Filed with the Securities and Exchange Commission on December 1, 2000.
File No. 2-13628
File No. 811-43
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
------------
Post-Effective Amendment No. 123
---------
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 74
--
INVESTMENT TRUST
------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (6l7) 295-2572
--------------
John Millette
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/___/ Immediately upon filing pursuant to paragraph (b)
/___/ 60 days after filing pursuant to paragraph (a) (1)
/___/ 75 days after filing pursuant to paragraph (a) (2)
/___/ On _____________ pursuant to paragraph (b)
/_X_/ On February 1, 2001 pursuant to paragraph (a) (1)
/___/ On ______________ pursuant to paragraph (a) (3) of Rule 485.
If Appropriate, check the following box:
/___/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
February 1, 2001
Prospectus
KEMPER EQUITY FUNDS/GROWTH STYLE
Kemper Aggressive Growth Fund
Kemper Blue Chip Fund
Classic Growth Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Technology Fund
Kemper Total Return Fund
Kemper Value+Growth 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 Aggressive 32 Kemper Technology 60 Choosing A Share
Growth Fund Fund Class
8 Kemper Blue Chip 38 Kemper Total Return 65 How To Buy Shares
Fund Fund
66 How To Exchange Or
14 Kemper Classic 44 Kemper Value+Growth Sell Shares
Growth Fund Fund
67 Policies You Should
20 Kemper Growth Fund 50 Other Policies And Know About
Risks
73 Understanding
26 Kemper Small 51 Financial Highlights Distributions And
Capitalization Equity Taxes
Fund
<PAGE>
How The Funds Work
These funds invest mainly in common stocks, as a way of seeking growth of your
investment.
The funds invest mainly in growth companies: those that seem poised for
above-average growth of earnings. Each fund pursues its own goal.
Remember that mutual funds are investments, not bank deposits. They're not
guaranteed or insured by the FDIC or any other government agency, and you could
lose money by investing in them.
<PAGE>
TICKER SYMBOLS CLASS: A) KGGAX B) KGGBX C) KGGCX
Kemper
Aggressive Growth Fund
FUND GOAL The fund seeks capital appreciation through the use
of aggressive investment techniques.
2
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in
equities -- mainly common stocks -- of U.S. companies.
Although the fund can invest in stocks of any size and
market sector, it may invest in initial public offerings
(IPOs) and in growth-oriented market sectors, such as the
technology sector. In fact, the fund's stock selection
methods may at times cause it to invest more than 25% of
total assets in a single sector. A sector is made up of
numerous industries.
In choosing stocks, the portfolio managers look for
individual companies in growing industries that have
innovative products and services, competitive positions,
repeat customers, effective management, control over costs
and prices and strong balance sheets and earnings growth.
To a limited extent, the managers may seek to take
advantage of short-term trading opportunities that result
from market volatility. For example, the managers may
increase positions in favored companies when prices fall
and may sell fully valued companies when prices rise.
The fund normally will sell a stock when the managers
believe its price is unlikely to go much higher, its
fundamental qualities have deteriorated, other investments
offer better opportunities or to adjust its emphasis in a
given industry.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. common stocks, it could invest up to 25%
of total assets in foreign securities. Also, while the fund is 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 all.
3
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform. When stock prices
fall, you should expect the value of your investment to
fall as well. The fact that the fund may focus on one or
more sectors increases this risk, because factors affecting
those sectors could affect fund performance.
Similarly, because the fund isn't diversified and can
invest a larger percentage of assets in a given stock than
a diversified fund, factors affecting that stock could
affect fund performance. 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. Stocks of small companies (including most
that issue IPOs) can be highly volatile because their
prices often depend on future expectations.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of
companies, sectors, economic trends or other matters
o growth stocks may be out of favor for certain periods
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o derivatives could produce disproportionate losses
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 be appropriate for long-term investors who can accept an
above-average level of risk to their investment in exchange for potentially
higher performance.
4
<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 two broad-based market indices (which, unlike the
fund, have 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 33.38
1998 13.98
1999 49.06
2000 0.00
Best quarter: %, Q_ 19__
Worst quarter: %, Q_ 19__
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since 12/31/99 Since 12/31/96
1 Year Life of Class
--------------------------------------------------------------------------------
Class A % %
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
Index 1
--------------------------------------------------------------------------------
Index 2
--------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 3000 Index, an unmanaged index of 3,000 of the largest
capitalized companies that are domiciled in the United States and whose common
stocks trade there.
