Financial Svcs Corp., A 8.27
200 Liberty Street
New York, NY 10281
Donaldson Lufkin Jenrette A 6.14
1 Pershin Plaza
Jersey City, NJ 07399
National Financial Svcs Corp., B 7.04
</TABLE>
57
<PAGE> 58
<TABLE>
<S> <C> <C>
200 Liberty Street
New York, NY 10281
Donaldson Lufkin Jenrette B 6.70
1 Pershin Plaza
Jersey City, NJ 07399
Lincoln Trust Company B 5.09
Attn: 1900 Monarch Tower
3424 Peachtree Road NE
Atlanta, GA 30326
National Financial Svcs Corp., C 7.42
200 Liberty Street
New York, NY 10281
Donaldson Lufkin Jenrette C 9.90
1 Pershin Plaza
Jersey City, NJ 07399
Sterling Trust Co. C 5.89
LM Kohn & Company
9810 Montgomery Road
Cincinnati, OH 45242
<CAPTION>
Kemper Global Income Fund
- -------------------------
Name and Address Class Percentage
- ---------------- ----- ----------
<S> <C> <C>
National Financial Svcs Corp., A 6.46
200 Liberty Street
New York, NY 10281
Everen Securities Inc. A 8.29
77 W. Wacker Drive
Chicago, IL 60601
National Financial Svcs Corp., B 6.73
200 Liberty Street
New York, NY 10281
Everen Securities Inc. B 16.86
77 W. Wacker Drive
Chicago, IL 60601
Donaldson Lufkin Jenrette C 46.32
1 Pershin Plaza
Jersey City, NJ 07399
MLPF&S for the sole Benefit of ITS C 17.56
Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
Kemper Asian Growth
- -------------------
Name and Address Class Percentage
- ---------------- ----- ----------
<S> <C> <C>
National Financial Svcs Corp., A 7.09
200 Liberty Street
New York, NY 10281
National City Bank of Pennsylvania A 7.36
McKeesport Healthcare Pension
P.O. Box 94984
Cleveland, OH 44101
National Financial Svcs Corp., B 12.18
200 Liberty Street
New York, NY 10281
A.G. Edwards & Sons Inc. C 7.10
1 N. Jefferson Avenue
St. Louis, MO 63103
Coldstream Capital LLC C 5.35
811 North Rexford Drive
Beverly Hills, CA 90210
</TABLE>
- --------------------
* Record and beneficial owner.
** Record owner only.
SHAREHOLDER RIGHTS
The Funds are open-end management investment companies, organized as separate
business trusts under the laws of Massachusetts. The Asian and Europe Funds were
each organized as a business trust under the laws of Massachusetts on June 12,
1995. The Global Fund was organized as a business trust under the laws of
Massachusetts on August 3, 1988. The International Fund was organized as a
business trust under the laws of Massachusetts on October 24, 1985 and,
effective January 31, 1986, that Fund pursuant to a reorganization succeeded to
the assets and liabilities of Kemper International Fund, Inc., a Maryland
corporation organized in 1980.
The Asian Fund and the Global Fund each may in the future seek to achieve its
investment objective by pooling its assets with assets of other mutual funds for
investment in another investment company having the same investment objective
and substantially the same investment policies and restrictions as such Fund.
The purpose of such an arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that any such investment
company will be managed by Scudder Kemper in substantially the same manner as
the corresponding Fund. Shareholders of a Fund will be given at least 30 days'
prior notice of any such investment, although they will not be entitled to vote
on the action. Such investment would be made only if the Trustees determine it
to be in the best interests of the respective Fund and its shareholders.
Each Fund may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having no par value, which may be divided by
the Board of Trustees into classes of shares. While only shares of a single
Portfolio are presently being offered by each Fund, the Board of Trustees of
each Fund may authorize the
59
<PAGE> 60
issuance of additional classes and additional Portfolios if deemed desirable,
each with its own investment objective, policies and restrictions. Since the
Funds may offer multiple Portfolios, each is known as a "series company."
Currently, each Fund offers four classes of shares of a single Portfolio. These
are Class A, Class B and Class C shares, as well as Class I shares, which have
different expenses, which may affect performance, and that are available for
purchase exclusively by the following investors: (a) tax-exempt retirement plans
of Scudder Kemper and its affiliates; and (b) the following investment advisory
clients of Scudder Kemper and its investment advisory affiliates that invest at
least $1 million in a Fund: (1) unaffiliated benefit plans (other than
individual retirement accounts and self-directed retirement plans); (2)
unaffiliated banks and insurance companies purchasing for their own accounts;
and (3) endowment funds of unaffiliated non-profit organizations. Shares of a
Fund have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to each Fund's
Rule 12b-1 Plan. Shares of each class also have equal rights with respect to
dividends, assets and liquidation of such Fund subject to any preferences (such
as resulting from different Rule 12b-1 distribution fees), rights or privileges
of any classes of shares of a Fund. Shares are fully paid and nonassessable when
issued, are transferable without restriction and have no preemptive or
conversion rights. The Funds are not required to hold annual shareholder
meetings and do not intend to do so. However, they will hold special meetings as
required or deemed desirable for such purposes as electing trustees, changing
fundamental policies or approving an investment management agreement. Subject to
the Agreement and Declaration of Trust of each Fund, shareholders may remove
trustees. If shares of more than one Portfolio are outstanding, shareholders
will vote by Portfolio and not in the aggregate or by class except when voting
in the aggregate is required under the Investment Company Act of 1940, such as
for the election of trustees, or when voting by class is appropriate.
The Funds generally are not required to hold meetings of their shareholders.
