LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
March 1, 2000
Prospectus
K E M P E R G L O B A L / I N T E R N A T I O N A L F U N D S
Kemper Asian Growth Fund
Kemper Emerging Markets Growth Fund
Kemper Global Blue Chip Fund
Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper Latin America Fund
Kemper New Europe Fund
As with all mutual funds, the Securities and
Exchange Commission (SEC) does not approve
or disapprove these shares or determine
whether the information in this prospectus
is truthful or complete. It is a criminal
offense for anyone to inform you otherwise.
[LOGO] KEMPER FUNDS
<PAGE>
HOW THE INVESTING IN
FUNDS WORK THE FUNDS
2 Kemper Asian Growth 32 Kemper International 75 Choosing A Share
Fund Fund Class
8 Kemper Emerging 38 Kemper Latin America 81 How To Buy Shares
Markets Growth Fund Fund
82 How To Exchange
14 Kemper Global Blue 44 Kemper New Europe Or Sell Shares
Chip Fund Fund
83 Policies You Should
20 Kemper Global 51 Other Policies and Know About
Discovery Fund Risks
91 Understanding
26 Kemper Global Income 53 Financial Highlights Distributions And
Fund Taxes
<PAGE>
How The Funds Work
These funds invest significantly in foreign securities. Seven of the funds focus
on stocks, one mainly on bonds. Each fund is dedicated to a particular region of
the world or a particular investment theme, and follows its own investment goal.
Remember that mutual funds are investments, not bank deposits. They're not
guaranteed or insured by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
<PAGE>
TICKER SYMBOLS CLASS: A) KANAX B) KANBX C) KANCX
Kemper
Asian Growth Fund
FUND GOAL The fund seeks long-term capital growth.
2 | Kemper Asian Growth Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 85% of total assets in common stocks and other Asian
equities (equities that are issued by companies organized under the laws of an
Asian country or traded mainly on Asian markets and do more than half of their
business in Asia). The fund generally focuses on emerging Asian markets, such as
China, Indonesia, Korea and Thailand.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with identifiable
market niches and sound balance sheets, among other factors.
Growth orientation. The managers generally look for companies that seem to offer
the potential for sustainable above-average growth of revenue or earnings
relative to each stock's own market.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, with an eye toward identifying countries,
industries and companies that may benefit from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given country or industry.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities, such as convertible stocks or preferred stocks. The fund may invest up
to 15% of total assets in debt securities of any issuer or credit quality,
including junk bonds (i.e., grade BB and below) or in non-Asian equities.
3 | Kemper Asian Growth Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how Asian stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When Asian stock prices fall, you should
expect the value of your investment to fall as well. The fact that the fund
concentrates on a single geographical region could affect fund performance. For
example, Asian companies could be hurt by such factors as regional economic
downturns (some Asian economies are currently in recession), currency
devaluations, the inability of governments or banking systems to bring about
reforms or trade barriers on exports.
Emerging markets, a category that includes most Asian countries, tend to be more
volatile than developed markets, for reasons ranging from political and economic
uncertainties to poor regulation and liquidity to a higher risk that essential
information may be incomplete or wrong.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. In addition, changing
currency rates could add to the fund's investment losses or reduce its
investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may make sense for investors interested in diversifying a growth
portfolio with exposure to emerging countries in Asia.
4 | Kemper Asian Growth Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1997 -34.60
1998 -19.02
1999 71.97
Best quarter: 40.35%, Q2 '99 Worst quarter: -33.05%, Q2 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 10/21/96
1 Year Life of Class
- ------------------------------------------------------------------------------
Class A 62.14% -2.85%
- ------------------------------------------------------------------------------
Class B 68.21 -2.50
- ------------------------------------------------------------------------------
Class C 69.16 -2.18
- ------------------------------------------------------------------------------
Index 49.83 -0.57*
- ------------------------------------------------------------------------------
Index: The Morgan Stanley Capital International All Country Asia Free Ex-Japan
Index is a capitalized weighted index that is representative of the equity
securities for the following countries: Hong Kong, Indonesia, Korea (at 20%),
Malaysia, Philippines free, Singapore free and Thailand.
* Index comparison begins 10/31/96.
In the chart, total returns from 1997 through 1999 would have been lower if
operating expenses hadn't been reduced.
The table includes the effects of maximum sales loads. In the table, total
returns from inception through 1999 would have been lower if operating expenses
hadn't been reduced.
5 | Kemper Asian Growth Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
Management Fee 0.85% 0.85% 0.85%
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
Other Expenses** 3.19 3.35 4.26
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 4.04 4.95 5.86
- ------------------------------------------------------------------------------
Expense Reimbursement 1.84 2.17 3.06
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.20 2.78 2.80
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50%
if redeemed during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.20%, 2.78% and
2.80% for Class A, Class B and Class C shares, respectively, through
02/28/2001.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
Class A shares $785 $1,576 $2,381 $4,464
- ------------------------------------------------------------------------------
Class B shares 681 1,594 2,507 4,502
- ------------------------------------------------------------------------------
Class C shares 383 1,471 2,638 5,469
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
Class A shares $785 $1,576 $2,381 $4,464
- ------------------------------------------------------------------------------
Class B shares 281 1,294 2,307 4,502
- ------------------------------------------------------------------------------
Class C shares 283 1,471 2,638 5,469
- ------------------------------------------------------------------------------
6 | Kemper Asian Growth Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Tien Yu Sieh Theresa Gusman
Lead Portfolio Manager o Began investment career
o Began investment career in 1983
in 1990 o Joined the advisor in
o Joined the advisor in 1996 1992
o Joined the fund team o Joined the fund team
in 1999 in 1998
Elizabeth J. Allan
o Began investment career
in 1982
o Joined the advisor in 1987
o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
7 | Kemper Asian Growth Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KEMAX B) KEMBX C) KEMCX
Kemper
Emerging Markets
Growth Fund
FUND GOAL The fund seeks long-term capital growth.
8 | Kemper Emerging Markets Growth Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in common stocks and other
equities from emerging market countries, which are located in Latin America,
Asia, Africa, the Middle East and Eastern Europe.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have
exceptional business prospects (due to factors that may range from market
dominance to innovative products or services).
Growth orientation. The managers generally look for companies that seem to offer
the potential for sustainable above-average growth of revenue or earnings
relative to each stock's own market.
Top-down analysis. The managers look for significant social, economic,
industrial and demographic changes, with an eye toward identifying countries,
industries and companies that may benefit from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given country or industry.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities, such as convertible stocks or preferred stocks. The fund may invest up
to 35% of total assets in developed foreign and U.S. equities, and may invest up
to 35% of total assets in emerging market and U.S. debt securities, including
junk bonds (i.e., grade BB and below). Compared to investment-grade bonds, junk
bonds may pay higher yields and have higher volatility and risk of default.
9 | Kemper Emerging Markets Growth Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how emerging market stocks perform
- -- something that depends on a large number of factors, including economic,
political and demographic trends. When emerging market stock prices fall, you
should expect the value of your investment to fall as well. If the fund
emphasizes a given market, such as Latin America, factors affecting that market
will affect performance. Emerging markets tend to be more volatile than
developed markets, for reasons ranging from political and economic uncertainties
to poor regulation and liquidity to a higher risk that essential information may
be incomplete or wrong.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. The fact that the fund
is not diversified and may invest in relatively few companies increases fund
risk, because any factors affecting a given company could affect performance. In
addition, changing currency rates could add to the fund's investment losses or
reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may make sense for investors interested in adding exposure to
countries located in emerging markets.
10 | Kemper Emerging Markets Growth Fund
<PAGE>
Performance
The bar chart shows the total return for the fund's Class A shares, which may
give some idea of risk. The chart doesn't reflect sales loads; if it did,
returns would be lower. The table shows how the fund's returns over different
periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1999 49.26
Best quarter: 30.89%, Q4 '99 Worst quarter: -7.31%, Q3 '99
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 1/9/98
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 40.60% 9.77%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 45.01 10.70
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 48.01 12.21
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 66.65 18.81*
- ------------------------------------------------------------------------------
Index: IFCI Emerging Markets Investable Index, a U.S. dollar-denominated index
comprised of stocks of countries classified as either low- or middle-income
economies by the World Bank regardless of their particular stage of development.
* Index comparison begins 1/31/98.
In the chart, total returns for 1999 would have been lower if operating expenses
hadn't been reduced.
The table includes the effects of maximum sales loads. In the table, total
returns from inception through 1999 would have been lower if operating expenses
hadn't been reduced.
11 | Kemper Emerging Markets Growth Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 13.14 13.36 13.63
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 14.39 15.36 15.63
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 12.11 12.18 12.48
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.28 3.18 3.15
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50%
if redeemed during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.28%, 3.18% and
3.15% for Class A, Class B and Class C shares, respectively, through
2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A $793 $3,324 $5,401 $9,111
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 721 3,433 5,593 9,156
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 418 3,172 5,452 9,340
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A $793 $3,324 $5,401 $9,111
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 321 3,133 5,393 9,156
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 318 3,172 5,452 9,340
- ------------------------------------------------------------------------------
12 | Kemper Emerging Markets Growth Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Joyce E. Cornell Theresa Gusman
Lead Portfolio Manager o Began investment career
o Began investment career in 1983
in 1987 o Joined the advisor in
o Joined the advisor in 1991 1992
o Joined the fund team o Joined the fund team
in 1998 in 1998
Andre J. DeSimone Tara C. Kenney
o Began investment career o Began investment career
in 1981 in 1984
o Joined the advisor in 1997 o Joined the advisor in
o Joined the fund team 1995
in 1998 o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
13 | Kemper Emerging Markets Growth Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KGLAX B) KGLBX C) KGLCX
Kemper
Global Blue Chip Fund
FUND GOAL The fund seeks long-term capital growth.
14 | Kemper Global Blue Chip Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in common stocks and other
equities of "blue chip" companies throughout the world. These are large, well
known companies that typically have an established earnings and dividends
history, easy access to credit, solid positions in their industries and strong
management. Although the fund may invest in any country, it primarily focuses on
countries with developed economies (including the U.S.).
In choosing stocks, the portfolio managers look for those blue-chip companies
that appear likely to benefit from global economic trends or have promising new
technologies or products.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, when its fundamental factors have changed or when adjusting its
exposure to a given country or industry.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities, such as convertible stocks or preferred stocks. While the fund invests
mainly in developed countries, it may invest up to 15% of total assets in
emerging market debt or equity securities of emerging markets (of which, 5% of
net assets may be junk bonds, i.e., grade BB and below).
15 | Kemper Global Blue Chip Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how U.S. and foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When U.S. and foreign stock prices
fall, especially prices of large company stocks, you should expect the value of
your investment to fall as well. Foreign stocks tend to be more volatile than
their U.S. counterparts, for reasons ranging from political and economic
uncertainties to a higher risk that essential information may be incomplete or
wrong.
Large company stocks at times may not perform as well as stocks of smaller or
mid-size companies. Because a stock represents ownership in its issuer, stock
prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies. In addition, changing currency rates could add to the fund's
investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
If you are interested in large-cap stocks and want to look beyond U.S. markets,
this fund could be suitable for you.
16 | Kemper Global Blue Chip Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1998 13.79
1999 28.23
Best quarter: 18.78%, Q4 '99 Worst quarter: -8.00%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 12/31/97
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 20.85% 17.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 24.02 18.34
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 27.07 19.73
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 25.34 25.07
- ------------------------------------------------------------------------------
Index: The MSCI (Morgan Stanley Capital International) World Index measures
performance of a range of developed country general stock markets, including the
United States, Canada, Europe, Australia, New Zealand and the Far East.
In the chart, total returns from 1998 through 1999 would have been lower if
operating expenses hadn't been reduced.
The table includes the effects of maximum sales loads. In the table, total
returns from inception through 1999 would have been lower if operating expenses
hadn't been reduced.
17 | Kemper Global Blue Chip Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 3.44 3.84 4.14
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 4.44 5.59 5.89
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 2.64 2.91 3.24
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 1.80 2.68 2.65
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies about
transactions") may be subject to a contingent deferred sales charge of 1.00% if
redeemed within one year of purchase and 0.50% if redeemed during the second
year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
*** By contract, total operating expenses are capped at 1.80%, 2.68% and 2.65%
for Class A, Class B and Class C shares, respectively, through 2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $747 $1,616 $2,495 $4,735
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 671 1,708 2,732 4,874
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 368 1,464 2,638 5,483
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $747 $1,616 $2,495 $4,735
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 271 1,408 2,532 4,874
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 268 1,464 2,638 5,483
- ------------------------------------------------------------------------------
18 | Kemper Global Blue Chip Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Diego Espinosa William E. Holzer
Lead Portfolio Manager o Began investment career
o Began investment career in 1970
in 1991 o Joined the advisor in
o Joined the advisor in 1996 1980
o Joined the fund team in o Joined the fund team in
1998 1998
Nicholas Bratt
o Began investment career
in 1974
o Joined the advisor in 1976
o Joined the fund team in
1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
19 | Kemper Global Blue Chip Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KGDAX B) KGDBX C) KGDCX
Kemper
Global Discovery Fund*
FUND GOAL The fund seeks above-average long-term capital appreciation.