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns for 1997 through 1999 would have been lower if operating
expenses hadn't been reduced.
--------------------------------------------------------------------------------
5
<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) 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 % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** 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 mutual funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
6
<PAGE>
<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 advisor, Scudder Kemper receives a management fee,
which was __% of the fund's average daily net assets for the most recent fiscal
year. This fee is based on a rate of 0.65% of average daily net assets which is
adjusted up or down (to as low as 0.45% or as high as 0.85%) depending on how
the fund's Class A shares performed relative to the S&P 500 Index.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Sewall F. Hodges Jesus A. Cabrera
Lead Portfolio Manager o Began investment career
o Began investment career in 1984
in 1978 o Joined the advisor in
o Joined the advisor in 1995 1999
o Joined the fund team o Joined the fund team
in 1999 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.
7
<PAGE>
TICKER SYMBOLS CLASS: A) KBCAX B) KBCBX C) KBCCX
Kemper
Blue Chip Fund
FUND GOAL The fund seeks growth of capital and of income.
8
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in
common stocks of large U.S. companies (those with market
values of $1 billion or more). As of December 31, 2000,
companies in which the fund invests have a median market
capitalization of approximately $__ billion.
In choosing stocks, the portfolio managers look for
attractive "blue chip" companies: large, well-known,
established companies with sound financial strength whose
stock price is attractive relative to potential growth. The
managers look for factors that could signal future growth,
such as new management, products or business strategies.
The managers may favor securities from different industries
and companies at different times while still maintaining
variety in terms of the industries and companies
represented.
The fund normally will sell a stock when the managers
believe its price is unlikely to go much higher, its
fundamental qualities have deteriorated or other
investments offer better opportunities.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. common stocks, it could invest up to 25%
of total assets in foreign securities. Also, while the fund is 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 all.
9
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform -- in this case, the
large company portion of the U.S. stock market. When prices
of these stocks fall, you should expect the value of your
investment to fall as well. 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.
To the extent that the fund focuses on a given industry,
any factors affecting that industry could affect portfolio
securities. For example, a rise in unemployment could hurt
consumer goods makers, or the emergence of new technologies
could hurt computer software or hardware companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of
companies, industries, economic trends or other matters
o growth stocks may be out of favor for certain periods
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o derivatives could produce disproportionate losses
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.
--------------------------------------------------------------------------------
Investors with long-term goals who want a core stock investment may be
interested in this fund.
10
<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 two broad-based market indices (which, unlike the
fund, have 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:
1991 44.43
1992 -1.20
1993 3.82
1994 -5.16
1995 31.72
1996 27.70
1997 26.21
1998 14.40
1999 26.08
2000 0.00
Best quarter: %, Q_ 199_
Worst quarter: %, Q_ 199_
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since
Since Since 5/31/94 Since
12/31/99 12/31/95 Life of 12/31/90
1 Year 5 Years Class B/C 10 Years
--------------------------------------------------------------------------------
Class A % % -- %
--------------------------------------------------------------------------------
Class B % --
--------------------------------------------------------------------------------
Class C --
--------------------------------------------------------------------------------
Index 1
--------------------------------------------------------------------------------
Index 2
--------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 1000 Index, an unmanaged price-only index of the 1,000 largest
capitalized companies that are domiciled in the United States and whose common
stocks are traded there.
The table includes the effects of maximum sales loads.
--------------------------------------------------------------------------------
11
<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) On Purchases (as % 5.75% None None
of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of None* 4.00% 1.00%
redemption proceeds)
--------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
--------------------------------------------------------------------------------
Management Fee % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** 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 mutual funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
12
<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. For the most recent fiscal year, the actual amount the fund paid
in management fees was __% of its average daily net assets.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Tracy McCormick Gary A. Langbaum
Lead Portfolio Manager o Began investment career
o Began investment career in 1970
in 1980 o Joined the advisor
o Joined the advisor in 1988
in 1994 o Joined the fund team
o Joined the fund team in 1998
in 1994
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
<PAGE>
TICKER SYMBOLS CLASS: A) KCGAX B) KCGBX C) KCGCX
Kemper
Classic Growth Fund
FUND GOAL The fund seeks long-term growth of capital
with reduced share price volatility compared with other
growth mutual funds.