Under the Agreement and Declaration of Trust of each Fund ("Declaration of
Trust"), however, shareholder meetings will be held in connection with the
following matters: (a) the election or removal of trustees if a meeting is
called for such purpose; (b) the adoption of any contract for which approval by
shareholders is required by the Investment Company Act of 1940 ("1940 Act"); (c)
any termination of the Fund or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); and (e) such additional matters as may be required by law,
the Declaration of Trust, the By-laws of the Fund, or any registration of the
Fund with the Securities and Exchange Commission or any state, or as the
trustees may consider necessary or desirable. The shareholders also would vote
upon changes in fundamental investment policies.
Each Fund's activities are supervised by the Fund's Board of Trustees.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) each Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of a Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, each
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
Each Fund's Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares entitled to vote on
a matter shall constitute a quorum. Thus, a meeting of shareholders of a Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
independent auditors. Some matters
60
<PAGE> 61
requiring a larger vote under the Declaration of Trust, such as termination or
reorganization of a Fund and certain amendments of the Declaration of Trust,
would not be affected by this provision; nor would matters which under the 1940
Act require the vote of a "majority of the outstanding voting securities" as
defined in the 1940 Act.
Each Fund's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any Portfolio or class by notice to the shareholders
without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of each Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by a
Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of a Fund and each Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by Scudder Kemper remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and such Fund itself is unable to meet its obligations.
61
<PAGE> 62
APPENDIX--RATINGS OF INVESTMENTS
Standard & Poor's Corporation Bond Ratings
AAA. Debt rated AAA had the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC and C. Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Moody's Investors Service, Inc., Bond Ratings
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
62
<PAGE> 63
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
IBCA Limited Bond Ratings
AAA. Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly.
AA. Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions may increase investment
risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
BBB. Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in higher
categories.
63
<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1998
[MORNINGSTAR RATINGS LOGO]
SEEKS TO PROVIDE LONG-TERM CAPITAL GROWTH
KEMPER EUROPE FUND
"... European and Economic Monetary
Union (EMU) continued to be a major
market driver at the start of 1998. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
9
Largest Holdings
10
Portfolio of Investments
14
Report of Independent Auditors
15
Financial Statements
17
Notes to Financial Statements
21
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 17.25
CLASS B 15.92
CLASS C 16.48
LIPPER EUROPEAN REGION FUNDS CATEGORY AVERAGE* 20.73
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee future results.
Investment returns and principal values will fluctuate so that shares, when
redeemed, may be worth more or less than original cost.
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges and, if they had, results may have been less
favorable.
There are special risk considerations associated with international investing,
including fluctuating exchange rates, government regulation and differences in
liquidity that may affect the volatility of the fund. Please see the fund's
prospectus for more information.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
11/30/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EUROPE FUND CLASS A $14.34 $12.43
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B $14.05 $12.27
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C $14.13 $12.28
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND RANKINGS
AS OF 11/30/98
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EUROPEAN REGION FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #64 of #71 of #68 of
95 funds 95 funds 95 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER EUROPE FUND MADE THE FOLLOWING DISTRIBUTIONS PER
SHARE
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.05 -- --
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN $0.06 $0.06 $0.06
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.09 $0.09 $0.09
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc. Chicago, IL. (312) 696-6000. The Morningstar Style Box
is based on a software release date of 11/30/98. The Equity Style Box placement
is based on two variables: a fund's market capitalization relative to the
movements of the market and a fund's valuation, which is calculated by comparing
the stocks in the fund's portfolio with the most relevant of the three
market-cap groups.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. The fund's port- folio changes from
day-to-day. A longer-term view is represented by the fund's Morningstar
category, which is based on its actual investment style as measured by its
underlying portfolio holdings since the fund's inception. Morningstar has placed
Kemper Europe Fund in the Europe Stock category. Please consult the prospectus
for a description of investment policies.
CURRENCY DEVALUATION A significant decline of a currency's value relative to
other currencies, such as the U.S. dollar. This may be prompted by trading or
central bank intervention (or the lack of intervention) in the currency markets.
For U.S. investors who are investing overseas, a devaluation of a foreign
currency can have the effect of reducing an investment's total return.
MARKET CAPITALIZATION The value of a company's outstanding shares of common
stock, determined by multiplying the number of shares outstanding by the share
price (Shares X Price = Market Capitalization). The universe of publicly traded
companies is frequently divided into large-, mid-, and small-capitalizations.
Please note that a supplement to your fund's prospectus appears on the inside
back cover of this report.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1999 begins. After several months of generally
declining stock prices and extreme volatility, the U.S. stock market seems to
have rediscovered its resiliency. In the fourth quarter, the Standard & Poor's
500, an unmanaged index generally representative of the U.S. stock market,
bounced back into the 1200-point range, up approximately 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence remained fairly
high, although not quite as high as in 1997. The nation's budget surplus for
1998 came in at $60 billion, with another budget surplus expected for fiscal
1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of 3 percent for the second half of 1998 and is anticipated to hover around 2
percent to 2.5 percent for the first half of 1999. The consumer price index
(CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR
TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA
REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 4.65 5.50 5.81 6.30
Prime rate(2) 7.75 8.50 8.50 8.25
Inflation rate(3)* 1.55 1.75 1.89 3.18
The U.S. dollar(4) -2.45 9.54 10.26 4.36
Capital goods orders(5)* 7.82 9.52 8.53 4.82
Industrial production(5)* 1.47 5.10 6.56 5.32
Employment growth(6)* 2.28 2.65 2.70 2.33
</TABLE>
(1) Falling interest rates in recent years have been a big plus for
financial assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief -- but be on your toes in 1999. It's going to be an
interesting year as the EMU emerges, the race for the next presidency heats up
and the year 2000 approaches. And, remember: Investors don't like uncertainty,
be it economic or political. More trauma in the White House, continuing disputes
with Iraq or any other hints of crisis could prompt a downward spike in our
markets in the short run. In the long run, the keys to investment performance
remain moderate growth, low inflation and limited taxation and regulation.