* Kemper Global Discovery Fund is properly known as Global Discovery
Fund.
20 | Kemper Global Discovery Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in common stocks and other
equities of small companies throughout the world (companies with market values
similar to the smallest 20% of the Salomon Brothers Broad Market Index). The
fund generally focuses on countries with developed economies (including the
U.S.). As of December 31, 1999, companies in which the fund invests typically
have a market capitalization of between $75 million and $5.7 billion.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for companies that appear to have
effective management, strong competitive positioning, vigorous research and
development efforts and sound balance sheets.
Growth orientation. The managers generally look for companies that have
above-average potential for sustainable growth of revenue or earnings compared
to large companies, and whose market value appears reasonable in light of their
business prospects.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, seeking to identify stocks that may benefit
from them.
The managers may favor different securities at different times, while still
maintaining variety in terms of the countries and industries represented.
The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities, such as convertible stocks or preferred stocks. The fund may invest up
to 35% of total assets in common stocks and other equities of large companies or
in debt securities (of which, 5% of net assets may be junk bonds, i.e. grade BB
and below).
21 | Kemper Global Discovery Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt the fund's performance, cause you to
lose money or make the fund perform less well than other investments.
The most important factor with this fund is how U.S. and foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When U.S. and foreign stock prices
fall, you should expect the value of your investment to fall as well. Foreign
stocks tend to be more volatile than their U.S. counterparts, for reasons
ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. These risks tend to be greater
in emerging markets.
Compared to large company stocks, small and mid-size stocks tend to be more
volatile, in part because these companies tend to be less established and the
valuation of their stocks often depends on future expectations. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies. In addition, changing currency rates
could add to the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may interest long-term investors who want to diversify a large-cap or
domestic portfolio of investments.
22 | Kemper Global Discovery Fund
<PAGE>
Performance
The bar chart shows the total return for the fund's Class A shares, which may
give some idea of risk. The chart doesn't reflect sales loads; if it did,
returns would be lower. The table shows how the fund's returns over different
periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1999 64.15
Best quarter: 41.23%, Q4 '99 Worst quarter: -5.43%, Q3 '99
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 4/16/98
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 54.68% 23.94%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 59.70 28.00
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 62.83 29.53
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 22.36 8.10*
- ------------------------------------------------------------------------------
Index: Salomon Brothers World Equity Extended Market Index, an unmanaged small
capitalization stock universe of 22 countries.
* Index comparison begins 4/30/98.
In the chart, total returns for 1999 would have been lower if operating expenses
hadn't been reduced.
The table includes the effects of maximum sales loads. In the table, total
returns from inception through 1999 would have been lower if operating expenses
hadn't been reduced.
23 | Kemper Global Discovery Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.10% 1.10% 1.10%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 1.20 1.63 1.19
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 2.30 3.48 3.04
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 0.29 0.65 0.24
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.01 2.83 2.80
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50%
if redeemed during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.01%, 2.83% and
2.80% for Class A, Class B and Class C shares, respectively, through
2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $767 $1,226 $1,710 $3,038
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 686 1,308 1,952 3,202
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 383 917 1,575 3,338
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $767 $1,226 $1,710 $3,038
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 286 1,008 1,752 3,202
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 283 917 1,575 3,338
- ------------------------------------------------------------------------------
24 | Kemper Global Discovery Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.88% of average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Gerald J. Moran Steven T. Stokes
Lead Portfolio Manager o Began investment career
o Began investment career in 1986
in 1968 o Joined the advisor in
o Joined the advisor in 1968 1996
o Joined the fund team o Joined the fund team
in 1991 in 1999
Sewall Hodges
o Began investment career
in 1978
o Joined the advisor in 1995
o Joined the fund team
in 1996
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
25 | Kemper Global Discovery Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KGIAX B) KGIBX C) KGICX
Kemper
Global Income Fund
FUND GOAL The fund seeks to provide high current income consistent with
prudent total return asset management.
26 | Kemper Global Income Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in foreign and U.S.
investment-grade bonds and other income-producing securities. While the fund may
invest in securities issued by any issuer and in any currency, it generally
focuses on issuers in developed markets, such as Australia, Canada, Japan, New
Zealand, the U.S. and Western Europe, and on securities of other countries that
are denominated in the currencies of these countries or the euro.
In making their buy and sell decisions, the portfolio managers typically
consider a number of factors, including economic outlooks, interest rate
movements, inflation trends, security characteristics and changes in supply and
demand within global bond markets. In choosing individual bonds, the managers
use independent analysis to look for bonds that have attractive yields and good
credit. The managers may favor securities from different countries and issuers
at different times, while still maintaining variety in terms of countries and
issuers represented.
Although the managers may adjust the fund's duration (a measure of sensitivity
to interest rate movements), they generally intend to keep it between 4.0 and
6.0 years.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
This fund normally invests at least 65% of total assets in investment-grade
bonds, which are those in the top four credit grades (i.e., as low as BBB/Baa).
The fund may invest up to 35% of net assets in foreign or domestic debt
securities of any credit quality, including junk bonds (i.e., grade BB and
below). Compared to investment-grade bonds, junk bonds may pay higher yields and
have higher volatility and risk of default.
27 | Kemper Global Income Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
For this fund, the main factor is global interest rates. A rise in interest
rates generally means a fall in bond prices -- and, in turn, a fall in the value
of your investment. (As a general rule, a 1% rise in interest rates means a 1%
fall in value for every year of duration.)
Foreign markets tend to be more volatile than U.S. markets, for reasons ranging
from political and economic uncertainties to poor regulation to a higher risk
that essential information may be incomplete or wrong.
Another major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
The fact that the fund is not diversified and may invest in securities of
relatively few issuers increases its risk, because any factors affecting a given
company could affect performance. Similarly, if the fund emphasizes a given
market, such as Canada, or a given industry, factors affecting that market or
industry will affect performance.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, issuers, industries or other matters
o a bond could fall in credit quality or go into default; this risk is
greater for junk bonds
o some types of bonds could be paid off earlier than expected, which
would hurt the fund's performance
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may make sense for investors seeking a less aggressive approach to
international income investing.
28 | Kemper Global Income Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1990 22.66
1991 11.13
1992 -1.90
1993 10.23
1994 -1.47
1995 19.89
1996 5.87
1997 1.80
1998 10.48
1999 -6.38
Best quarter: 11.23%, Q1 '95 Worst quarter: -4.32%, Q1 '92
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since Since Since 5/31/94 Since
12/31/98 12/31/94 Life of Class 12/31/89
1 Year 5 Years B/C 10 Years
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A -10.58% 5.01% -- 6.36%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B -9.66 5.07 4.88% --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C -7.06 5.30 5.08 --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index -4.27 6.42 6.30 8.03
- ------------------------------------------------------------------------------
Index: Salomon Brothers World Government Bond Index, an unmanaged index on a
U.S. dollar total return basis, with all dividends reinvested, and includes
government bonds from 14 countries. The minimum maturity is one year.
The table includes the effects of maximum sales loads.
29 | Kemper Global Income Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 4.50% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 0.96 0.89 0.86
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 1.71 2.39 2.36
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50%
if redeemed during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $616 $965 $1,336 $2,379
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 642 1,045 1,475 2,403
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 339 736 1,260 2,696
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $616 $965 $1,336 $2,379
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 242 745 1,275 2,403
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 239 736 1,260 2,696
- ------------------------------------------------------------------------------
30 | Kemper Global Income Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.75% of average daily net assets.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-advisor for Kemper Global Income
Fund. Scudder Investments (U.K.) Limited has served as sub-advisor for mutual
funds since December, 1996 and investment advisor for certain institutional
accounts since August, 1998.
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of the fund's portfolio as allocated to
Scudder Investments (U.K.) Limited by Scudder Kemper Investments, Inc. from
time-to-time for management, including services related to foreign securities,
foreign currency transactions and related investments.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Jan C. Faller Jeremy L. Ragus
Co-Lead Portfolio Manager o Began investment career
o Began investment career in 1977
in 1988 o Joined the advisor
o Joined the advisor in 1999 in 1990
o Joined the fund team in 1999 o Joined the fund team
in 1999
Robert Stirling
Co-Lead Portfolio Manager
o Began investment career
in 1984
o Joined the sub-advisor
in 1995
o Joined the fund team in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who
work together to develop the fund's investment strategies.
31 | Kemper Global Income Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KITAX B) KINBX C) KITCX
Kemper
International Fund
FUND GOAL The fund seeks total return through a combination of capital
growth and income.
32 | Kemper International Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 80% of total assets in foreign securities (securities
issued by foreign-based issuers). The fund invests at least 65% of total assets
in common stocks of established foreign companies with the potential for capital
growth, income or both. The fund may invest more than 25% of total assets in any
given developed country that the manager believes poses no unique investment
risk.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have sound
financial strength, good business prospects and strong competitive positioning
and above-average earnings growth, among other factors.
Top-down analysis. The managers consider the economic outlooks for various
countries and geographical areas, favoring those they believe have sound
economic conditions and open markets.
Analysis of global themes. The managers look for significant changes in the
business environment, with an eye toward identifying industries that may benefit
from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, its underlying investment theme has matured or the reasons for
originally investing no longer apply.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities, such as convertible stocks or preferred stocks. The fund may invest up
to 35% of net assets in foreign or domestic debt securities of any credit
quality, including junk bonds (i.e., grade BB and below). Compared to
investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and risk of default.
33 | Kemper International Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how foreign stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When foreign stock prices fall, you should
expect the value of your investment to fall as well.
Foreign stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. In addition, changing
currency rates could add to the fund's investment losses or reduce its
investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o bond investments could be hurt by rising interest rates or declines in
credit quality
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Investors who are looking for a broadly diversified international fund may want
to consider this fund.
34 | Kemper International Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1990 -7.50
1991 9.13
1992 -4.79
1993 35.65
1994 -4.00
1995 12.96
1996 17.05
1997 9.00
1998 7.88
1999 41.30
Best quarter: 29.96%, Q4 '99 Worst quarter: -17.89%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as 12/31/1999
- --------------------------------------------------------------------------------
Since Since 5/31/94 Since
Since 12/31/98 12/31/94 Life of Class 12/31/89
1 Year 5 Years B/C 10 Years
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 33.20% 15.68% -- 9.99%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 37.34 15.90 13.62% --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 40.42 16.03 13.73 --
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 27.30 13.15 11.81 7.33
- ------------------------------------------------------------------------------
Index: MSCI EAFE Index (Morgan Stanley Capital International Europe,
Austral-Asia, Far East Index), a generally accepted benchmark for performance of
major overseas markets.
The table includes the effects of maximum sales loads. In the table and the
chart, total returns for 1990 would have been lower if operating expenses hadn't
been reduced.
35 | Kemper International Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 0.74% 0.74% 0.74%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 0.88 0.97 0.86
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 1.62 2.46 2.35
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
regulatory fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $730 $1,057 $1,406 $2,386
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 649 1,067 1,511 2,399
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 338 733 1,255 2,686
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $730 $1,057 $1,406 $2,386
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 249 767 1,311 2,399
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 238 733 1,255 2,686
- ------------------------------------------------------------------------------
36 | Kemper International Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.74% of average daily net assets.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-advisor for Kemper International
Fund. Scudder Investments (U.K.) Limited has served as sub-advisor for mutual
funds since December, 1996 and investment advisor for certain institutional
accounts since August, 1998.
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of the fund's portfolio as allocated to
Scudder Investments (U.K.) Limited by Scudder Kemper Investments, Inc. from
time-to-time for management, including services related to foreign securities,
foreign currency transactions and related investments.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Irene Cheng Marc Slendebroek
Lead Portfolio Manager o Began investment career
o Began investment career in 1990
in 1985 o Joined the sub-advisor
o Joined the advisor in 1993 in 1994
o Joined the fund team o Joined the fund team
in 1999 in 1998
Nicholas Bratt Carol L. Franklin
o Began investment career o Began investment career
in 1974 in 1975
o Joined the advisor in 1976 o Joined the advisor
o Joined the fund team in 1981
in 2000 o Joined the fund team
in 2000
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
37 | Kemper International Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KLAAX B) KLABX C) KLACX
Kemper
Latin America Fund
FUND GOAL The fund seeks long-term capital appreciation.
38 | Kemper Latin America Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in Latin American common stocks
and other equities that are issued by companies organized under the laws of a
Latin American country or traded on Latin American markets and do more than half
of their business in Latin America. The fund generally focuses on Argentina,
Brazil, Chile, Colombia, Mexico and Peru.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with competitive
business positions, good technologies, and sound balance sheets, among other
factors. The managers also consider the quality of management, the impact of
government regulations and trade initiatives and the cost of labor and raw
materials.
Growth orientation. The managers generally look for companies that seem to offer
the potential for sustainable above-average growth of revenue or earnings
relative to each stock's own market.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, with an eye toward identifying countries,
industries and companies that may benefit from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given country or industry.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities, such as convertible stocks or preferred stocks. The fund may invest up
to 35% of total assets in non-Latin American (including U.S.) debt and equity
securities, including junk bonds (i.e., grade BB and below). Compared to
investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and risk of default.