* Kemper Classic Growth Fund is properly know as Classic Growth Fund
14
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests primarily in common stocks of U.S.
companies. Although the fund can invest in companies of any
size, it generally focuses on established companies with
market values of $2 billion or more.
In choosing stocks, the portfolio managers look for
individual companies that have strong competitive
positions, prospects for consistent growth, effective
management and strong balance sheets.
The managers use several strategies in seeking to reduce
share price volatility. They diversify the fund's
investments, by company as well as by industry and sector.
They prefer to invest in companies whose stock appears
reasonably valued in light of potential growth based on
various factors such as price-to-earnings ratios and market
capitalization. They also prefer to avoid companies whose
business fundamentals are deteriorating. Depending on their
outlook, the managers may increase or reduce the fund's
exposure to a given industry or company.
The fund will normally sell a stock when the managers
believe it is too highly valued, its fundamental qualities
have deteriorated or its potential risks have increased.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. common stocks, it could invest up to 25%
of total assets in foreign securities. Also, while the fund is permitted to use
various types of derivatives (contracts whose value is based on, for example,
indices, currencies or securities), the manager doesn't intend to use them as
principal investments and might not use them all.
15
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform -- in this case, the
large company portion of the U.S. stock market. When prices
of these stocks fall, you should expect the value of your
investment to fall as well. 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.
To the extent that the fund focuses on a given industry,
any factors affecting that industry could affect portfolio
securities. For example, a rise in unemployment could hurt
manufacturers of consumer goods.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of
companies, industries, economic trends or other matters
o growth stocks may be out of favor for certain periods
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o derivatives could produce disproportionate losses
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 make sense for investors interested in a long-term investment that
seeks to lower its share price volatility.
16
<PAGE>
--------------------------------------------------------------------------------
Performance
The bar chart shows the total returns 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 each year Class A Shares
------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1999 33.78
2000 0
Best quarter: %, Q_ 199_
Worst quarter: %, Q_ 199_
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since 12/31/99 Since 4/16/98
1 Year Life of Class
--------------------------------------------------------------------------------
Class A % %
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
Index *
--------------------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), an
unmanaged, capitalization-weighted index that includes 500 large-cap U.S.
stocks.
The table includes the effects of maximum sales loads. In both the table and the
chart, total returns from the date of inception through 1999 would have been
lower if operating expenses hadn't been reduced.
* Index comparison begins 4/30/1998
--------------------------------------------------------------------------------
17
<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) 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 % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
Expense Waiver
--------------------------------------------------------------------------------
Net Annual Operating Expenses***
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** Includes costs of shareholder servicing, custody, 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, Scudder Kemper has agreed to waive 0.25% of its management fee
until 1/31/2002.
Based on the figures above (including one year of waived expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other mutual funds. The example assumes operating expenses
remain the same and that you invested $10,000, earned 5% annual returns and
reinvested all dividends and distributions. This is only an example; actual
expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
18
<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. For the most recent fiscal year, the actual amount the fund paid
in management fees was __% of its average daily net assets.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGER
William F. Gadsden handles the fund's day-to-day
management. He began his investment career in 1981, joined
the advisor in 1983 and joined the fund in 1996.
19
<PAGE>
TICKER SYMBOLS CLASS: A) KGRAX B) KGRBX C) KGRCX
Kemper
Growth Fund
FUND GOAL The fund seeks growth of capital through
professional management and diversification of investments
in securities that the investment manager believes have the
potential for capital appreciation.
20
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in
common stocks of large U.S. companies (those with market
values of $1 billion or more). As of December 31, 2000,
companies in which the fund invests have a median market
capitalization of approximately $__ billion.
In choosing stocks, the portfolio managers look for
individual companies that have strong product lines,
effective management and leadership positions within core
markets. The managers also analyze each company's
valuation, stock price movements and other factors. Based
on their analysis, the managers classify stocks as follows:
Stable Growth (typically at least 70% of portfolio):
companies with strong business lines and potentially
sustainable earnings growth
Accelerating Growth (typically up to 25% of
portfolio): companies with a history of strong
earnings growth and the potential for continued
growth at a rapid rate
Special Situations (typically up to 15% of
portfolio): companies that appear likely to become
Stable Growth or Accelerating Growth companies
through a new product launch, restructuring, change
in management or other catalyst
The managers intend to keep the fund's holdings
diversified across industries and companies, and
generally keep its sector weightings similar to those
of the Russell 1000 Growth Index.