Thank you for choosing to invest with Kemper Funds. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of Dr. John E. Silvia as of January 4, 1999,
and may not actually come to pass. This information is subject to change. No
part of this material is intended as an investment recommendation.
4
<PAGE> 5
PERFORMANCE UPDATE
[SLENDEBROEK PHOTO]
MARC SLENDEBROEK JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND IS THE
PORTFOLIO MANAGER OF KEMPER EUROPE FUND. HE IS A VICE PRESIDENT OF INTERNATIONAL
EQUITIES AND HAS A MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF LEIDEN IN
THE NETHERLANDS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS WHEN
USED AS SALES LITERATURE.
EUROPEAN MARKETS ENJOYED A YEAR OF STRONG GROWTH DESPITE COMBATING UNPRECEDENTED
MARKET VOLATILITY IN LATE SUMMER. FOLLOWING, LEAD PORTFOLIO MANAGER MARC
SLENDEBROEK DISCUSSES THE MARKET ACTIVITY, THE FUND'S PERFORMANCE AND THE IMPACT
OF THE EURO.
Q COULD YOU PROVIDE US WITH A BRIEF OVERVIEW OF THE EVENTS THAT SHAPED
EUROPEAN MARKETS DURING THIS PERIOD?
A European and Economic Monetary Union (EMU) continued to be a major market
driver at the start of 1998. The required convergence of European interest rates
led to sharp rate declines in Spain and Italy, countries that had traditionally
been plagued by high interest rates. As rates converged to the European Central
Bank central rate, these markets saw significant gains. Also, as a result of
these lower rates, the European economy started to see an upturn in consumer
spending. In the years leading up to the EMU convergence, prospective countries
raised taxes and cut government spending to get their national accounts ready
for the single currency. This belt tightening eased in this fiscal year and
consumers found themselves with a little more change in their pockets.
Volatility outside the region, however, did throw a wrench in the largely
rosy domestic picture. During the summer months, these markets were affected by
the events taking place in the Far East and Russia. The currency crisis in
emerging markets would not have had much of an impact on Europe's overall
economy if not for the banking system that did import the problems from abroad.
We saw very sharp drops in the third quarter, then moving into the fourth
quarter, dramatically high market levels. The bounce on the upside was
predominantly driven by interest rate cuts led by the U.S. and mirrored by many
developed world markets.
Finland was the best performing market in Europe, followed by Belgium,
Italy and Spain. Weaker performers were the United Kingdom, Sweden, Denmark and
Norway. The region as a whole, based on the FT/S&P Actuaries World Europe Index,
was up 27.09 percent. Telecommunications was the best performing sector,
followed by the insurance, utilities, automotive and pharmaceutical sectors.
Commodity and cyclical stocks lagged throughout the period.
Q FOR THE ANNUAL PERIOD, THE FUND WAS UP 17.25 PERCENT (CLASS A SHARES,
UNADJUSTED FOR ANY SALES CHARGE) WHILE THE FT/S&P ACTUARIES WORLD EUROPE INDEX,
AS YOU MENTIONED, WAS UP MORE THAN 27 PERCENT. WHY THE LAG?
A The reason for our lesser performance is really two-fold. First, the
incredible volatility made investing a difficult game. One way or the other, it
was hard not to find yourself in the wrong place at some point. For us, the
underweight position we took in financials as the Russian crisis hit cost us
some return as they recovered early in the fourth quarter. We remained
underweight at the end of the period because we don't think the banking
environment in Europe is particularly strong. The sharp decline in interest
rates has made it more difficult for banks to earn money. Interest margins are
under pressure. Banks are fairly well capitalized which has meant that their
lending
5
<PAGE> 6
PERFORMANCE UPDATE
standards in the domestic markets have been cut and it has become less
profitable. Of the banks we do hold in the portfolio, we are focusing on names
with strong cost-cutting measures in place. This is essential when revenue lines
are under pressure.
A second factor that impacted relative performance was the narrowing of
European markets in the second half of the year. We saw a large percentage of
the index performance come from a relatively low number of stocks. While we
owned many of these stocks, to beat the index you not only had to own them, you
had to be largely overweighted in them. This is similar to what has occurred in
the United States in the past few years. As active money managers, we try to
manage risk by diversifying, not by putting all our eggs in very few baskets.
Unfortunately, markets were rewarding very concentrated investments.
Q DID YOU MAKE ANY ADJUSTMENTS TO YOUR INVESTMENT THEMES?
A In comparison to last year, we did increase exposure to the
telecommunications sector. This includes mobile as well as fixed operators. We
own fixed operators in markets such as Spain where deregulation and
privatization efforts should drive further growth. On the mobile side, we have
holdings in nearly all European markets. In certain markets, we are seeing the
number of mobile products exceeding the fixed market. Cellular business is
definitely booming in the region.
We remain overweight in business services. As confidence in the economy
builds, we expect to see strong gains in this sector. The holdings in this theme
should continue to benefit from the restructuring and outsourcing activity that
is taking place in Europe.
After taking profits in the pharmaceutical sector early in the fiscal
period, we built up our position again leaving us with an over-weighted position
at the end of the period. In a low interest rate, low growth and low inflation
environment such as we have in Europe, good quality pharmaceuticals are well
positioned to see positive earnings growth.
An emerging theme is designed to capitalize on the return of the European
consumer. We are building positions in both food and general retail holdings.
Q WHAT WERE SOME OF YOUR TOP-PERFORMING HOLDINGS IN THE PORTFOLIO? WHAT
NAMES LAGGED?
A Among our financial holdings, Aegon, a Dutch insurance company was an
outstanding contributor to the portfolio as was Bank of Ireland. In the
telecommunications area, Mannesmann, a German telecommunications and industrial
conglomerate, and Telecom Italia Mobile, an Italian cellular telephone company,
were very strong throughout the year.