39 | Kemper Latin America Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how Latin American stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When Latin American stock prices
fall, you should expect the value of your investment to fall as well. The fact
that the fund concentrates on a single geographical region could affect fund
performance. For example, Latin American companies could be hurt by such factors
as regional economic downturns, currency devaluations, runaway inflation, shifts
in government policy or fluctuations in commodity prices. Similarly, the fact
that the fund is not diversified and may invest in relatively few companies
increases its risk, because any factors affecting a given company could affect
performance.
Emerging markets, including Latin American countries, tend to be more volatile
than developed markets, for reasons ranging from political and economic
uncertainties to poor regulation and liquidity to a higher risk that essential
information may be incomplete or wrong. Stock prices can be hurt by poor
management, shrinking product demand and other business risks. These may affect
single companies as well as groups of companies. In addition, changing currency
rates could add to the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o bond investments could be hurt by rising interest rates or declines in
credit quality
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may interest investors who believe in the long-term growth potential
of Latin American stocks and can accept above-average risks.
40 | Kemper Latin America Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1998 -24.32
1999 50.98
Best quarter: 34.56%, Q4 '99 Worst quarter: -19.35%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since 12/31/98 Since 12/31/97
1 Year Life of Class
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A 42.39% 3.77%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B 46.65 4.55
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C 49.86 5.97
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Index 61.85 2.13
- ------------------------------------------------------------------------------
Index: IFC Latin America Investable Return Index, a U.S. dollar-denominated
index comprised of Latin America's stock markets without reference to the
stock's availability to overseas investors.
In the chart, total returns from 1998 through 1999 would have been lower if
operating expenses hadn't been reduced.
The table includes the effects of maximum sales loads. In the table, total
returns from inception through 1999 would have been lower if operating expenses
hadn't been reduced.
41 | Kemper Latin America Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 5.75% None None
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) None* 4.00% 1.00%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other Expenses** 17.92 17.85 18.69
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Total Annual Operating Expenses 19.17 19.85 20.69
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expense Reimbursement 16.98 16.78 17.65
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net Annual Operating Expenses*** 2.19 3.07 3.04
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50%
if redeemed during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services
and similar expenses, which may vary with fund size and other factors.
"Other Expenses" are restated to reflect changes in certain
administrative and regulatory fees.
*** By contract, total operating expenses are capped at 2.19%, 3.07% and
3.04% for Class A, Class B and Class C shares, respectively, through
2/28/2001.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $784 $3,992 $6,355 $9,886
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 710 4,078 6,493 9,900
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 407 3,890 6,437 10,031
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A shares $784 $3,992 $6,355 $9,886
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class B shares 310 3,778 6,293 9,900
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class C shares 307 3,890 6,437 10,031
- ------------------------------------------------------------------------------
42 | Kemper Latin America Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00%* of average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Tara C. Kenney Paul H. Rogers
Lead Portfolio Manager o Began investment career
o Began investment career in 1985
in 1984 o Joined the advisor in
o Joined the advisor in 1995 1994
o Joined the fund team o Joined the fund team
in 1997 in 1997
Edmund B. Games, Jr.
o Began investment career
in 1960
o Joined the advisor in 1960
o Joined the fund team
in 1997
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
43 | Kemper Latin America Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KNEAX B) KNEBX C) KNECX
Kemper
New Europe Fund
FUND GOAL The fund seeks long-term capital appreciation.
44 | Kemper New Europe Fund
<PAGE>
The Fund's Main Strategy
The fund invests at least 65% of total assets in European common stocks and
other equities (equities that are traded mainly on European markets or are
issued by companies that are based in Europe or do more than half of their
business there). The fund generally focuses on common stocks of companies in the
more established markets of Western and Southern Europe such as Finland,
Germany, France, Italy, Spain and Portugal.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with new or
dominant products or technologies, among other factors.
Growth orientation. The managers look for stocks that seem to offer the
potential for sustainable above-average growth of revenues or earnings relative
to each stock's own market and whose market prices are reasonable in light of
their potential growth.
Top-down analysis. The managers consider the outlook for economic, political,
industrial and demographic trends and how they may affect various countries,
sectors and industries.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when it has reached a target price, the
managers believe other investments offer better opportunities or when adjusting
its exposure to a given country or industry.
[ICON]--------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's equities are common stocks, some may be other types of
equities, such as convertible stocks or preferred stocks. The fund may invest up
to 20% of total assets in European debt securities of any credit quality,
including junk bonds (i.e., grade BB and below). Compared to investment-grade
bonds, junk bonds may pay higher yields and have higher volatility and risk of
default.
45 | Kemper New Europe Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how European stock markets perform
- -- something that depends on a large number of factors, including economic,
political and demographic trends. When European stock prices fall, you should
expect the value of your investment to fall as well.
The fact that the fund focuses on a single geographical region could affect fund
performance. For example, European companies could be hurt by such factors as
regional economic downturns or difficulties with the European Economic and
Monetary Union (EMU). Eastern European companies can be very sensitive to
political and economic developments. The fact that the fund is not diversified
and may invest in relatively few companies increases its risk, because any
factors affecting a given company could affect performance.
European stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o bond investments could be hurt by rising interest rates or declines in
credit quality
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may appeal to investors who seek long-term growth and want to gain
exposure to Europe's established markets.
46 | Kemper New Europe Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class M shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
The performance of Class M shares shown in the bar chart and performance table
reflects performance from when the fund was a closed-end fund (through
09/03/99). Because the fund had no daily sales and redemptions, its performance
as a closed-end fund may have been higher than if it had operated as an open-end
fund.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class M Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1991 3.06
1992 -9.59
1993 25.62
1994 -0.27
1995 18.97
1996 34.38
1997 20.03
1998 34.39
1999 51.83
Best quarter: 37.93%, Q4 '99 Worst quarter: -16.81%, Q3 '98
- --------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
- --------------------------------------------------------------------------------
Since
Since 12/31/98 Since 12/31/94 2/16/90 Life
1 Year 5 Years of Class
- ------------------------------------------------------------------------------
Class M 51.83% 31.39% 15.93%
- ------------------------------------------------------------------------------
Index 16.23 22.54 15.05*
- ------------------------------------------------------------------------------
Index: The Morgan Stanley Capital International Europe Equity Index, an
unmanaged index that is generally representative of the equity securities of the
European markets.
* Index comparison begins 02/28/90.
Class A, B and C shares do not have a full calendar year of operations and their
performance is not shown above. The performance of Class M shares does not
reflect any sales charges. The performance of the other classes is subject to
sales charges and would be lower.
47 | Kemper New Europe Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed 5.75% None None None
On Purchases (as % of offering price)
- ------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None* 4.00% 1.00% None
(as % of redemption proceeds)
- ------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, None None None 2.00%**
if applicable)
- ------------------------------------------------------------------------------
Exchange Fee None None None 2.00%**
- ------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- ------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75 None
- ------------------------------------------------------------------------------
Other Expenses*** 1.05 1.20 1.20 0.70
- ------------------------------------------------------------------------------
Total Annual Operating Expenses**** 1.80 2.70 2.70 1.45
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50%
if redeemed during the second year following purchase.
** A 2% redemption fee, which is retained by the fund, is imposed upon
redemptions or exchanges of shares held less than one year, with
limited exceptions (see "Policies You Should Know About -- Redemption
Fee).
*** Includes costs of shareholder servicing, custody, accounting services
and similar expenses, which may vary with fund size and other factors.
**** The fund was reorganized from a closed-end fund to an open-end fund on
September 3, 1999. The fees and expenses of open-end funds are, in many
cases, different than those of closed-end funds. Accordingly, the
expense ratios shown above are estimated for the fund's current fiscal
year ending October 31, 2001, based on the fund's current fee schedule
and expenses incurred by the fund during its most recent fiscal year
adjusted for any open-end related expenses. By contract, total
operating expenses are capped at 1.80%, 2.70% and 2.70% for Class A,
Class B and Class C shares, respectively, through 2/28/2001.
48 | Kemper New Europe Fund
<PAGE>
Based on the figures on the previous page (including one year of capped expenses
in each period except for Class M shares), this example is designed to help you
compare the expenses of each share class to those of other funds. The example
assumes operating expenses remain the same and that you invested $10,000, earned
5% annual returns and reinvested all dividends and distributions. This is only
an example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- ------------------------------------------------------------------------------
Class A shares $747 $1,109 $1,494 $2,569
- ------------------------------------------------------------------------------
Class B shares 673 1,138 1,630 2,615
- ------------------------------------------------------------------------------
Class C shares 373 838 1,430 3,032
- ------------------------------------------------------------------------------
Class M shares 345 649 976 1,900
- ------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- ------------------------------------------------------------------------------
Class A shares $747 $1,109 $1,494 $2,569
- ------------------------------------------------------------------------------
Class B shares 273 838 1,430 2,615
- ------------------------------------------------------------------------------
Class C shares 273 838 1,430 3,032
- ------------------------------------------------------------------------------
Class M shares 345 649 976 1,900
- ------------------------------------------------------------------------------
49 | Kemper New Europe Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management, bringing together
professionals from many investment disciplines. Supporting each team are Scudder
Kemper's many economists, research analysts, traders and other investment
specialists, located across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.96% of average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Carol L. Franklin Joan R. Gregory
Lead Portfolio Manager o Began investment career
o Began investment career in 1989
in 1975 o Joined the advisor in
o Joined the advisor in 1981 1992
o Joined the fund team o Joined the fund team
in 1990 in 1992
Nicholas Bratt Marc Slendebroek
o Began investment career o Began investment career
in 1974 in 1990
o Joined the advisor in 1976 o Joined the advisor in
o Joined the fund team 1994
in 1999 o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
50 | Kemper New Europe Fund
<PAGE>
Other Policies And Risks
While the previous pages describe the main points of each fund's strategy and
risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, each fund's Board could
change that fund's investment goal without seeking shareholder
approval.
o As a temporary defensive measure, any of these funds could shift up to
100% of assets into investments such as money market securities. This
could prevent losses, but would mean that the fund would not be
pursuing its goal.
o Scudder Kemper establishes a security's credit quality when it buys the
security, using independent ratings or, for unrated securities, its own
credit determination. When ratings don't agree, a fund may use the
higher rating. If a security's credit quality falls, the advisor will
determine whether selling it would be in the shareholders' best
interests.
o The funds may trade securities more actively than many funds, which
could mean higher expenses (thus lowering return) and higher taxable
distributions.
o Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal
investments, and might not use them at all. With derivatives there is a
risk that they could produce disproportionate losses.
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This prospectus doesn't tell you about every policy or risk of investing in a
fund. For more information, request a copy of the Statement of Additional
Information (see back cover).
51 | Other Policies And Risks
<PAGE>
Euro conversion
Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is already underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.
51 | Other Policies And Risks
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned (or lost), assuming all
dividends and distributions were reinvested. This information has been audited
by Ernst & Young LLP (except Kemper Global Discovery Fund, which has been
audited by Pricewaterhouse-Coopers LLP), whose reports, along with each fund's
financial statements, are included in that fund's annual report (see
"Shareholder reports" on the back cover).
Kemper Asian Growth Fund
Class A
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $5.41 $6.65 $10.04 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.01)(b) .11 .08 --
- ------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 2.65 (1.27) (3.47) .54
- ------------------------------------------------------------------------------
Total from investment operations 2.64 (1.16) (3.39) .54
- ------------------------------------------------------------------------------
Less distributions from net investment
income -- (.08) -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $8.05 $5.41 $6.65 $10.04
- ------------------------------------------------------------------------------
Total return (%) (d) 48.80(c) (17.66)(c) (33.76)(c) 5.68**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets at end of period ($
thousands) 12,685 4,047 3,549 827
- ------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 3.35 2.65 2.62 1.46*
- ------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.76 1.80 1.60 1.46*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (.17) 2.05 .97 .74*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 131 155 74*
- ------------------------------------------------------------------------------
(a) For the period from October 21, 1996 (commencement of operations) to
November 30, 1996.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of sales charges.
* Annualized
** Not annualized
53 | Financial Highlights
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $5.34 $6.58 $10.03 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.02)(b) .06 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 2.59 (1.28) (3.45) .53
- ------------------------------------------------------------------------------
Total from investment operations 2.57 (1.22) (3.45) .53
- ------------------------------------------------------------------------------
Less distributions from net investment
income -- (.02) -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $7.91 $5.34 $6.58 $10.03
- ------------------------------------------------------------------------------
Total return (%) (d) 48.13(c) (18.65)(c)(34.40)(c)5.58**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets at end of period ($
thousands) 8,674 3,035 2,545 941
- ------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 4.25 4.29 3.51 2.34*
- ------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.91 2.78 2.57 2.34*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (.32) 1.07 -- (.14)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 131 155 74*
- ------------------------------------------------------------------------------
(a) For the period from October 21, 1996 (commencement of operations) to
November 30, 1996.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect of sales charges.