The fund normally will sell a stock when the managers
believe its earnings potential or its fundamental
qualities have deteriorated or when other investments
offer better opportunities.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund could invest up to 25% of total assets in foreign securities. Also,
while the fund is permitted to use various types of derivatives (contracts whose
value is based on, for example, indices, currencies or securities), the manager
doesn't intend to use them as principal investments and might not use them at
all.
21
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform -- in this case, the
large company portion of the U.S. stock market. When prices
of these stocks fall, you should expect the value of your
investment to fall as well. 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.
To the extent that the fund focuses on a given industry,
any factors affecting that industry could affect portfolio
securities. For example, a rise in unemployment could hurt
consumer goods makers, or the emergence of new technologies
could hurt computer software or hardware companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of
companies, industries, economic trends or other matters
o growth stocks may be out of favor for certain periods
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o derivatives could produce disproportionate losses
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 be suitable for investors who want a moderate to aggressive
long-term growth fund with a large-cap emphasis.
22
<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 two broad-based market indices (which, unlike the
fund, have 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:
1991 66.85
1992 -1.56
1993 1.63
1994 -5.91
1995 31.87
1996 16.34
1997 16.80
1998 14.22
1999 36.91
2000 0.00
Best quarter: %, Q_ 199_
Worst quarter: %, Q_ 199_
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since
Since Since 5/31/94 Since
12/31/99 12/31/95 Life of 12/31/90
1 Year 5 Years Class B/C 10 Years
--------------------------------------------------------------------------------
Class A % % -- %
--------------------------------------------------------------------------------
Class B % --
--------------------------------------------------------------------------------
Class C --
--------------------------------------------------------------------------------
Index 1
--------------------------------------------------------------------------------
Index 2
--------------------------------------------------------------------------------
Index 1: Russell 1000 Growth Index, an unmanaged capitalization-weighted index
containing the growth stocks in the Russell 1000 Index.
Index 2: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
The table includes the effects of maximum sales loads.
--------------------------------------------------------------------------------
23
<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) 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 % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** 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 mutual funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
24
<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. For the most recent fiscal year, the actual amount the fund paid
in management fees was __% of its average daily net assets.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGER
Valerie F. Malter handles the fund's day-to-day management. She began her
investment career in 1985, joined the advisor in 1995 and joined the fund in
1999.
25
<PAGE>
TICKER SYMBOLS CLASS: A) KSCAX B) KSCBX C) KSCCX
Kemper
Small Capitalization
Equity Fund
FUND GOAL The fund seeks maximum appreciation of
investors' capital.
26
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
Under normal market conditions, the fund invests at least
65% of total assets in small capitalization stocks similar
in size to those comprising the Russell 2000 Index.
In choosing stocks, the portfolio manager looks for
individual companies with a history of revenue growth,
effective management and strong balance sheets, among other
factors. In particular, the manager seeks companies that
may benefit from technological advances, new marketing
methods and economic and demographic changes.
The manager also considers the economic outlooks for
various sectors and industries, typically favoring those
where high growth companies tend to be clustered, such as
medical technology, software and specialty retailing.
The manager may favor securities from different industries
and companies at different times, while still maintaining
variety in terms of the industries and companies
represented.
The fund normally will sell a stock when the manager
believe its price is unlikely to go much higher, its
fundamental qualities have deteriorated or other
investments offer better opportunities. The fund also sells
securities of companies that have grown in market
capitalization above the maximum of the Russell 2000 Index,
as necessary to keep focused on smaller companies.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. stocks, it could invest up to 25% of total
assets in foreign securities. Also, while the fund is permitted to use various
types of derivatives (contracts whose value is based on, for example, indices,
currencies or securities), the manager doesn't intend to use them as principal
investments and might not use them at all.
27
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform -- in this case, the
small company portion of the U.S. stock market. When prices
of these stocks fall, you should expect the value of your
investment to fall as well. Small stocks tend to be more
volatile than stocks of larger companies, in part because
small companies tend to be less established than larger
companies 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.