In the business services area, Rentokil, a United Kingdom-based company,
was strong. And among our pharmaceutical holdings, Glaxo Wellcome, also a
British company, was a top name.
While stocks like British Petroleum were hurt by poor sector performance,
other laggards seemed to come from across all industries. Aalberts, a Dutch
capital goods company; Technip, a French engineering name; and Unique, a Dutch
employment services company, were among the lesser performing positions.
Q IN JANUARY 1999, THE SINGLE CURRENCY, THE EURO, WILL BE LAUNCHED. HOW DO
YOU EXPECT THE CONVERSION TO AFFECT YOUR MANAGEMENT OF THE FUND?
A In terms of how to position the fund to profit from EMU, we feel that
game has already been played. Going forward, the direct management of the fund
will not change significantly. Our bottom-up process remains in place. The
convergence to a single currency should boost consumer spending in Europe as
well as increase outside investor interest. With Europe operating for the first
time as a single market, pricing differences on similar products are much more
difficult for companies to sustain which is good for inflation and good for
consumers. In industrial as well as consumer products we are seeing some
significant price cuts.
Our thoughts are focused on what the impact of the closer integration of
Europe will be on several industries. Do not forget that an integral part of the
euro introduction has been the creation of competitive markets in previously
national or non-liberalized industries. There are significant opportunities for
utility, telecommunications and corporate services. Companies that operate in a
low cost environment can now enter new markets previously closed to outside
competition (or to operators that have been enabled to cut costs through
deregulation).
6
<PAGE> 7
PERFORMANCE UPDATE
Q SO WHERE DO YOU SEE THINGS GOING FROM HERE?
A We are very positive about the prospects for Europe. With interest rates
as low as they are, equity markets are not overvalued. We are seeing significant
upside potential in stocks. While we need to see markets broaden a bit for some
of the more mid-sized names to benefit, the potential for a strong year is
definitely there.
European market growth is falling back a bit because of a slowdown in global
trade but the region remains very competitive with other developed markets. On
the consumer side, things look good because of disposable income gains and lower
taxation levels. Restructuring and privatization efforts also continue. The
environment in Europe is solid and we believe the growth is sustainable.
Q ARE THERE ANY RISKS TO THIS OUTLOOK?
A While valuations seem in line with the current interest rate environment,
an increase in rates could negatively impact the market. A second risk as we
move through '99 to the year 2000, is growing concern about the millennium bug.
As coverage of this issue heightens throughout the year, we could see some
backlash in the markets.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS A 10.49% 15.88% (inception 5/1/96)
- --------------------------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B 12.92 16.55 (inception 5/1/96)
- --------------------------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C 16.48 17.71 (inception 5/1/96)
- --------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 5/1/96 to
11/30/98
<TABLE>
<CAPTION>
FINANCIAL TIMES/STANDARD
KEMPER EUROPE FUND & POOR'S ACTUARIES WORLD STANDARD & POOR'S 500
CLASS A(1) EUROPE INDEX+ STOCK INDEX++
------------------ ------------------------ ---------------------
<S> <C> <C> <C>
5/1/96 9425.00 10000.00 10000.00
9841.00 10183.00 10290.00
9921.00 10596.00 10606.00
12/31/96 11037.00 11715.00 11492.00
11468.00 12248.00 11801.00
12684.00 13322.00 13860.00
13246.00 14450.00 14897.00
12/31/97 12788.00 14499.00 15325.00
15105.00 17454.00 17462.00
16197.00 18281.00 18038.00
13615.00 15583.00 16247.00
11/30/98 14635.00 17773.00 18631.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares from 5/1/96 to
11/30/98
<TABLE>
<CAPTION>
FINANCIAL TIMES/STANDARD
KEMPER EUROPE FUND & POOR'S ACTUARIES WORLD STANDARD & POOR'S 500
CLASS B(1) EUROPE INDEX+ STOCK INDEX++
------------------ ------------------------- ---------------------
<S> <C> <C> <C>
5/1/96 10000.00 10000.00 10000.00
10410.50 10183.00 10290.00
10484.20 10596.00 10606.00
12/31/96 11657.80 11715.00 11492.00
12084.10 12248.00 11801.00
13352.20 13322.00 13860.00
13906.30 14450.00 14897.00
12/31/97 13387.30 14499.00 15325.00
15782.10 17454.00 17462.00
16871.70 18281.00 18038.00
14142.40 15583.00 16247.00
11/30/98 14856.30 17773.00 18631.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares from 5/1/96 to
11/30/98
<TABLE>
<CAPTION>
FINANCIAL TIMES/STANDARD
KEMPER EUROPE FUND & POOR'S ACTUARIES WORLD STANDARD & POOR'S 500
CLASS C()1 EUROPE INDEX+ STOCK INDEX++
------------------ ------------------------- ---------------------
<S> <C> <C> <C>
5/1/96 10000.00 10000.00 10000.00
10421.00 10183.00 10290.00
10484.00 10596.00 10606.00
12/31/96 11658.00 11715.00 11492.00
12095.00 12248.00 11801.00
13352.00 13322.00 13860.00
13906.00 14450.00 14897.00
12/31/97 13398.00 14499.00 15325.00
15793.00 17454.00 17462.00
16915.00 18281.00 18038.00
14196.00 15583.00 16247.00
11/30/98 15243.00 17773.00 18631.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends and, where indicated,
adjustment for the maximum sales charge. The maximum sales charge for
Class A shares is 5.75%. For Class B shares the maximum contingent
deferred sales charge (CDSC) is 4%. Class C shares have no sales charge
adjustment, but redemptions within one year of purchase may be subject to
a contingent deferred sales charge of 1%. Share classes invest in the same
underlying portfolio. Average annual total return reflects annualized
change while total return reflects aggregate change. During the periods
noted, securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CDSC IN EFFECT AT THE END
OF THE PERIOD FOR CLASS B SHARES. IN COMPARING KEMPER EUROPE FUND TO THE
INDICES, YOU SHOULD ALSO NOTE THAT THE FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDICES.