* Annualized
** Not annualized
54 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended November 30, 1999 1998 1997 1996(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $5.35 $6.60 $10.03 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.08)(b) .05 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions 2.56 (1.28) (3.43) .53
- ------------------------------------------------------------------------------
Total from investment operations 2.48 (1.23) (3.43) .53
- ------------------------------------------------------------------------------
Less distributions from net investment
income -- (.02) -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $7.83 $5.35 $6.60 $10.03
- ------------------------------------------------------------------------------
Total return (%) (d) 46.36(c) (18.72)(c)(34.20)(c)5.58**
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets at end of period ($
thousands) 1,182 334 304 180
- ------------------------------------------------------------------------------
Ratio of expenses, before expense
reductions (%) 5.17 4.56 3.55 2.34*
- ------------------------------------------------------------------------------
Ratio of expenses, after expense
reductions (%) 2.81 2.71 2.54 2.34*
- ------------------------------------------------------------------------------
Ratio of net investment income (loss)
(%) (1.22) 1.14 .03 (.14)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 80 131 155 74*
- ------------------------------------------------------------------------------
(a) For the period from October 21, 1996 (commencement of operations) to
November 30, 1996.
(b) Based on monthly average shares outstanding during the period.
(c) Total return would have been lower had certain expenses not been
reduced.
(d) Total return does not reflect the effect of sales charges.
* Annualized
** Not annualized
55 | Financial Highlights
<PAGE>
Kemper Emerging Markets Growth Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.80 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.02)(a) .03
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.71 (1.73)
- ------------------------------------------------------------------------------
Total from investment operations 1.69 (1.70)
- ------------------------------------------------------------------------------
Net asset value, end of period $9.49 $7.80
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 21.67 (17.89)
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 10.23 22.38
- ------------------------------------------------------------------------------
Expenses, net (%) 2.19 2.28
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.22) .40
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.74 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment loss (.09)(a) (.01)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.68 (1.75)
- ------------------------------------------------------------------------------
Total from investment operations 1.59 (1.76)
- ------------------------------------------------------------------------------
Net asset value, end of period $9.33 $7.74
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 20.54 (18.53)
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 11.25 24.06
- ------------------------------------------------------------------------------
Expenses, net (%) 3.06 3.18
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.93) (.50)
- ------------------------------------------------------------------------------
(a) Per share data was determined based on average shares outstanding.
(b) For the period from January 9, 1998 (commencement of operations) to October
31, 1998.
56 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.76 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.10)(a) .03
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.69 (1.71)
- ------------------------------------------------------------------------------
Total from investment operations 1.59 (1.74)
- ------------------------------------------------------------------------------
Net asset value, end of period $9.35 $7.76
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 20.49 (18.32)
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 11.55 24.03
- ------------------------------------------------------------------------------
Expenses, net (%) 3.03 3.15
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.13) (.47)
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net assets at end of period $3,493,300 1,771,222
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 78 69
- ------------------------------------------------------------------------------
(a) Per share data was determined based on average shares outstanding.
(b) For the period from January 9, 1998 (commencement of operations) to October
31, 1998.
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund.
57 | Financial Highlights
<PAGE>
Kemper Global Blue Chip Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.21 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .03(a) .05
- ------------------------------------------------------------------------------
Net realized and unrealized gain 1.64 .66
- ------------------------------------------------------------------------------
Total from investment operations 1.67 .71
- ------------------------------------------------------------------------------
Net asset value, end of period $11.88 $10.21
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 16.26 7.47
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses before expense reductions (%) 3.35 6.06
- ------------------------------------------------------------------------------
Expenses, net (%) 1.80 1.80
- ------------------------------------------------------------------------------
Net investment income (loss) (%) .24 .92
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.13 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.07)(a) --
- ------------------------------------------------------------------------------
Net realized and unrealized gain 1.61 .63
- ------------------------------------------------------------------------------
Total from investment operations 1.54 .63
- ------------------------------------------------------------------------------
Net asset value, end of period $11.67 $10.13
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 15.10 6.63
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses before expense reductions (%) 4.54 7.69
- ------------------------------------------------------------------------------
Expenses, net (%) 2.68 2.68
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.64) .04
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period ended December 31, 1997 (commencement of operations) to
October 31, 1998.
58 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.14 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.07) --
- ------------------------------------------------------------------------------
Net realized and unrealized gain 1.62 .64
- ------------------------------------------------------------------------------
Total from investment operations 1.55 .64
- ------------------------------------------------------------------------------
Net asset value, end of period $11.69 $10.14
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 15.19 6.74
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses before expense reductions (%) 4.85 7.66
- ------------------------------------------------------------------------------
Expenses, net (%) 2.65 2.65
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.61) .07
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net assets at end of period $22,977,660 9,539,623
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 68 84
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period ended December 31, 1997 (commencement of operations) to
October 31, 1998.
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The Ratios to Average Net Assets
are computed without this expense waiver or absorption.
59 | Financial Highlights
<PAGE>
Kemper Global Discovery Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $19.78 $23.98
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.24) (.09)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.51 (4.11)
- ------------------------------------------------------------------------------
Total from investment operations 8.27 (4.20)
- ------------------------------------------------------------------------------
Net asset value, end of period $28.05 $19.78
- ------------------------------------------------------------------------------
Total return (%) (c)(d) 41.61 (17.51)**
- ------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 55 11
- ------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) 2.01 1.95*
- ------------------------------------------------------------------------------
Ratio of operating expenses, before expense reductions,
to average daily net assets (%) 2.26 2.20*
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily
net assets (%) (.98) (1.00)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 41
- ------------------------------------------------------------------------------
(a) For the period April 16, 1998 (commencement of sales of Class A shares) to
October 31, 1998.
(b) Based on monthly average shares outstanding during the period.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
60 | Financial Highlights
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $19.70 $23.98
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.43) (.18)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.42 (4.10)
- ------------------------------------------------------------------------------
Total from investment operations 7.99 (4.28)
- ------------------------------------------------------------------------------
Net asset value, end of period $27.69 $19.70
- ------------------------------------------------------------------------------
Total return (%) (c)(d) 40.43 (17.85)**
- ------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 27 6
- ------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) 2.83 2.83*
- ------------------------------------------------------------------------------
Ratio of operating expenses, before expense reductions,
to average daily net assets (%) 3.44 3.13*
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily
net assets (%) (1.81) (1.87)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 41
- ------------------------------------------------------------------------------
(a) For the period April 16, 1998 (commencement of sales of Class B shares) to
October 31, 1998.
(b) Based on monthly average shares outstanding during the period.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
61 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $19.70 $23.98
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.43) (.17)
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 8.44 (4.11)
- ------------------------------------------------------------------------------
Total from investment operations 8.01 (4.28)
- ------------------------------------------------------------------------------
Net asset value, end of period $27.71 $19.70
- ------------------------------------------------------------------------------
Total return (%) (c)(d) 40.41 (17.85)**
- ------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------
Net assets, end of period ($ millions) 8 2
- ------------------------------------------------------------------------------
Ratio of operating expenses to average daily net assets
(%) 2.80 2.80*
- ------------------------------------------------------------------------------
Ratio of operating expenses, before expense reductions,
to average daily net assets (%) 3.00 3.23*
- ------------------------------------------------------------------------------
Ratio of net investment income to average daily
net assets (%) (1.79) (1.88)*
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 41
- ------------------------------------------------------------------------------
(a) For the period April 16, 1998 (commencement of sales of Class C shares) to
October 31, 1998.
(b) Based on monthly average shares outstanding during the period.
(c) Total return does not reflect the effect of any sales charges.
(d) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
62 | Financial Highlights
<PAGE>
Kemper Global Income Fund
Class A
- ------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $8.94 $8.58 $8.97 $9.05 $8.55
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .32(a) .37(a) .48(a) .52(a) .61
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.88) .50 (.33) (.02) 1.05
- ------------------------------------------------------------------------------
Total from investment
operations (.56) .87 .15 .50 1.66
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.13) (.40) (.47) (.58) (1.16)
- ------------------------------------------------------------------------------
Tax return of capital (.27) (.11) (.07) -- --
- ------------------------------------------------------------------------------
Total distributions (.40) (.51) (.54) (.58) (1.16)
- ------------------------------------------------------------------------------
Net asset value, end of period $7.98 $8.94 $8.58 $8.97 $9.05
- ------------------------------------------------------------------------------
Total return (%) (b) (6.38) 10.48 1.80 5.87 19.89
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 49,407 69,913 72,145 86,240 102,988
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 1.68 1.58 1.32 1.48 1.34
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 1.67 1.58 1.32 1.48 1.34
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 3.80 4.31 5.56 5.77 6.43
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 165 313 283 276 220
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
63 | Financial Highlights
<PAGE>
Class B
- ------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $8.96 $8.60 $9.00 $9.09 $8.56
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .26(a) .31(a) .41(a) .46(a) .56
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.88) .49 (.33) (.02) 1.05
- ------------------------------------------------------------------------------
Total from investment
operations (.62) .80 .08 .44 1.61
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.11) (.34) (.42) (.53) (1.08)
- ------------------------------------------------------------------------------
Tax return of capital (.23) (.10) (.06) -- --
- ------------------------------------------------------------------------------
Total distributions (.34) (.44) (.48) (.53) (1.08)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.00 $8.96 $8.60 $9.00 $9.09
- ------------------------------------------------------------------------------
Total return (%) (b) (6.98) 9.56 1.03 5.11 19.21
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 6,955 12,536 25,735 44,678 49,692
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 2.37 2.32 2.18 2.14 1.98
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 2.36 2.32 2.18 2.14 1.98
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 3.11 3.57 4.70 5.11 5.79
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 165 313 283 276 220
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
64 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $8.99 $8.62 $9.02 $9.09 $8.56
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) .27(a) .32(a) .42(a) .48(a) .57
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.90) .49 (.33) (.02) 1.05
- ------------------------------------------------------------------------------
Total from investment
operations (.63) .81 .09 .46 1.62
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.11) (.34) (.43) (.53) (1.09)
- ------------------------------------------------------------------------------
Tax return of capital (.24) (.10) (.06) -- --
- ------------------------------------------------------------------------------
Total distributions (.35) (.44) (.49) (.53) (1.09)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.01 $8.99 $8.62 $9.02 $9.09
- ------------------------------------------------------------------------------
Total return (%) (b) (7.06) 9.72 1.09 5.31 19.26
- ------------------------------------------------------------------------------
Ratios to average net assets and supplemental data
- ------------------------------------------------------------------------------
Net assets, end of period
($ in thousands) 1,340 2,346 1,149 821 253
- ------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 2.32 2.13 2.11 2.06 2.06
- ------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 2.31 2.13 2.11 2.06 2.06
- ------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) 3.16 3.76 4.77 5.19 5.71
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 165 313 283 276 220
- ------------------------------------------------------------------------------
Notes:
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
65 | Financial Highlights
<PAGE>
Kemper International Fund
Class A
- -------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Net asset value, beginning of year $12.10 $12.68 $11.96 $10.59 $11.13
- -------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (.01) .04 -- .04 .07
- -------------------------------------------------------------------------------
Net realized and unrealized gain 2.57 .01 1.52 1.50 .05
- -------------------------------------------------------------------------------
Total from investment operations 2.56 .05 1.52 1.54 .12
- -------------------------------------------------------------------------------
Less dividends:
- -------------------------------------------------------------------------------
Distribution from net
investment income -- (.08) (.12) (.12) --
- -------------------------------------------------------------------------------
Distribution from net
realized gain (1.81) (.55) (.68) (.05) (.66)
- -------------------------------------------------------------------------------
Total dividends (1.81) (.63) (.80) (.17) (.66)
- -------------------------------------------------------------------------------
Net asset value, end of year $12.85 $12.10 $12.68 $11.96 $10.59
- -------------------------------------------------------------------------------
Total return (%) 23.47(a) .45 13.49 14.70 1.69
- -------------------------------------------------------------------------------
Ratios to average net assets
- -------------------------------------------------------------------------------
Expenses, before expense reductions
(%) 1.59 1.64 1.57 1.64 1.57
- -------------------------------------------------------------------------------
Expenses, net (%) 1.59 1.64 1.57 1.64 1.57
- -------------------------------------------------------------------------------
Net investment income (loss) (%) (.12) .36 .16 .34 .83
- -------------------------------------------------------------------------------
66 | Financial Highlights
<PAGE>
Class B
- -------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
Net asset value, beginning of year $11.90 $12.50 $11.81 $10.46 $11.09
- -------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------
Net investment income (loss) (.11) (.08) (.12) (.06) (.02)
- -------------------------------------------------------------------------------
Net realized and unrealized gain 2.52 .03 1.51 1.47 .05
- -------------------------------------------------------------------------------
Total from investment operations 2.41 (.05) 1.39 1.41 .03
- -------------------------------------------------------------------------------
Less dividends:
- -------------------------------------------------------------------------------
Distribution from net
investment income -- -- (.02) (.01) --
- -------------------------------------------------------------------------------
Distribution from net
realized gain (1.81) (.55) (.68) (.05) (.66)
- -------------------------------------------------------------------------------
Total dividends (1.81) (.55) (.70) (.06) (.66)
- -------------------------------------------------------------------------------
Net asset value, end of period $12.50 $11.90 $12.50 $11.81 $10.46
- -------------------------------------------------------------------------------
Total return (%) 22.50(a) (.37) 12.32 13.59 .84
- -------------------------------------------------------------------------------
Ratios to average net assets
- -------------------------------------------------------------------------------
Expenses, before expense
reductions (%) 2.44 2.62 2.57 2.53 2.50
- -------------------------------------------------------------------------------
Expenses, net (%) 2.43 2.62 2.57 2.53 2.50
- -------------------------------------------------------------------------------
Net investment income (loss) (%) (.96) (.62) (.84) (.55) (.10)
- ------------------------------------------------------------------------------
(a) If the Advisor had not reimbursed the fund, the total return for the
year ended October 31, 1999 would have been lower.