To the extent that the fund focuses on a given industry,
any factors affecting that industry could affect portfolio
securities. For example, the emergence of new technologies
could hurt electronics or medical technology companies.
Other factors that could affect performance include:
o the manager could be wrong in his analysis of
companies, industries, economic trends or other
matters
o growth stocks may be out of favor for certain periods
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o derivatives could produce disproportionate losses
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.
--------------------------------------------------------------------------------
Investors who are looking to add the growth potential of smaller companies or to
diversify a large-cap growth portfolio may want to consider this fund.
28
<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 three broad-based market indices (which, unlike the
fund, have 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:
1991 69.01
1992 0.12
1993 16.79
1994 -3.31
1995 31.17
1996 14.09
1997 20.47
1998 -3.10
1999 33.62
2000 0.00
Best quarter: %, Q_ 199_
Worst quarter: %, Q_ 199_
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since
Since Since 5/31/94 Since
12/31/99 12/31/95 Life of 12/31/90
1 Year 5 Years Class B/C 10 Years
--------------------------------------------------------------------------------
Class A % % -- %
--------------------------------------------------------------------------------
Class B % --
--------------------------------------------------------------------------------
Class C --
--------------------------------------------------------------------------------
Index 1
--------------------------------------------------------------------------------
Index 2
--------------------------------------------------------------------------------
Index 3
--------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 2000 Index, an unmanaged capitalization-weighted measure of
approximately 2,000 small U.S. stocks.
Index 3: Russell 2000 Growth Index, an unmanaged capitalization-weighted index
containing the growth stocks in the Russell 2000 Index.
The table includes the effects of maximum sales loads.
--------------------------------------------------------------------------------
29
<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) 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 % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** 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 mutual funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
30
<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. Scudder Kemper's team
is comprised of investment professionals, economists, research analysts, traders
and other investment specialists, located across the United States and around
the world.
For serving as the fund's advisor, Scudder Kemper receives a management fee,
which was __% of the fund's average daily net assets for the most recent fiscal
year. This fee is based on a rate of __% of average daily net assets which is
adjusted up or down (to as low as 0.35% or as high as 0.95%) depending on how
the fund's Class A shares performed relative to the S&P 500 Index.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGER
Jesus A. Cabrera handles the fund's day-to-day management.
He began his investment career in 1984, joined the advisor
in 1999 and joined the fund in 1999.
31
<PAGE>
TICKER SYMBOLS CLASS: A) KTCAX B) KTCBX C) KTCCX
Kemper
Technology Fund
FUND GOAL The fund seeks growth of capital.
32
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in
common stocks of U.S. companies in the technology sector.
This may include companies of any size that commit at least
half of their assets to the technology sector, or derive at
least half of their revenues or net income from that
sector. Examples of industries within the technology sector
are aerospace, electronics, computers/software,
medicine/biotechnology, geology and oceanography.
In choosing stocks, the portfolio managers look for
individual companies that have robust and sustainable
earnings growth, large and growing markets, innovative
products and services and strong balance sheets, among
other factors.
The managers may favor securities from different industries
and companies within the technology sector at different
times, while still maintaining variety in terms of the
industries and companies represented.
The fund will normally sell a stock when the managers
believe its price is unlikely to go much higher, its
fundamental qualities have deteriorated or other
investments offer better opportunities.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. stocks, it could invest up to 25% of total
assets in foreign securities. Also, while the fund is 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.
33
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform. When stock prices
fall, you should expect the value of your investment to
fall as well. The fact that the fund concentrates in one
sector increases this risk, because factors affecting this
sector affect fund performance. For example, technology
companies could be hurt by such factors as market
saturation, price competition and competing technologies.
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. Many technology
companies are smaller companies that may have limited
business lines and financial resources, making them highly
vulnerable to business and economic risks.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of
companies, industries, economic trends or other matters
o growth stocks may be out of favor for certain periods
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o derivatives could produce disproportionate losses
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 appeal to investors who want exposure to a sector that offers
attractive long-term growth potential and who can accept above-average risks.