+ FINANCIAL TIMES/STANDARD & POOR'S ACTUARIES WORLD EUROPE INDEX IS AN
UNMANAGED INDEX THAT IS GENERALLY REPRESENTATIVE OF THE EQUITY SECURITIES
OF EUROPEAN MARKETS. INVESTORS CANNOT ACTUALLY MAKE INVESTMENTS IN THE
INDEX.
++ THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS TOWERSDATA. INVESTORS
CANNOT ACTUALLY MAKE INVESTMENTS IN THIS INDEX.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 15 LARGEST HOLDINGS*
Representing 47.4 percent of the fund's total common stock on November 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
COMPANY COUNTRY PERCENT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
1. NOVARTIS Switzerland 4.1%
- ----------------------------------------------------------------------------------------------------------
2. GLAXO WELLCOME United Kingdom 4.0%
- ----------------------------------------------------------------------------------------------------------
3. TELECOM ITALIA Italy 3.8%
- ----------------------------------------------------------------------------------------------------------
4. BRITISH TELECOM United Kingdom 3.5%
- ----------------------------------------------------------------------------------------------------------
5. EMPRESA NACIONAL DE Spain 3.5%
ELECTRICIDAD
- ----------------------------------------------------------------------------------------------------------
6. VIAG Germany 3.4%
- ----------------------------------------------------------------------------------------------------------
7. RENTOKIL INITIAL United Kingdom 3.2%
- ----------------------------------------------------------------------------------------------------------
8. KONINKLIJKE NUMICO Netherlands 3.0%
- ----------------------------------------------------------------------------------------------------------
9. GROUPE DANONE France 2.9%
- ----------------------------------------------------------------------------------------------------------
10. KONINKLIJKE AHOLD Netherlands 2.8%
- ----------------------------------------------------------------------------------------------------------
11. ING GROEP Netherlands 2.7%
- ----------------------------------------------------------------------------------------------------------
12. COMPANIA TELEFONICA NACIONAL Spain 2.7%
DE ESPANA
- ----------------------------------------------------------------------------------------------------------
13. SOCIETE LYONNAISE DES EAUX France 2.7%
- ----------------------------------------------------------------------------------------------------------
14. GETRONICS Netherlands 2.6%
- ----------------------------------------------------------------------------------------------------------
15. UNILEVER United Kingdom 2.5%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER EUROPE FUND
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--25.5% Bodycote International, PLC
HOLDING COMPANY 45,000 $ 649
British Petroleum, PLC
MAJOR INTEGRATED WORLD OIL COMPANY 85,494 1,335
British Telecom, PLC
TELECOMMUNICATION SERVICES 162,700 2,229
Compass Group, PLC
INTERNATIONAL CATERING GROUP 142,350 1,501
Glaxo Wellcome, PLC
PHARMACEUTICAL COMPANY 79,350 2,509
Hays, PLC
BUSINESS SERVICES 117,000 988
(a)National Westminster Bank
BANK 31,225 570
Orange, PLC
OPERATOR OF DIGITAL MOBILE TELEPHONE
NETWORK 67,270 688
Reed International, PLC
PUBLISHER OF SCIENTIFIC, PROFESSIONAL
AND BUSINESS TO BUSINESS MATERIALS 89,562 705
Rentokil Initial, PLC
SERVICES COMPANY 305,500 2,031
Select Appointments Holdings
RECRUITMENT SERVICES FOR TEMPORARY AND
PERMANENT STAFF 63,542 656
SmithKline Beecham, PLC
MANUFACTURER OF ETHICAL DRUGS AND
HEALTHCARE PRODUCTS 50,000 614
Unilever, PLC
MANUFACTURER OF BRANDED AND PACKAGED
CONSUMER GOODS, FOOD, DETERGENTS AND
PERSONAL CARE PRODUCTS 149,793 1,558
Vodafone Group, PLC
TELECOMMUNICATIONS PROVIDER 44,538 658
Zeneca Group, PLC
MANUFACTURER OF PHARMACEUTICAL AND
AGROCHEMICAL PRODUCTS AND SPECIALTY
CHEMICALS 23,334 970
--------------------------------------------------------------------------
17,661
- -----------------------------------------------------------------------------------------------------------------------
NETHERLANDS--15.9% Aegon Insurance Group, N.V.
INSURANCE COMPANY 26 3
Aalberts Industries
CAPITAL GOODS COMPONENTS 26,205 618
Apothekers Cooperatie OPG
DISTRIBUTOR OF PHARMACEUTICAL AND
MEDICAL PRODUCTS 22,750 714
Content Beheer
RECRUITMENT SERVICES FOR TEMPORARY STAFF 37,550 685
Getronics, N.V.
PROVIDER OF COMPUTER INSTALLATION AND
MAINTENANCE SERVICES 36,723 1,606
ING Groep, N.V.
INSURANCE AND FINANCIAL SERVICES 29,690 1,700
Koninklijke Ahold, N.V.
INTERNATIONAL FOOD RETAILER 50,551 1,753
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Koninklijke Numico, N.V.
NUTRITIONAL FOOD SPECIALIST 44,266 $ 1,910
Nedcon Groep
RACKING SYSTEMS MANUFACTURER 9,104 185
Unique International, N.V.
OPERATOR OF RETAIL CLOTHING STORES,
EMPLOYMENT AGENCIES, TECHNICAL TRADE
SCHOOLS AND ENGINEERING SERVICES 28,290 718
Vedior, N.V. CVA
TEMPORARY EMPLOYMENT SERVICES 53,344 1,088
--------------------------------------------------------------------------
10,980
- -----------------------------------------------------------------------------------------------------------------------
FRANCE--11.2% AXA, S.A.