67 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.91 $12.51 $11.81 $10.46 $11.09
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (.10) (.08) (.09) (.06) (.02)
- ------------------------------------------------------------------------------
Net realized and unrealized gain 2.51 .03 1.49 1.47 .05
- ------------------------------------------------------------------------------
Total from investment operations 2.41 (.05) 1.40 1.41 .03
- ------------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------------
Distribution from net
investment income -- -- (.02) (.01) --
- ------------------------------------------------------------------------------
Distribution from net
realized gain (1.81) (.55) (.68) (.05) (.66)
- ------------------------------------------------------------------------------
Total dividends (1.81) (.55) (.70) (.06) (.66)
- ------------------------------------------------------------------------------
Net asset value, end of period $12.51 $11.91 $12.51 $11.81 $10.46
- ------------------------------------------------------------------------------
Total return (%) 22.49(a) (.37) 12.45 13.59 .84
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses, before expense
reductions (%) 2.33 2.55 2.49 2.50 2.50
- ------------------------------------------------------------------------------
Expenses, net (%) 2.32 2.55 2.49 2.50 2.50
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.85) (.55) (.76) (.52) (.10)
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net assets at end of year
(in thousands) $658,211 604,684 588,069 472,243 364,708
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 140 105 76 104 114
- ------------------------------------------------------------------------------
(a) If the Advisor had not reimbursed the fund, the total return for the year
ended October 31, 1999 would have been lower.
Note: Total return does not reflect the effect of any sales charges. Per share
data were determined based on average shares outstanding for the years ended
1995, 1996 and 1998, respectively.
68 | Financial Highlights
<PAGE>
Kemper Latin America Fund
Class A
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.31 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income .07 .06
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .80 (2.25)
- ------------------------------------------------------------------------------
Total from investment operations .87 (2.19)
- ------------------------------------------------------------------------------
Distribution from net investment income (.06) --
- ------------------------------------------------------------------------------
Net asset value, end of period $8.12 $7.31
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 12.01 (23.05)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 9.16 12.75
- ------------------------------------------------------------------------------
Expenses, net (%) 2.19 2.21
- ------------------------------------------------------------------------------
Net investment income (%) .87 1.38
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.26 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (.01) .04
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .81 (2.28)
- ------------------------------------------------------------------------------
Total from investment operations .80 (2.24)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.06 $7.26
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 11.02 (23.58)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 9.93 14.38
- ------------------------------------------------------------------------------
Expenses, net (%) 3.06 3.09
- ------------------------------------------------------------------------------
Net investment income (%) (.13) .50
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period from December 31, 1997 (commencement of operations) to
October 31, 1998.
69 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $7.26 $9.50
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income -- .04
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .80 (2.28)
- ------------------------------------------------------------------------------
Total from investment operations .80 (2.24)
- ------------------------------------------------------------------------------
Net asset value, end of period $8.06 $7.26
- ------------------------------------------------------------------------------
Total return (not annualized) (%) 11.02 (23.58)
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses, before expense reductions (%) 10.73 14.34
- ------------------------------------------------------------------------------
Expenses, net (%) 3.04 3.06
- ------------------------------------------------------------------------------
Net investment income (%) (.02) .53
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999(a) 1998(b)
- ------------------------------------------------------------------------------
Net assets at end of period $2,462,031 1,460,498
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 76 55
- ------------------------------------------------------------------------------
(a) Per share data was determined based on monthly average shares outstanding
during the period.
(b) For the period from December 31, 1997 (commencement of operations) to
October 31, 1998.
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund.
70 | Financial Highlights
<PAGE>
Kemper New Europe Fund
Class A
- ------------------------------------------------------------------------------
1999(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $14.27
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.03)
- ------------------------------------------------------------------------------
Net realized and unrealized gain .63
- ------------------------------------------------------------------------------
Total from investment operations .60
- ------------------------------------------------------------------------------
Net asset value, end of period $14.87
- ------------------------------------------------------------------------------
Total return (not annualized) (%) (c) 4.20
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 1.63
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.21)
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
1999(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $13.91
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.05)
- ------------------------------------------------------------------------------
Net realized and unrealized gain .63
- ------------------------------------------------------------------------------
Total from investment operations .58
- ------------------------------------------------------------------------------
Net asset value, end of period $14.49
- ------------------------------------------------------------------------------
Total return (not annualized) (%) (c) 4.17
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.36
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.95)
- ------------------------------------------------------------------------------
(a) For the period September 3, 1999 (commencement of Class) to October 31,
1999.
(b) Based on monthly average shares outstanding during the period.
(c) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested.
71 | Financial Highlights
<PAGE>
Class C
- ------------------------------------------------------------------------------
1999(a)
- ------------------------------------------------------------------------------
Net asset value, beginning of period $14.02
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (b) (.04)
- ------------------------------------------------------------------------------
Net realized and unrealized gain .64
- ------------------------------------------------------------------------------
Total from investment operations .60
- ------------------------------------------------------------------------------
Net asset value, end of period $14.62
- ------------------------------------------------------------------------------
Total return (not annualized) (%) (c) 4.28
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- ------------------------------------------------------------------------------
Expenses (%) 2.40
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (1.99)
- ------------------------------------------------------------------------------
(a) For the period September 3, 1999 (commencement of Class) to October 31,
1999.
(b) Based on monthly average shares outstanding during the period.
(c) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested.
Note: Total return does not reflect the effect of any sales charges. Prior to
September 3, 1999, the fund operated as a closed-end investment company. On
September 3, 1999, the fund became an open-end investment company and offered
three additional classes of shares.
72 | Financial Highlights
<PAGE>
Class M
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net asset value, beginning
of period $22.23 $19.96 $16.60 $13.24 $11.61
- ------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------
Net investment income (loss) (a) (.00)(c) (.00) (.01) .05 .05
- ------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions 4.62 4.47 3.43 3.36 1.58
- ------------------------------------------------------------------------------
Total from investment operations 4.62 4.47 3.42 3.41 1.63
- ------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------
Net investment income (.03) (.09) (.06) (.05) --
- ------------------------------------------------------------------------------
Net realized gains on
investment transactions (6.36) (2.11) -- -- --
- ------------------------------------------------------------------------------
Total distributions (6.39) (2.20) (.06) (.05) --
- ------------------------------------------------------------------------------
Redemption fees .13 -- -- -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $20.59 $22.23 $19.96 $16.60 $13.24
- ------------------------------------------------------------------------------
Total return (%)
- ------------------------------------------------------------------------------
Per share net asset value (%)
(b)(d) 27.95 27.70 20.66 25.92 14.04
- ------------------------------------------------------------------------------
Ratios to average net assets
- ------------------------------------------------------------------------------
Expenses (%) 1.68(e) 1.41 1.49 1.51 1.62
- ------------------------------------------------------------------------------
Net investment income (loss) (%) (.00) (.01) (.03) .31 .39
- ------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Net assets at end of period ($
millions) $295 359 320 266 213
- ------------------------------------------------------------------------------
Portfolio turnover rate (%) 57.8 41.4 44.7 35.3 32.4
- ------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested.
(c) Net investment income per share includes non-recurring dividend income
amounting to $.08 per share.
(d) The performance of Class M shares reflects performance of the fund in
closed-end form. The fund's performance may have been lower if it had
operated as an open-end fund during these periods.
(e) Includes reorganization expense ratio of .20%.
Note: Total return does not reflect the effect of any sales charges.
73 | Financial Highlights
<PAGE>
Investing In The Funds
The following pages tell you about many of the services, choices and benefits of
being a Kemper Funds shareholder. You'll also find information on how to check
the status of your account using the method that's most convenient for you.
You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.
<PAGE>
Choosing A Share Class
In this prospectus, there are three share classes for each fund. Each class has
its own fees and expenses, offering you a choice of cost structures.
For Kemper New Europe Fund, Class M shares represent the initial shares of the
fund and are no longer offered. Class M shares are not subject to a contingent
deferred sales charge or a Rule 12b-1 distribution fee. Class M shares are
subject to a 2% fee on all redemptions (including redemptions in kind) and
exchanges. Class M shares will automatically convert to Class A shares on
September 3, 2000.
Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.
We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.
- ------------------------------------------------------------------------------
Classes and features Points to help you compare
- ------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, o Some investors may be able to
charged when you buy shares reduce or eliminate their sales
charges; see page 84
o In most cases, no charges when you
sell shares o Total annual expenses are lower
than those for Class B or Class C
o No distribution fee
- ------------------------------------------------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate
falls to zero after six years
o Deferred sales charge of up to
4.00%, charged when you sell shares o Shares automatically convert to
you bought within the last six years Class A six years after purchase,
which means lower annual expenses
o 0.75% distribution fee going forward
- ------------------------------------------------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never convert
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you remain higher
bought within the last year
o 0.75% distribution fee
- ------------------------------------------------------------------------------
75 | Choosing A Share Class
<PAGE>
Class A shares
Class A shares have a sales charge that varies with the amount you invest:
All funds except Kemper Global Income Fund
Sales charge Sales charge
as a % of as a % of your
Your investment offering price net investment
- ---------------------------------------------------------
Up to $50,000 5.75% 6.10%
- ---------------------------------------------------------
$50,000-$99,999 4.50 4.71
- ---------------------------------------------------------
$100,000-$249,999 3.50 3.63
- ---------------------------------------------------------
$250,000-$499,999 2.60 2.67
- ---------------------------------------------------------
$500,000-$999,999 2.00 2.04
- ---------------------------------------------------------
$1 million or more See page 85
- ---------------------------------------------------------
Kemper Global Income Fund
Sales charge Sales charge
as a % of as a % of your
Your investment offering price net investment
- ---------------------------------------------------------
Up to $100,000 4.50% 4.71%
- ---------------------------------------------------------
$100,000-$249,999 3.50 3.63
- ---------------------------------------------------------
$250,000-$499,999 2.60 2.67
- ---------------------------------------------------------
$500,000-$999,999 2.00 2.04
- ---------------------------------------------------------
$1 million or more See page 85
- ---------------------------------------------------------
The offering price includes the sales charge.
76 | Choosing A Share Class
<PAGE>
You may be able to lower your Class A sales charges if:
o you plan to invest at least $50,000 ($100,000 for Kemper Global Income
Fund) over the next 24 months ("letter of intent")
o the amount of Kemper shares you already own (including shares in
certain other Kemper funds) plus the amount you're investing now is at
least $50,000 ($100,000 for Kemper Global Income Fund) ("cumulative
discount")
o you are investing a total of $50,000 ($100,000 for Kemper Global Income
Fund) or more in several Kemper funds at once ("combined purchases")
The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.
77 | Choosing A Share Class
<PAGE>
You may be able to buy Class A shares without sales charges when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under which you pay a
fee to an investment advisor or other firm for portfolio management
services
There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper can answer
your questions and help you determine if you are eligible.
If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper can answer your questions and help you determine if
you're eligible.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.
78 | Choosing A Share Class
<PAGE>
Class B shares
With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% is deducted
from fund assets each year. This means the annual expenses for Class B shares
are somewhat higher (and their performance correspondingly lower) compared to
Class A shares, which don't have a 12b-1 fee. After six years, Class B shares
automatically convert to Class A, which has the net effect of lowering the
annual expenses from the seventh year on.
Class B shares have a contingent deferred sales charge (CDSC). This charge
declines over the years you own shares, and disappears completely after six
years of ownership. But for any shares you sell within those six years, you may
be charged as follows:
Year after you bought shares CDSC on shares you sell
- -----------------------------------------------------------
First year 4.00%
- -----------------------------------------------------------
Second or third year 3.00
- -----------------------------------------------------------
Fourth or fifth year 2.00
- -----------------------------------------------------------
Sixth year 1.00
- -----------------------------------------------------------
Seventh year and later None
(automatic conversion to
Class A)
- -----------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class B shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class B shares are designed for long-term investors who prefer to see all of
their investment go to work right away, and can accept somewhat higher annual
expenses.
79 | Choosing A Share Class
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and have a
12b-1 plan under which a distribution fee of 0.75% is deducted from fund assets
each year. Because of this fee, the annual expenses for Class C shares are
similar to those of Class B shares, but higher than those for Class A shares
(and the performance of Class C shares is correspondingly lower than that of
Class A).
Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.
Class C shares have a contingent deferred sales charge (CDSC), but only on
shares you sell within one year of buying them:
Year after you bought shares CDSC on shares you sell
- ----------------------------------------------------------
First year 1.00%
- ----------------------------------------------------------
Second year and later None
- ----------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class C shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class C shares may appeal to investors who plan to sell shares within six years
of buying them, or who aren't certain of their investment time horizon.
80 | Choosing A Share Class
<PAGE>
How to Buy Shares
Once you've chosen a share class, use these instructions to make investments.
Make out any checks to "Kemper Funds."