34
<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 three market indices (which, unlike the fund, have 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:
1991 44.35
1992 -1.19
1993 11.69
1994 11.35
1995 42.77
1996 20.60
1997 7.11
1998 43.59
1999 114.28
2000 0.00
Best quarter: %, Q_ 199_
Worst quarter: %, Q_ 199_
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since 12/31/99 Since 12/31/95 Since 5/31/94 Since 12/31/90
1 Year 5 Years Life of Class B/C 10 Years
--------------------------------------------------------------------------------
Class A % % -- %
--------------------------------------------------------------------------------
Class B % --
--------------------------------------------------------------------------------
Class C --
--------------------------------------------------------------------------------
Index 1
--------------------------------------------------------------------------------
Index 2
--------------------------------------------------------------------------------
Index 3
--------------------------------------------------------------------------------
Index 1: Russell 1000 Growth Index, an unmanaged capitalization-weighted index
containing the growth stocks in the Russell 1000 Index.
Index 2: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 3: Hambrecht & Quist Index, an unmanaged index composed of approximately
275 technology stocks, including companies from five technology groups: computer
hardware, computer software, communications, semiconductors and information
services.
The table includes the effects of maximum sales loads.
--------------------------------------------------------------------------------
35
<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) 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 % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** 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 $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
36
<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. For the most recent fiscal year, the actual amount the fund paid
in management fees was __% of its average daily net assets.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
James B. Burkart Tracy McCormick
Co-lead Portfolio Manager o Began investment career
o Began investment career in 1980
in 1970 o Joined the advisor
o Joined the advisor in 1998 in 1994
o Joined the fund team in o Joined the fund team
1998 in 1998
Deborah L. Koch
Co-lead Portfolio Manager
o Began investment career
in 1985
o Joined the advisor in 1992
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.
37
<PAGE>
TICKER SYMBOLS CLASS: A) KTRAX B) KTRBX C) KTRCX
Kemper
Total Return Fund
FUND GOAL The fund seeks the highest total return, a
combination of income and capital appreciation, consistent
with reasonable risk.
38
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
The fund follows a flexible investment program, investing
in a mix of growth stocks and bonds.
The fund can buy many types of securities, among them
common stocks, convertible securities, corporate bonds,
U.S. government bonds and mortgage- and asset-backed
securities. Generally, most are from U.S. issuers, but the
fund may invest up to 25% of total assets in foreign
securities.
The portfolio managers may shift the proportion of the
fund's holdings, at different times favoring stocks or
bonds (and within those asset classes, different types of
securities), while still maintaining variety in terms of
the securities, issuers and economic sectors represented.
In choosing individual stocks, the managers favor large
companies with a history of above-average growth,
attractive prices relative to potential growth, sound
financial strength and effective management, among other
factors.
The fund will normally sell a stock when it reaches a
target price or when the managers believe its fundamental
qualities have deteriorated.
In deciding what types of bonds to buy and sell, the
managers consider their relative potential for stability
and attractive income, and other factors such as credit
quality and market conditions. The fund may invest in bonds
of any duration.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
Normally, this fund's bond component consists mainly of investment-grade bonds
(those in the top four grades of credit quality). However, the fund could invest
up to 35% of total assets in junk bonds (i.e., grade BB and below).
While the fund is 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.
39
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
The most important factor is how stock markets perform --
something that depends on many influences, including
economic, political and demographic trends. When stock
prices fall, the value of your investment is likely to fall
as well. Stock prices can be hurt by poor management,
shrinking product demand and other business risks. Stock
risks tend to be greater with smaller companies.
The fund is also affected by the performance of bonds. A
rise in interest rates generally means a fall in bond
prices and, in turn, a fall in the value of your
investment. Some bonds could be paid off earlier than
expected, which would hurt the fund's performance; with
mortgage- or asset-backed securities, any unexpected
behavior in interest rates could increase the volatility of
the fund's share price and yield. Corporate bonds could
perform less well than other bonds in a weak economy.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of
industries, companies or other matters
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o growth stocks may be out of favor for certain periods
o a bond could fall in credit quality or go into default
o derivatives could produce disproportionate losses
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.
--------------------------------------------------------------------------------
Because it invests in a mix of stocks and bonds, this fund could make sense for
investors seeking asset class diversification in a single fund.