INSURANCE GROUP PROVIDING INSURANCE,
FINANCE AND REAL ESTATE SERVICES 6,040 780
Alcatel Alsthom
MANUFACTURER OF TRANSPORTATION,
TELECOMMUNICATION AND ENERGY EQUIPMENT 5,553 734
Compagnie Francaise d'Etudes et de
Construction Technip
BUILDER OF FACTORIES WHICH PRODUCE
ENERGY PRODUCTS 1,123 95
Groupe Danone
PRODUCER OF PACKAGED FOODS AND BEVERAGES 6,210 1,812
Sanofi, S.A.
RESEARCHER AND MANUFACTURER OF HEALTH
CARE PRODUCTS AND BEAUTY AIDS 6,000 1,071
Societe Lyonnaise des Eaux, S.A.
WATER UTILITY 8,600 1,698
Societe Nationale Elf Aquitaine
PETROLEUM COMPANY 3,300 411
Television Francaise
TELEVISION BROADCASTING 6,615 1,157
--------------------------------------------------------------------------
7,758
- -----------------------------------------------------------------------------------------------------------------------
GERMANY--9.5% Bayerische Vereinsbank A.G.
COMMERCIAL BANK 13,200 1,143
GEHE A.G.
PHARMACEUTICALS DISTRIBUTOR 20,000 1,279
Mannesmann A.G.
DIVERSIFIED CONSTRUCTION AND TECHNOLOGY
COMPANY 11,750 1,271
Metro A.G.
OPERATOR OF BUILDINGS, CLOTHING AND FOOD
STORES AND SUPERMARKETS 12,000 748
VIAG A.G.
PROVIDER OF ELECTRICAL POWER AND NATURAL
GAS SERVICES, ALUMINUM PRODUCTS,
CHEMICALS, CERAMICS AND GLASS 3,500 2,157
--------------------------------------------------------------------------
6,598
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ITALY--8.7% AEM
ELECTRIC AND GAS UTILITY 600,000 $ 900
Assicurazioni Generali, SpA
LIFE AND PROPERTY INSURANCE COMPANY 25,250 943
Istituto Bancario San Paolo di Torino
COMMERCIAL BANK 72,556 1,190
Telecom Italia, SpA
TELECOMMUNICATIONS, ELECTRONICS AND
NETWORK CONSTRUCTION 295,000 2,390
Telecom Italia Mobile, SpA
CELLULAR TELECOMMUNICATION SERVICES 93,000 609
--------------------------------------------------------------------------
6,032
- -----------------------------------------------------------------------------------------------------------------------
SPAIN--6.6% Centros Comerciales Continente, S.A.
HYPERMARKET CHAIN 21,000 684
Compania Telefonica Nacional de Espana,
S.A.
TELECOMMUNICATION SERVICES 36,164 1,698
Empresa Nacional de Electricidad, S.A.
ELECTRIC POWER UTILITY 83,109 2,168
--------------------------------------------------------------------------
4,550
- -----------------------------------------------------------------------------------------------------------------------
SWITZERLAND--5.4% Nestle, S.A.
FOOD MANUFACTURER 560 1,163
Novartis, A.G.
PHARMACEUTICAL COMPANY 1,358 2,549
--------------------------------------------------------------------------
3,712
- -----------------------------------------------------------------------------------------------------------------------
SWEDEN--4.2% Astra, A.B. "A"
PHARMACEUTICAL COMPANY 53,000 970
Gambro, A.B.
HEALTHCARE SERVICES AND MEDICAL
TECHNOLOGY PROVIDER 77,750 951
(a)Industri Matematik
INFORMATION TECHNOLOGY SERVICES 26,500 166
Securitas, A.B.
INSTALLATION OF SECURITY SYSTEMS AND
PROVIDER OF GUARD SERVICES 54,500 810
--------------------------------------------------------------------------
2,897
- -----------------------------------------------------------------------------------------------------------------------
PORTUGAL--2.3% Electricidade de Portugal, S.A.
ELECTRIC UTILITY 70,254 1,556
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
IRELAND--1.1% Bank of Ireland, PLC
BANK 37,833 776
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
GREECE--.4% Panafon, S.A.