- ------------------------------------------------------------------------------
First investment Additional investments
- ------------------------------------------------------------------------------
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative using o Contact your representative using
the method that's most convenient for the method that's most convenient
you for you
- ------------------------------------------------------------------------------
By mail or express mail (see below)
o Fill out and sign an application o Send a check and a Kemper
investment slip to us at the
o Send it to us at the appropriate appropriate address below
address, along with an investment
check o If you don't have an investment
slip, simply include a letter with
your name, account number, the full
name of the fund and the share class
and your investment instructions
- ------------------------------------------------------------------------------
By wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
- ------------------------------------------------------------------------------
By phone
- -- o Call (800) 621-1048 for
instructions
- ------------------------------------------------------------------------------
With an automatic investment plan
- -- o To set up regular investments,
call (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
Regular mail: Kemper Funds, PO Box 219415, Kansas City, MO 64121-9415
Express, registered or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: (800) 818-7526 (for exchanging and selling only)
81 | How to Buy Shares
<PAGE>
How to Exchange Or Sell Shares
Use these instructions to exchange or sell shares in your account.
- ------------------------------------------------------------------------------
Exchanging into another fund Selling shares
- ------------------------------------------------------------------------------
$1,000 or more to open a new account Some transactions, including most
for over $50,000, can only be
$100 or more for exchanges between ordered in writing with a signature
existing accounts guarantee; if you're in doubt, see
page 92
- ------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by
method that's most convenient the method that's most convenient
for you for you
- ------------------------------------------------------------------------------
By phone or wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
- ------------------------------------------------------------------------------
By mail, express mail or fax
(see previous page)
Write a letter that includes:
Write a letter that includes:
o the fund, class and account
o the fund, class and account number number from which you want to sell
you're exchanging out of shares
o the dollar amount or number of o the dollar amount or number of
shares you want to exchange shares you want to sell
o the name and class of the fund you o your name(s), signature(s) and
want to exchange into address, as they appear on your
account
o your name(s), signature(s) and
address, as they appear on your account o a daytime telephone number
o a daytime telephone number
- ------------------------------------------------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments
Kemper fund account, call from a Kemper fund account, call
(800) 621-1048 (800) 621-1048
- ------------------------------------------------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------------------------------------------------
82 | How to Exchange or Sell Shares
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder.
If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.
KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper funds generally and on accounts held directly at Kemper. You can also use
it to make exchanges and sell shares.
83 | Policies You Should Know About
<PAGE>
EXPRESS-Transfer lets you set up a link between a Kemper account and a bank
account. Once this link is in place, you can move money between the two with a
phone call. You'll need to make sure your bank has Automated Clearing House
(ACH) services. Transactions take two to three days to be completed, and there
is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the account
application; to add it to an existing account, call (800) 621-1048.
Share certificates are available on written request. However, we don't recommend
them unless you want them for a specific purpose, because they can only be sold
by mailing them in, and if they're ever lost they're difficult and expensive to
replace.
When you call us to sell shares, we may record the call, ask you for certain
information or take other steps designed to prevent fraudulent orders. It's
important to understand that, with respect to certain pre-authorized privileges,
as long as we take reasonable steps to ensure that an order appears genuine, we
are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are normally completed within 24 hours. The funds can only
send or accept wires of $1,000 or more.
Exchanges among Kemper funds are an option for most shareholders. Exchanges are
a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject or limit purchase orders, for
these or other reasons.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
84 | Policies You Should Know About
<PAGE>
When you want to sell more than $50,000 worth of shares, or send the proceeds to
a third party or to a new address, you'll usually need to place your order in
writing and include a signature guarantee. The only exception is if you want
money wired to a bank account that is already on file with us; in that case, you
don't need a signature guarantee. Also, you don't need a signature guarantee for
an exchange, although we may require one in certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
When you sell shares that have a contingent deferred sales charge (CDSC), we
calculate the CDSC as a percentage of what you paid for the shares or what you
are selling them for -- whichever results in the lowest charge to you. In
processing orders to sell shares, we turn to the shares with the lowest CDSC
first. Exchanges from one Kemper fund into another don't affect CDSCs: for each
investment you make, the date you first bought Kemper shares is the date we use
to calculate a CDSC on that particular investment.
There are certain cases in which you may be exempt from a CDSC. These include:
o the death or disability of an account owner (including a joint owner)
o withdrawals made through a systematic withdrawal plan
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship provisions or returns
of excess contributions from retirement plans
o For Class A shares purchased through the Large Order NAV Purchase
Privilege, redemption of shares whose dealer of record at the time of
the investment notifies Kemper Distributors that the dealer is waiving
the applicable commission.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
85 | Policies You Should Know About
<PAGE>
In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper can answer your questions and help you determine if you are eligible.
If you sell shares in a Kemper fund and then decide to invest with Kemper again
within six months, you can take advantage of the "reinstatement feature." With
this feature, you can put your money back into the same class of a Kemper fund
at its current NAV and for purposes of sales charges it will be treated as if it
had never left Kemper. You'll also be reimbursed (in the form of fund shares)
for any CDSC you paid when you sold your shares. Future CDSC calculations will
be based on your original investment date, rather than your reinstatement date.
There is also an option that lets investors who sold Class B shares buy Class A
shares with no sales charge, although they won't be reimbursed for any CDSC they
paid. You can only use the reinstatement feature once for any given group of
shares. To take advantage of this feature, contact Kemper or your financial
representative.
Money from shares you sell is normally sent out within one business day of when
your order is processed, although it could be delayed for up to seven days.
There are also two circumstances when it could be longer: when you are selling
shares you bought recently by check and that check hasn't cleared yet (maximum
delay: 10 days) or when unusual circumstances prompt the SEC to allow further
delays. Certain expedited redemption processes may also be delayed when you are
selling recently purchased shares.
86 | Policies You Should Know About
<PAGE>
Redemption Fee (Class M shares)
Upon the redemption or exchange of Class M shares of the fund (including
redemptions in kind) until September 3, 2000, a fee of 2% of the current net
asset value of the shares will be assessed and retained by the fund for the
benefit of the remaining shareholders. This fee is intended to discourage short
term trading in a vehicle intended for long term investment, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge and is not a
commission paid to the investment manager or its subsidiaries. The fund reserves
the right to modify the terms of or terminate this fee at any time.
The fee applies to all redemptions from the fund and exchanges to other Kemper
Funds by Class M shareholders. The fee is applied to the shares being redeemed
or exchanged in the order in which they were purchased.
87 | Policies You Should Know About
<PAGE>
How the funds calculate share price
For each fund in this prospectus, the price at which you buy shares is as
follows:
Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing A Share Class")
Class B, Class C and Class M shares -- net asset value per share, or NAV
To calculate NAV, each share class of each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
-------------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For each fund and share class in this prospectus, the price at which you sell
shares is also the NAV, although for Class B and Class C investors a contingent
deferred sales charge may be taken out of the proceeds (see "Choosing A Share
Class").
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.
Because each fund invests in securities that are traded primarily in foreign
markets, the value of its holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the fund doesn't price its shares.
88 | Policies You Should Know About
<PAGE>
Other rights we reserve
For each fund in this prospectus, you should be aware that we may do any of the
following:
o withhold 31% of your distributions as federal income tax if we have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$1,000 for the entire quarter; this policy doesn't apply to most
retirement accounts or if you have an automatic investment plan
o pay you for shares you sell by "redeeming in kind," that is, by giving
you marketable securities (which typically will involve brokerage costs
for you to liquidate) rather than cash; with respect to Kemper Asian
Growth Fund, Global Discovery Fund, Kemper Global Income Fund and
Kemper New Europe Fund, the funds generally won't make a redemption in
kind unless your requests over a 90-day period total more than $250,000
or 1%, whichever is less, of a portfolio's net assets; the other funds
may make similar arrangements
89 | Policies You Should Know About
<PAGE>
o prior to September 3, 2000, all redemptions of Kemper New Europe Fund
Class M shares that total more than $500,000 over a 90-day period will
be paid in kind; in addition to paying the usual 2% redemption fee,
shareholders that are subject to redemption in kind may bear additional
expenses greater than 1% of the value of the shares redeemed, and must
submit their redemption request in writing using a form available from
Kemper Service Company
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
90 | Policies You Should Know About
<PAGE>
Understanding Distributions And Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The funds intend to pay dividends and distributions to their shareholders in
November or December, and if necessary may do so at other times as well.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you by check or have them
invested in a different fund. Tell us your preference on your application. If
you don't indicate a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans, reinvestment is the only
option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Because each shareholder's tax situation is unique, ask your tax professional
about the tax consequences of your investments, including any state and local
tax consequences.
91 | Understanding Distributions And Taxes
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- -------------------------------------------------------
o short-term capital gains from selling fund shares
- -------------------------------------------------------
o income dividends you receive from a fund
- -------------------------------------------------------
o short-term capital gains distributions received from a
fund
- -------------------------------------------------------
Generally taxed at capital gains rates
- -------------------------------------------------------
o long-term capital gains from selling fund shares
- -------------------------------------------------------
o long-term capital gains distributions received from a
fund
- -------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.
Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends- received deduction for a portion
of income dividends they receive.
92 | Understanding Distributions And Taxes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we mail one copy per
household. For more copies, call (800) 621-1048.
Statements of Additional Information (SAIs) -- These tell you more about each
fund's features and policies, including additional risk information. The SAIs
are incorporated by reference into this document (meaning that they are legally
part of this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Kemper or the SEC (see below). Materials you
get from Kemper are free; those from the SEC involve a copying fee. If you like,
you can look over these materials in person at the SEC's Public Reference Room
in Washington, DC or request them electronically at [email protected].
SEC
450 Fifth Street, N.W.
Washington, DC 20549-0102
www.sec.gov
Tel (202) 942-8090
Kemper Funds
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
Tel (800) 621-1048
SEC File Numbers
Kemper Asian Growth Fund 811-7731
Kemper Emerging Markets Growth Fund 811-08395
Kemper Global Blue Chip Fund 811-08395
Global Discovery Fund 811-4670
Kemper Global Income Fund 811-5829
Kemper International Fund 811-3136
Kemper Latin America Fund 811-08395
Kemper New Europe Fund 811-5969
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com E-mail
[email protected] Tel (800) 621-1048
[LOGO] KEMPER FUNDS
Long-term investing in short-term world(SM)
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STATEMENT OF ADDITIONAL INFORMATION
March 1, 2000
KEMPER NEW EUROPE FUND, INC.
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 New Europe Fund, Inc. (the
"Fund") dated March 1, 2000. 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's Annual Report dated October
31, 1999, which either accompanies this Statement of Additional Information or
has been previously provided to the investor to whom this Statement of
Additional Information is being sent, is incorporated by reference. The Fund
will furnish without charge a copy of the Annual Report upon request by calling
1-800-621-1048.
The Fund was a closed-end fund whose shares were listed on the New York
Stock Exchange, Inc. The shareholders of the Fund approved a proposal to
open-end the Fund. The conversion of the Fund to an open-end investment company
occurred on September 3, 1999. This Statement of Additional Information pertains
to the Fund as an open-end investment company.
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TABLE OF CONTENTS
Page
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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................................ 36
SPECIAL FEATURES.................................................. 41
OFFICERS AND DIRECTORS............................................ 45
ORGANIZATION OF THE FUND.......................................... 47
FINANCIAL STATEMENTS.............................................. 49
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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, as a fundamental policy:
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.
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.
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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 net 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 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
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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, as a
temporary defensive measure, the Fund may invest without limit in foreign or
U.S. debt instruments as well as cash or cash equivalents, including foreign and
domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements. In such a case, the Fund would not be
pursuing, and may not achieve, its investment objective. The Fund may also
invest up to 20% in these investments to maintain liquidity.
Foreign securities such as those purchased by the Fund may be subject to
foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund.
From time to time, the Fund may be a purchaser of restricted debt or equity
securities (i.e., securities which may require registration under the Securities
Act of 1933, as amended (the "1933 Act"), or an exemption therefrom, in order to
be sold in the ordinary course of business) in a private placement. The Fund has
undertaken not to purchase or acquire any such securities if, solely as a result
of such purchase or acquisition, more than 15% of the value of the Fund's net
assets would be invested in illiquid securities.
To a lesser extent, the Fund may also invest in "Specialized Investments"
which consist of equity securities of: (i) privately-held European companies;
(ii) European companies that have recently made initial public offerings of
their shares; (iii) government-owned or -controlled companies that are being
privatized; (iv) smaller publicly-held European companies, i.e., any European
company having a market capitalization of less than $500 million (the Board of
Directors of the Fund may, in the future, reevaluate and increase or decrease
the maximum market capitalization for qualification as a smaller European
company); (v) companies and joint ventures based in Europe; (vi) private
placements and joint venture participations in European companies that may not
be readily marketable; (vii) pooled investment funds that invest principally in
securities in which the Fund may invest, which are considered investment
companies for purposes of the 1940 Act restrictions described below; and (viii)
European companies with private market values perceived by the Adviser to be
substantially in excess of their publicly-traded values.
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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 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
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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 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.
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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. 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.
Subject to the above 20% limit, the Fund may 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
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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 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 limited product lines, markets or financial resources and may
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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 for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in the Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of the Fund, and
the Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
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price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
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If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. All calls sold by the Fund
must be "covered" (i.e., the Fund must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. Even though the Fund will receive the
option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's total assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to
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the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of the Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
The Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
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.
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Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be
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segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate cash or liquid assets equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate cash or liquid assets equal to the
exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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 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
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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 is kept at least equal to the
repurchase price on a daily basis. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price upon repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Obligation itself.
Obligations will be held by the Custodian or in the Federal Reserve Book Entry
System.
It is not clear whether a court would consider the Obligation purchased by
the Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt 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.
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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.
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.
Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC which permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Adviser. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.
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.
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
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For example, the Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs). Index-based
investments may not replicate exactly the performance of their specified index
because of transaction costs and because of the temporary unavailability of
certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
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 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.
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
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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
and 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) may
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 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").
If for any taxable year a Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of a Fund's
earnings and profits, and would be eligible for the dividends-received deduction
in the case of corporate shareholders.
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,
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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.
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 reported 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 reported gains and the tax credit.
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
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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. 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. 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 or loss.
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
21
<PAGE>
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 the Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
If a Fund holds zero coupon securities or other securities which are issued
at a discount a portion of the difference between the issue price and the face
value of such securities ("original issue discount") will be treated as income
to a Fund each year, even though a Fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the investment company taxable income of a Fund which must be
distributed to shareholders in order to maintain the qualification of a Fund as
a regulated investment company and to avoid federal income tax at a Fund level.
In addition, if a Fund invest in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such an event, properly designated dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of the accrued original
issue discount, may be eligible for the deduction received by corporations.
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 or a shareholder 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.
22
<PAGE>
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 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 includes 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 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
23
<PAGE>
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 the Morgan Stanley Capital
International (MSCI) Europe 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") and other independent organizations. 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 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").
24
<PAGE>
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, on September 3, 1999 (the "Reorganization"). The
Fund's former closed-end share class was renamed Class M shares upon the
Reorganization. Returns for Class M shares reflect the Fund's performance as a
closed-end fund. Returns for Class A, B and C shares are derived from the
historical performance of Class M Shares. The performance figures are adjusted
to reflect the maximum sales charge of 5.75% for Class A shares and the current
contingent deferred sales charges of 4.00% for Class B shares and 1.00% for
Class C shares. Returns for Class B and C shares have also been adjusted to
reflect the estimated operating expenses applicable to each share class, which
are generally higher than that of Class M shares. Class A, B and C shares are
newly offered and therefore have no available performance information.
Comparative information with respect to the MSCI Europe Index is also included.
There are differences and similarities between the investments which the Fund
may purchase and the investments measured by the MSCI Europe Index. 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.
<TABLE>
<CAPTION>
Average Annual Total Returns
MSCI
Europe
For periods ended December 31, 1999 Class A Class B Class C Class M(1) Index(2)
----------------------------------- ------- ------- ------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
One Year............................ 42.73% 45.60% 49.62% 27.95% 16.23%
Five Years.......................... 29.78% 29.82% 30.39% 23.14% 22.54%
Since Inception(3).................. 15.21% 14.14% 14.41% 12.97% 15.05%(4)
</TABLE>
- ----------
(1) The one year average annual total return reflects the imposition of a 2%
redemption fee.
(2) The Morgan Stanley Capital International Europe Index is an unmanaged index
that is generally representative of the equity securities of the European
markets. Index returns assume reinvestment of dividends and unlike the
Fund's returns, do not reflect any fees, expenses or sales charges.
(3) Inception date for Class M Shares is February 16, 1990.
(4) Index comparison begins 02/23/90.
25
<PAGE>
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 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. 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.
26
<PAGE>
The Fund had a management agreement with Scudder Kemper which was in effect
prior to September 3, 1999 whereby the Fund agreed to pay a monthly investment
management fee of 1/12 of the annual rate of 1.25% of the first $75 million of
average weekly net assets declining to 1.10% of average weekly net assets in
excess of $200 million.
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.
Effective September 3, 1999, the Fund pays Scudder Kemper an investment
management fee, payable monthly, at the annual rates shown below:
Annual Management
Average Daily Net Assets of the Fund Fee Rates
------------------------------------ ---------
$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
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.
Fiscal 1999* Fiscal 1998 Fiscal 1997
------------ ----------- -----------
$3,815,000 $4,151,077 $3,490,192
*The management fee reflects fees incurred pursuant to the management agreement
in effect prior to September 3, 1999 and the new management agreement effective
September 3, 1999.
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. For the year ended October 31, 1999, the amount charged to the fund by
SFAC aggregated $213,000, of which $56,000 is unpaid at October 31, 1999.
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 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
27
<PAGE>
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. The
following information concerns the underwriting commissions paid in connection
with the distribution of the Fund's Class A share for the fiscal period .
<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>
New Europe 1999* $14,000 $76,000 __
</TABLE>
*For the period September 3, 1999 through October 31, 1999.
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.
<TABLE>
<CAPTION>
Other Distribution Expenses Paid By Underwriter
----------------------------------------------------
Commissions
Contingent Total Paid By
Distribution Deferred Commissions Underwriter
Fees Paid Sales Paid By To Advertising Marketing Misc. Interest
Fund Class Fiscal By Fund To Charges To Underwriter Affiliated and Prospectus and Sales Operating Fund
B Shares Period* Underwriter Underwriter To Firms Firms Literature Printing Expenses Expenses Expenses
- -------- ------- ----------- ----------- -------- ----- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KNEF 1999 $264 $120,415 $225,018 $0 $25,099 $2,256 $66,787 $28,458 $213,655
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid By Underwriter
----------------------------------------------------
Commissions
Contingent Total Paid By
Distribution Deferred Commissions Underwriter
Fees Paid Sales Paid By To Advertising Marketing Misc. Interest
Fund Class Fiscal By Fund To Charges To Underwriter Affiliated and Prospectus and Sales Operating Fund
C Shares Period* Underwriter Underwriter To Firms Firms Literature Printing Expenses Expenses Expenses
- -------- ------- ----------- ----------- -------- ----- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KNEF 1999 $30,496 $4,952 $37,286 $0 $10,496 $1,056 $30,165 $16,957 $7488
</TABLE>
*For the 12 months ending 11/30/99.
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.
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 affiliates of
KDI. In addition, KDI may, from time to time, from its own resources, pay
certain additional amounts for ongoing administrative services and assistance
provided to their customers and clients who are shareholders of the Fund.
Prior to September 3, 1999,the Fund had not paid any administrative services
fees.
<TABLE>
<CAPTION>
Administrative Service
Fees Paid
By Fund Service Fees Service Fees
---------------------------------- Paid By Administrator Paid By Administrator
Fund Fiscal Period* Class A Class B Class C To Firms To Affiliated Firms
---- -------------- ------- ------- ------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Kemper New Europe 1999 $149,817 $67,185 $11,529 $307,662 $0
</TABLE>
*For the 12 months ending 11/30/99
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is payable at an annual rate of 0.25%
based upon Fund assets in accounts for which a firm provides administrative
services, at an annual rate of 0.15% based upon Fund assets in accounts for
which there is no firm of record (other than KDI) listed on the Fund's records.
The effective administrative services fee rate to be charged against all assets
of the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which there is a firm of record. The Board
of Directors of the Fund, in its discretion, may approve basing the fee to KDI
at the annual rate of 0.25% on all Fund assets in the future. In addition, KDI
may,
29
<PAGE>
from time to time, from its own resources, pay certain firms additional amounts
for ongoing administrative services and assistance provided to their customers
and clients who are shareholders of the Fund.
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. For the period September 3, 1999 through October 31, 1999,
KSvC received shareholder services fees of $78,000. Additionally, $93,000 is
unpaid. Prior to September 3, 1999, the fund had a shareholder services
agreement with Scudder Service Corporation ("SSC"), a subsidiary of Scudder
Kemper. Shareholder services fees paid by the fund to SSC for the period
November 1, 1998 through September 3, 1999 were $12,500.
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 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 Commissions
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 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 Scudder Investor Services, Inc. ("SIS")with commissions charged on
comparable transactions, as well as by comparing commissions paid by the Fund to
reported commissions paid by others. The Adviser routinely reviews commission
rates, execution and settlement services performed and makes internal and
external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or the
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of research services. The Adviser has negotiated arrangements,
which are
30
<PAGE>
not applicable to most fixed-income transactions, with certain broker/dealers
pursuant to which a broker/dealer will provide research services, to the Adviser
or the Fund in exchange for the direction by the Adviser of brokerage
transactions to the broker/dealer. These arrangements regarding receipt of
research services generally apply to equity security transactions. The Adviser
may place orders with a broker/dealer on the basis that the broker/dealer has or
has not sold shares of the Fund. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through SIS which is a corporation registered
as a broker/dealer and a subsidiary of the Adviser; SIS will place orders on
behalf of the Fund with issuers, underwriters or other brokers and dealers. SIS
will not receive any commission, fee or other remuneration from the Fund for
this service.
Although certain research services from broker/dealers may be useful to
the Fund and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Fund, and not all such information is used by the Adviser
in connection with the Fund. Conversely, such information provided to the
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to
the Fund.
The Directors review, from time to time, whether the recapture for the benefit
of the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable.
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.
Commission for the periods prior to September 3, 1999, reflect the Fund's
operation as a closed-end fund.
Percentage
Allocated to
Firms Based
on Research in
Fiscal 1999 Fiscal 1999 Fiscal 1998 Fiscal 1997
----------- ----------- ----------- -----------
$1,121,289 84.87% $789,718 $662,786
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.
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
Alternative Purchase Arrangements. Class M shares are no longer available
for sale. 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 (September 3, 2000). 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). When placing purchase orders, investors must specify whether the order
is for Class A, Class B or Class C shares.
31
<PAGE>
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(As A % of Average
Sales Charge Daily Net Assets) Other Information
--------------------------- --------------------- ---------------------------
<S> <C> <C> <C> <C>
Class A Maximum initial sales charge None Initial sales charge waived
of 5.75% of the public offering or
price reduced for certain
purchases
Class B Maximum contingent deferred
sales charge of 4% of redemption 0.75% Shares convert to Class A
proceeds; declines to zero shares
after six years six years after issuance
Class C Contingent deferred sales
charge of 1% of redemption proceeds
for redemptions made during first
year after purchase 0.75% No conversion feature
</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.
<TABLE>
<CAPTION>
Sales Charge
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> <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 2.00 2.04 1.75
million.......................
$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 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
32
<PAGE>
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 (the "Large Order NAV Purchase Privilege") including
purchases of Class A shares pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features";
or (b) a participant-directed qualified retirement plan described in Code
Section 401(a) or a participant-directed non-qualified deferred compensation
plan described in Code Section 457 or a participant-directed qualified
retirement plan described in Code Section 403(b)(7) which is not sponsored by a
K-12 school district provided in each case that such plan has not less than 200
eligible employees. 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 including Class R Shares of certain Scudder
Funds. The privilege of purchasing Class A shares of the Fund at net asset value
under the Large Order NAV Purchase Privilege is not available if another net
asset value purchase privilege also applies.
Class A shares of the Fund or 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 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
33
<PAGE>
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."
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."
34
<PAGE>
Which Arrangement Is Better For You? The decision as to which class of
shares provides a more suitable investment for an investor depends on a number
of factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales charge
and who plan to hold their investment for more than six years might consider
Class B shares. Investors who prefer not to pay an initial sales charge but who
plan to redeem their shares within six years might consider Class C shares.
Orders for Class B shares or Class C shares for $500,000 or more will be
declined. Orders for Class B shares or Class C shares by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the 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 KDI. Financial services firms may receive different
compensation depending upon which class of shares they sell.
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers as
described above. Banks or other financial services firms may be subject to
various federal and state laws regarding the services described above and may be
required to register as dealers pursuant to state law. If banking firms were
prohibited from acting in any capacity or providing any of the described
services, management would consider what action, if any, would be appropriate.
KDI does not believe that termination of a relationship with a bank would result
in any material adverse consequences to 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 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 required by the Fund (i.e., not described below)
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.
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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.
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 until September 3, 2000. This fee is intended to discourage short
term trading in a vehicle intended for long term investment. The fee is not a
deferred
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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. The fee is applied to the shares being redeemed
or exchanged in the order in which they were purchased.
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 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
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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.
Contingent Deferred
Year of Redemption After Purchase Sales Charge
------------------------------------ ----------------
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
- -- Systematic Withdrawal Plan" below), (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 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
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Features -- Systematic Withdrawal Plan"), (d) for redemptions made pursuant to
any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts), (f) for any participant-directed
redemption of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent (g) redemption of shares by an employer sponsored
employee benefit plan that offers funds in addition to Kemper Funds and whose
dealer of record has waived the advance of the first year administrative service
and distribution fees applicable to such shares and agrees to receive such fees
quarterly, and (f) redemption of shares purchased through a dealer-sponsored
asset allocation program maintained on an omnibus record-keeping system provided
the dealer of record had waived the advance of the first year administrative
services and distribution fees applicable to such shares and has agreed to
receive such fees quarterly.
Contingent Deferred Sales Charge -- General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 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 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 redemptions by making payment in whole or in
part in readily marketable securities to the extent those redemptions exceed
$500,000 during any 90-day period within the one year period following the
Fund's conversion to open-end status. 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
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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.