PROVIDER OF MOBILE TELEPHONE SERVICES 16,153 289
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--90.8%
(Cost: $59,600) 62,809
--------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--4.59% to 5.07%
INSTRUMENTS--9.2% Due--December 1998 and January 1999
Bell Atlantic Network Funding Corp. $1,370 $ 1,360
Dresdner U.S. Finance, Inc. 3,000 2,989
UBS Finance Corp. 2,000 1,996
--------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--9.2%
(Cost: $6,345) 6,345
--------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $65,945) $69,154
--------------------------------------------------------------------------
</TABLE>
At November 30, 1998, the fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Healthcare $11,627 16.8
- ----------------------------------------------------------------------------------------
Communications 8,561 12.4
- ----------------------------------------------------------------------------------------
Consumer Staples 8,196 11.8
- ----------------------------------------------------------------------------------------
Service Industries 7,682 11.1
- ----------------------------------------------------------------------------------------
Finance 7,104 10.3
- ----------------------------------------------------------------------------------------
Utilities 6,322 9.1
- ----------------------------------------------------------------------------------------
Manufacturing 4,880 7.1
- ----------------------------------------------------------------------------------------
Consumer Discretionary 2,933 4.2
- ----------------------------------------------------------------------------------------
Technology 1,771 2.6
- ----------------------------------------------------------------------------------------
Miscellaneous 3,733 5.4
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 62,809 90.8
- ----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS 6,345 9.2
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS $69,154 100.0
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $66,251,000 for federal income tax purposes
at November 30, 1998, the gross unrealized appreciation was $6,217,000, the
gross unrealized depreciation was $3,314,000 and the net unrealized appreciation
on investments was $2,903,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER EUROPE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Europe Fund as of November 30,
1998, and the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal periods since 1996. These
financial statements and financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Europe Fund at November 30, 1998, the results of its operations, the changes in
its net assets and the financial highlights for the periods referred to above in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 1999
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost $65,945) $69,154
- -----------------------------------------------------------------------
Receivable for:
Investments sold 805
- -----------------------------------------------------------------------
Fund shares sold 255
- -----------------------------------------------------------------------
Dividends 156
- -----------------------------------------------------------------------
Reimbursement from Adviser 151
- -----------------------------------------------------------------------
TOTAL ASSETS 70,521
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Cash overdraft 784
- -----------------------------------------------------------------------
Payable for:
Investments purchased 1,342
- -----------------------------------------------------------------------
Fund shares redeemed 843
- -----------------------------------------------------------------------
Distribution services fee 2
- -----------------------------------------------------------------------
Administrative services fee 5
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 136
- -----------------------------------------------------------------------
Trustees' fees and other 101
- -----------------------------------------------------------------------
Total liabilities 3,213
- -----------------------------------------------------------------------
NET ASSETS $67,308
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $64,143
- -----------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (50)
- -----------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 3,215
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $67,308
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($32,386 / 2,259 shares outstanding) $14.34
- -----------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $15.21
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($30,831 / 2,194 shares outstanding) $14.05
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($4,091 / 289 shares outstanding) $14.13
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------
Dividends (less foreign taxes withheld of $89) $ 611
- ----------------------------------------------------------------------
Interest 252
- ----------------------------------------------------------------------
Total investment income 863
- ----------------------------------------------------------------------
Expenses:
Management fee 349
- ----------------------------------------------------------------------
Distribution services fee 174
- ----------------------------------------------------------------------
Administrative services fee 103
- ----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 775
- ----------------------------------------------------------------------
Professional fees 19
- ----------------------------------------------------------------------
Reports to shareholders 63
- ----------------------------------------------------------------------
Trustees' fees and other 43
- ----------------------------------------------------------------------
Total expenses before expense waiver 1,526
- ----------------------------------------------------------------------
Less expenses waived and absorbed by investment manager 560
- ----------------------------------------------------------------------
Total expenses after expense waiver 966
- ----------------------------------------------------------------------
NET INVESTMENT LOSS (103)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ----------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 35
- ----------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies 2,416
- ----------------------------------------------------------------------
Net gain on investments 2,451
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,348
- ----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
- -----------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (103) (12)
- -----------------------------------------------------------------------------------------
Net realized gain 35 321
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation 2,416 517
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,348 826
- -----------------------------------------------------------------------------------------
Net equalization credits -- 35
- -----------------------------------------------------------------------------------------
Distribution from net investment income (49) --
- -----------------------------------------------------------------------------------------
Distribution from net realized gain (304) (51)
- -----------------------------------------------------------------------------------------
Total dividends to shareholders (353) (51)
- -----------------------------------------------------------------------------------------
Net increase from capital share transactions 41,403 19,244
- -----------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 43,398 20,054
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------
Beginning of year 23,910 3,856
- -----------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $55 for the year ended November 30, 1997) $67,308 23,910
- -----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Europe Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares (none sold through
November 30, 1998) are offered to a limited group
of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
(Nasdaq), for which there have been sales, are
valued at the most recent sale price reported. If
there are no such sales, the value is the most
recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. Forward foreign currency exchange
contracts are valued at the prevailing forward
exchange rates of the underlying currencies on that
day. Money market instruments purchased with an
original maturity of sixty days or less are valued
at amortized cost. All other securities are valued
at their fair market value as determined in good
faith by the Valuation Committee of the Board of
Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
rates of exchange. Purchases and sales of
investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions. The fund includes that portion of the
results of operations resulting from changes in
foreign exchange rates with net realized and
unrealized gain (loss) on investments, as
appropriate.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses from sales and maturities of forward
foreign currency exchange contracts, disposition of
foreign currencies, and the difference between the
amount of net investment income accrued and the
U.S. dollar amount actually received. That portion
of both realized and unrealized gains
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
and losses on investments that result from
fluctuations in foreign currency exchange rates is
not separately disclosed.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. Dividend income is recorded on the
ex-dividend date, except that certain dividends
from foreign securities are recorded as soon as the
information is available to the fund. Interest
income is recorded on the accrual basis. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing the fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles. These
differences are primarily due to differing
treatments for certain transactions such as foreign
currency transactions.
EQUALIZATION ACCOUNTING. Prior to December 1, 1997,
the fund used equalization accounting to keep a
continuing shareholder's per share interest in
undistributed net investment income unaffected by
shareholder activity. This was accomplished by
allocating a portion of the proceeds from sales and
the cost of redemptions of fund shares to
undistributed net investment income. As of December
1, 1997, the fund discontinued using equalization.
This change has no effect on the fund's net assets,
net asset value per share or distributions to
shareholders. Discontinuing the use of equalization
accounting will result in simpler financial
statements. The cumulative effect of the
discontinuance of equalization accounting was to
decrease undistributed net investment income and
increase paid-in-capital previously reported
through November 30, 1997 by $44,000.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .75%
of the first $250 million of average daily net
assets declining to .62% of average daily net
assets in excess of $12.5 billion. However, the
fund incurred no management fees for the year ended
November 30, 1998, after a fee waiver by Scudder
Kemper.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
In addition, Scudder Kemper has agreed to
temporarily absorb certain operating expenses of
the fund. Under these arrangements, Scudder Kemper
waived and absorbed expenses of $560,000 for the
year ended November 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved the new investment management
agreement through a proxy solicitation that
concluded in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS RETAINED ALLOWED BY KDI
BY KDI TO FIRMS
-------------------- ----------------------
<S> <C> <C>
Year ended November 30, 1998 $22,000 217,000
</TABLE>
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
(AFTER EXPENSE WAIVER) COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
---------------------- ----------------------
<S> <C> <C>
Year ended November 30, 1998 $58,000 432,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF (AFTER
EXPENSE WAIVER)
PAID BY THE ASF PAID BY KDI
FUND TO KDI TO FIRMS
--------------- ----------------------
<S> <C> <C>
Year ended November 30, 1998 $51,000 113,000
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of $581,000
for the year ended November 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended November 30,
1998, the fund made no payments to its officers and
incurred trustees' fees of $15,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended November 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $93,829
Proceeds from sales 55,937
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
SHARES SOLD
Class A 7,283 $107,825 1,001 $12,178
------------------------------------------------------------------------------
Class B 3,914 56,766 1,144 14,017
------------------------------------------------------------------------------
Class C 294 4,309 53 637
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 15 187 2 24
------------------------------------------------------------------------------
Class B 11 142 4 43
------------------------------------------------------------------------------
Class C 1 11 -- --
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (6,034) (89,091) (243) (2,992)
------------------------------------------------------------------------------
Class B (2,591) (37,533) (372) (4,615)
------------------------------------------------------------------------------
Class C (86) (1,213) (4) (48)
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 47 699 13 161
------------------------------------------------------------------------------
Class B (48) (699) (13) (161)
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $ 41,403 $19,244
------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------
CLASS A
-----------------------------
YEAR ENDED MAY 1 TO
NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------
Net asset value, beginning of period $12.43 11.02 9.50
- ------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .03 .01
- ------------------------------------------------------------------------
Net realized and unrealized gain 2.07 1.51 1.51
- ------------------------------------------------------------------------
Total from investment operations 2.11 1.54 1.52
- ------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .05 -- --
- ------------------------------------------------------------------------
Distribution from net realized gain .15 .13 --
- ------------------------------------------------------------------------
Total dividends .20 .13 --
- ------------------------------------------------------------------------
Net asset value, end of period $14.34 12.43 11.02
- ------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.25% 14.18 16.00
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 1.53% 1.52 1.49
- ------------------------------------------------------------------------
Net investment income .32% .34 .46
- ------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.28% 1.75 4.74
- ------------------------------------------------------------------------
Net investment income (loss) (.43)% .11 (2.79)
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------
CLASS B
-----------------------------
YEAR ENDED MAY 1 TO
NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------
Net asset value, beginning of period $12.27 10.97 9.50
- ------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.05) (.05) (.02)
- ------------------------------------------------------------------------
Net realized and unrealized gain 1.98 1.48 1.49
- ------------------------------------------------------------------------
Total from investment operations 1.93 1.43 1.47
- ------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- ------------------------------------------------------------------------
Net asset value, end of period $14.05 12.27 10.97
- ------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.92% 13.23 15.47
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.67% 2.45 2.44
- ------------------------------------------------------------------------
Net investment loss (.82)% (.59) (.49)
- ------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 4.42% 2.66 5.63
- ------------------------------------------------------------------------
Net investment loss (2.57)% (.80) (3.68)
- ------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------
CLASS C
----------------------------
YEAR ENDED
NOVEMBER 30, MAY 1 TO
-------------- NOVEMBER 30,
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------
Net asset value, beginning of period $12.28 10.97 9.50
- ------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.05) (.01)
- ------------------------------------------------------------------------
Net realized and unrealized gain 2.00 1.49 1.48
- ------------------------------------------------------------------------
Total from investment operations 2.00 1.44 1.47
- ------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- ------------------------------------------------------------------------
Net asset value, end of period $14.13 12.28 10.97
- ------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 16.48% 13.32 15.47
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.08% 2.38 2.34
- ------------------------------------------------------------------------
Net investment loss (.23)% (.52) (.39)
- ------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.89% 2.59 5.50
- ------------------------------------------------------------------------
Net investment loss (1.04)% (.73) (3.55)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, MAY 1 TO
------------------------ NOVEMBER 30,
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $67,308 23,910 3,856
- ----------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 132% 101 96
- ----------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive a portion of its
management fee and absorb certain operating expenses of the fund. The Other
Ratios to Average Net assets are computed without this expense waiver or
absorption.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The fund paid a distribution of $.09 per share from net long-term capital gains
during the year ended November 30, 1998, of which 22% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$401,000 as capital gain dividends for the year ended November 30, 1998, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
22
<PAGE> 23
NOTES
KEMPER EUROPE FUND
SUPPLEMENT TO PROSPECTUS
DATED MARCH 1, 1998
The Board of Trustees of the Kemper Europe Fund has agreed in principle to
propose to shareholders that the fund be reorganized into the Scudder New Europe
Fund, Inc. In connection with the reorganization, the Scudder New Europe Fund,
which is currently a closed-end investment company, will be converted to an
open-end investment company (mutual fund). After the reorganization, it is
expected that the Scudder New Europe Fund will change its name to the Kemper
Europe Fund, Inc. and will become a part of the Kemper family of funds.
The reorganization is expected to occur during the third quarter of 1999 and is
subject to a number of conditions, including final approval by the board and
approval by shareholders of each fund.
January 29, 1999
THIS PROSPECTUS SUPPLEMENT IS NOT PART OF THE FUND'S ANNUAL REPORT.
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY LINDA J. WONDRACK
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY ELIZABETH C. WERTH
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
THOMAS W. LITTAUER BRENDA LYONS
Trustee and Vice President KATHRYN L. QUIRK Assistant Treasurer
Vice President
FRED B. RENWICK
Trustee CORNELIA SMALL
Vice President
JOHN B. TINGLEFF
Trustee
JOHN G. WEITHERS
Trustee
- -------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- -------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- -------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
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FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, NY 11245
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INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
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PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Europe Fund prospectus.
KEUF - 2 (1/29/99) 1064440