SPECIAL FEATURES
Class A Shares -- Combined Purchases. Class A Shares -- Combined Purchases.
Each Fund's Class A shares (or the equivalent) may be purchased at the rate
applicable to the discount bracket attained by combining concurrent investments
in Class A shares of any of the following funds: Kemper Aggressive Growth Fund,
Kemper Asian Growth Fund, Kemper Blue Chip Fund, Kemper California Tax-Free
Income Fund, Kemper Cash Reserves Fund, Kemper Contrarian Fund, Kemper Emerging
Markets Growth Fund, Kemper Emerging Markets Income Fund, Kemper Europe Fund,
Kemper Florida Tax-Free Income Fund, Kemper Global Blue Chip Fund, Kemper Global
Income Fund, Kemper Growth Fund, Kemper High Yield Fund, Kemper High Yield Fund
II, Kemper High Yield Opportunity, Kemper Horizon 10+ Portfolio, Kemper Horizon
20+ Portfolio, Kemper Horizon 5 Portfolio, Kemper Income And Capital
Preservation Fund, Kemper Intermediate Municipal Bond, Kemper International
Fund, Kemper International Growth and Income Fund, Kemper Large Company Growth
Fund (currently available only to employees of Scudder Kemper Investments, Inc.;
not available in all states), Kemper Latin America Fund, Kemper Municipal Bond
Fund, Kemper New York Tax-Free Income Fund, Kemper Ohio Tax-Free Income Fund,
Kemper Research Fund (currently available only to employees of Scudder Kemper
Investments, Inc.; not available in all states), Kemper Target 2010 Fund, Kemper
Retirement Fund -- Series II, Kemper Retirement Fund -- Series III, Kemper
Retirement Fund -- Series IV, Kemper Retirement Fund -- Series V, Kemper
Retirement Fund -- Series VI, Kemper Retirement Fund -- Series VII, Kemper
Short-Term U.S. Government Fund, Kemper Small Cap Value Fund, Kemper Small Cap
Value+Growth Fund (currently available only to employees of Scudder Kemper
Investments, Inc.; not available in all states), Kemper Small Capitalization
Equity Fund, Kemper Small Cap Relative Value Fund, Kemper Strategic Income Fund,
Kemper Technology Fund, Kemper Total Return Fund, Kemper U.S. Government
Securities Fund, Kemper U.S. Growth and Income Fund, Kemper U.S. Mortgage Fund,
Kemper Value+Growth Fund, Kemper Worldwide 2004 Fund, Kemper-Dreman High Return
Equity Fund, Kemper-Dreman Financial Services Fund ("Kemper Mutual Funds").
Except as noted below, there is no combined purchase credit for direct purchases
of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California
Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund or
Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Mutual Funds" for purposes hereof. For purposes of the Combined Purchases
feature described above as well as for the Letter of Intent and Cumulative
Discount features described below, employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent or its affiliates may include: (a) Money Market Funds
as "Kemper Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund,
and (c) the value of any other plan investments, such as guaranteed investment
contracts and employer stock, maintained on such subaccount record keeping
system.
Class A Shares -- Letter Of Intent. The same reduced sales charges for Class
A shares, as shown in 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
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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. 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 a 2% redemption 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"). In addition,
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
41
<PAGE>
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 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
42
<PAGE>
invested in the Fund account each payment period. A shareholder may terminate
participation in these programs by giving written notice to the shareholder's
employer or government agency, as appropriate. (A reasonable time to act is
required.) The Fund is not responsible for the efficiency of the employer or
government agency making the payment or any financial institutions transmitting
payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the
Fund's shares at the offering price (net asset value plus, in the case of Class
A shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to 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:
o 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.
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 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 (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.
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<PAGE>
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the 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.
James R. Edgar (07/22/46) Director, 1927 County Road, 150E, Seymour,
Illinois; Distinguished Fellow, Institute of Government and Public Affairs,
University of Illinois; Director, Kemper Insurance Companies; formerly, Governor
of the State of Illinois, 1991-1999.
Arthur R. Gottschalk (2/13/25), Director, 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; formerly, Illinois State Senator;
formerly, Vice President, The Reuben H. Donnelley Corp.; formerly, attorney.
Frederick T. Kelsey (4/25/27), Director, 738 York Court, Northbrook,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Northern Institutional Funds; formerly,
Trustee of the Pilot Funds.
*Thomas W. Littauer (4/26/55), Director and Vice President, Two
International Place, Boston, Massachusetts; Managing Director, Scudder Kemper;
formerly, Head of Broker Dealer Division of an unaffiliated investment
management firm during 1997; prior thereto, President of Client Management
Services of an unaffiliated investment management firm from 1991 to 1996.
Fred B. Renwick (2/1/30), Director, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Warburg Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly, member of the Investment Committee
of Atlanta University Board of Trustees; formerly, Director of Board of Pensions
Evangelical Lutheran Church in America.
John G. Weithers (8/8/33), Director, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University.
Officers
*Mark S. Casady (9/21/60), President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
*Philip J. Collora (11/15/45), Vice President and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper.
*Carol L. Franklin (12/3/52), Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper
44
<PAGE>
*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.
*William F. Truscott (9/14/60)* Vice President, 345 Park Avenue, New York,
New York; Managing Director, Scudder Kemper Investments, Inc.
*Caroline Pearson (4/1/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper.
*Maureen E. Kane (2/14/62), Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
- ----------
* Interested persons of the Fund as defined in the 1940 Act.
The directors and officers who are "interested persons" as designated above
receive no compensation from the Fund. The tables below shows amounts estimated
to be paid or accrued to those directors who are not designated "interested
persons" during the Fund's first full fiscal year following its reorganization
to open-end status except that the information in the last column is for
calendar year 1999.
<TABLE>
<CAPTION>
Total Compensation From
Aggregate Kemper Fund Complex Paid
Compensation To Board
Name of Director From Fund Members(2)
---------------- --------- ----------
<S> <C> <C> <C>
James E. Akins....... $2,500 $168,700
James R. Edgar $1,200 $84,600
Arthur R. Gottschalk(1) $2,300 $166,600
Frederick T. Kelsey.. $2,700 $168,700
Fred B. Renwick...... $2,400 $168,700
John G. Weithers..... $2,500 $171,200
</TABLE>
- ----------
(1) Includes deferred fees, Pursuant to deferred compensation agreements with
the Kemper Fund,. deferred amounts accrue interest monthly at a rate
approximate to the yield of Zurich Money Funds -- Zurich Money Market Fund.
Total deferred fees (including interest thereon) payable from the Fund to
Mr. Gottschalk during the Fund's most recent fiscal year was $5,400.
(2) Includes compensation for service on the Boards of 17 Kemper Funds with 51
fund portfolios. Each Director currently serves as a board member of 17
Kemper funds with 51 fund portfolios.
As of January 1, 2000, the directors and officers as a group owned less than 1%
of the then outstanding shares of the Fund and no person owned of record more
than 5% of the outstanding shares of any class of the Fund, except as shown
below:
45
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------- -----------------------------------
NAME CLASS PERCENTAGE
- ------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
National Financial Services Corp. A 9.05
FBO Thiaga-Rajan
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------------------- -----------------------------------
Bear Stearns & Company A 6.57
245 Park Avenue
New York, NY 10167
- ------------------------------------- ----------------------------------- -----------------------------------
National Financial Services Corp. B 12.62
FBO Mayra Tabbaa
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------------------- -----------------------------------
Donaldson, Lufkin & Jenrette B 10.91
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303
- ------------------------------------- ----------------------------------- -----------------------------------
Bear Stearns & Company C 22.89
245 Park Avenue
New York, NY 10167
- ------------------------------------- ----------------------------------- -----------------------------------
Piper Jaffray C 6.51
FBO Meryle Blumenthal, IRA
P.O. Box 28
Minneapolis, MN 55440
- ------------------------------------- ----------------------------------- -----------------------------------
Salomon Smith & Barney M 9.87
333 W. 34th Street
New York, NY 10001
- ------------------------------------- ----------------------------------- -----------------------------------
Merrill, Lynch, Pierce, Fenner & M 5.67
Smith
For the sole benefit of customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
- ------------------------------------- ----------------------------------- -----------------------------------
National Financial Services Corp. M 5.56
FBO
200 Liberty Street
New York, NY 10281
- ------------------------------------- ----------------------------------- -----------------------------------
Charles Schwab M 8.78
51 Mercedes Way
Edgewood, NY 11717
- ------------------------------------- ----------------------------------- -----------------------------------
</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. As a result of the conversion and
the reorganization with Kemper Europe Fund, the Fund changed its name to "Kemper
New Europe Fund, Inc." and issued newly designated Class A, Class B and Class C
shares to the shareholders of Kemper Europe Fund and Class M shares to its
existing shareholders. Class M shares will automatically convert to Class A
shares on September 3, 2000.
46
<PAGE>
Currently, the Fund offers three classes of shares. These are Class A, Class
B and Class C shares, which have different expenses, which may affect
performance. Class M shares of the Fund are no longer offered. 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 the 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 on September 3, 2000.
The Fund has provisions in its Charter that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund, to cause it to engage in certain transactions or to modify its structure.
These provisions were included in the Fund's original Charter as a closed-end
fund and require a 75% vote of the shareholders in order to be amended.
The Board of Directors is divided into three classes, each class having a
term of three years. The Fund holds annual shareholders meetings to elect
directors whose terms expire that year. This provision could delay for up to two
years the replacement of a majority of the Board of Directors. A director may be
removed from office only for cause and only by a vote of the holders of at least
75% of the shares of the Fund entitled to be voted on the matter.
In addition, the affirmative vote of 75% of the directors and the holders of
75% of the shares of the Fund are required to authorize any of the following
transactions:
(i) merger, consolidation or share exchange of the Fund with or into any
other person;
(ii) issuance or transfer by the Fund (in one or a series of transactions in
any 12 month period) of any securities of the Fund to any person or entity for
cash, securities or other property (or combination thereof) having an aggregate
fair market value of $1,000,000 or more excluding (x) sales of securities of the
Fund in connection with a public offering, (y) issuances of securities of the
Fund issued pursuant to a dividend reinvestment plan adopted by the Fund and (z)
issuances of securities of the Fund upon the exercise of any stock subscription
rights distributed by the Fund;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other disposition
by the Fund (in one or a series of transactions in any 12 month period) to or
with any person or entity of any assets of the Fund having an aggregate fair
market value of $1,000,000 or more except for portfolio transactions effected by
the Fund in the ordinary course of its business (transactions within clauses
(i), (ii) and (iii) above being known individually as a "Business Combination");
(iv) any proposal as to the voluntary liquidation or dissolution of the
Fund; and
(v) any shareholder proposal as to specific investment decisions made or to
be made with respect to the Fund's assets.
However, a 75% shareholder vote will not be required with respect to the
foregoing transactions (other than those set forth in (v) above) if they are
approved by a vote of 75% of the "Continuing Directors" (as defined below), in
which case a vote of the holders of a majority of the outstanding shares of the
Fund will be required, or, in the case of (i), (ii) or (iii) above, if certain
conditions regarding the consideration paid by such corporation, person or
entity are satisfied and, in those cases, the lesser state law voting
requirements, if any, will apply. A "Continuing Director" is any member of the
Board of Directors of the Fund who (i) is not a person or affiliate of a person
(other than an investment company advised by the Fund's initial investment
manager or any of its affiliates) who enters or proposes to enter into a
Business Combination with the Fund (an "Interested Party") and (ii) who has been
a member of the Board of Directors of the Fund for a period of at least 12
months, or is a successor of a Continuing Director who is unaffiliated with an
Interested Party and is recommended to succeed a Continuing Director by a
majority of the Continuing Directors then on the Board of Directors of the Fund.
The Fund's By-Laws contain provisions the effect of which is to prevent matters,
including nominations of directors, from being considered at shareholder
meetings where the Fund has not received sufficient prior notice of the matters.
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.
47
<PAGE>
FINANCIAL STATEMENTS
The Fund's audited Annual Report dated October 31, 1999, which either
accompanies this Statement of Additional Information or has been previously
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference with respect to all information
regarding the Fund included therein. The Fund will furnish without charge a copy
of the Annual Report upon request by calling 1-800-621-1048.
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
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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 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.
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Kemper New Europe Fund
Supplement to Statement of Additional Information
Dated March 1, 2000
The following text supplements the section entitled "Purchase of Shares" in the
currently effective Statement of Additional Information:
Through January 1, 2000 to April 30, 2000 ("Special Offering Period"), KDI, the
principal underwriter, intends to reallow to certain firms the full applicable
sales charge with respect to Class A shares purchased for self-directed
Individual Retirement Accounts ("IRA accounts") during the Special Offering
Period (not including Class A shares acquired at net asset value). IRA accounts
include Traditional, Roth and Education IRAs, Savings Incentive Match Plan for
Employees of Small Employers ("SIMPLE") IRA accounts and Simplified Employee
Pension Plan ("SEP") IRA accounts. Firms entitled to the full reallowance during
the Special Offering Period are those firms which allow KDI to participate in a
special promotion of self-directed IRA accounts, with other fund complexes,
sponsored by the firms during the Special Offering Period.