40
<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 three broad-based market indices (which, unlike the
fund, have 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:
1991 40.16
1992 2.49
1993 11.59
1994 -9.18
1995 25.80
1996 16.25
1997 19.14
1998 15.91
1999 14.60
2000 0.00
Best quarter: %, Q_ 199_
Worst quarter: %, Q_ 199_
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since
Since Since 5/31/94 Since
12/31/99 12/31/95 Life of 12/31/90
1 Year 5 Years Class B/C 10 Years
--------------------------------------------------------------------------------
Class A % % -- %
--------------------------------------------------------------------------------
Class B % --
--------------------------------------------------------------------------------
Class C --
--------------------------------------------------------------------------------
Index 1
--------------------------------------------------------------------------------
Index 2
--------------------------------------------------------------------------------
Index 3
--------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Lehman Brothers Government/Corporate Bond Index, an unmanaged index of
government and investment-grade corporate debt securities of intermediate- and
long-term maturities.
Index 3: Russell 1000 Growth Index, an unmanaged capitalization-weighted index
containing the growth stocks in the Russell 1000 Index.
The table includes the effects of maximum sales loads.
--------------------------------------------------------------------------------
41
<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) 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 % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** 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 $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
42
<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. For the most recent fiscal year, the actual amount the fund paid
in management fees was __% of its average daily net assets.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day
management:
Gary A. Langbaum Tracy McCormick
Lead Portfolio Manager o Began investment career
o Began investment career in 1980
in 1970 o Joined the advisor
o Joined the advisor in 1994
in 1988 o Joined the fund team
o Joined the fund team in 1998
in 1995
Robert S. Cessine
o Began investment career
in 1982
o Joined the advisor
in 1993
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.
43
<PAGE>
TICKER SYMBOLS CLASS: A) KVGAX B) KVGBX C) KVGCX
Kemper Value+Growth Fund
FUND GOAL The fund seeks growth of capital through a
portfolio of growth and value stocks. A secondary objective
of the fund is the reduction of risk over a full market
cycle compared to a portfolio of only growth stocks or only
value stocks.
44
<PAGE>
--------------------------------------------------------------------------------
The Fund's Main Strategy
The fund normally invests at least 65% of total assets in
U.S. common stocks. Although the fund can invest in stocks
of any size, it mainly chooses stocks from among the 1,000
largest (as measured by market capitalization). The fund
manages risk by investing in both growth and value stocks.
While the fund's neutral mix is 50% for growth stocks and
50% for value stocks, the managers may shift the fund's
holdings depending on their outlook, at different times
favoring growth stocks or value stocks, while still
maintaining variety in terms of the securities, issuers and
economic sectors represented. Typically, adjustments in the
fund's growth/value proportions are gradual. The allocation
to growth or value stocks may be up to 75% at any time.
In choosing growth stocks, the managers look for companies
with a history of above-average growth, attractive prices
relative to potential growth and sound financial strength,
among other factors. With value stocks, the managers look
for companies whose stock prices are low in light of
earnings, cash flow and other valuation measures, while
also considering such factors as dividend growth rates and
earnings estimates.
The fund will normally sell a stock when the managers
believe its price is unlikely to go much higher, its
fundamental qualities have deteriorated or to adjust the
proportions of growth and value stocks.
[ICON]
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. common stocks, it could invest up to 25%
of total assets in foreign securities. Also, while the fund is 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.
45
<PAGE>
--------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform -- in this case, the
large company portion of the U.S. stock market. When large
company stock prices fall, you should expect the value of
your investment to fall as well. 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 any given period, either growth stocks or value stocks
will generally lag the other; because the fund invests in
both, it is likely to lag any fund that focuses on the type
of stock that outperforms during that period, and at times
may lag both.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of
industries, companies or other matters
o foreign securities may be more volatile than their
U.S. counterparts, for reasons such as currency
fluctuations and political and economic uncertainty
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments
or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
This fund is designed for investors with long-term goals who want to gain
exposure to both growth and value stocks in a single fund.
46
<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 two broad-based market indices (which, unlike the
fund, have 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:
1996 25.56
1997 24.52
1998 18.88
1999 16.69
2000 0.00
Best quarter: %, Q_ 199_
Worst quarter: %, Q_ 199_
--------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/2000)
--------------------------------------------------------------------------------
Since Since Since
12/31/99 10/31/95 5 10/16/95 Life
1 Year Years of Class
--------------------------------------------------------------------------------
Class A % % %
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
Index 1 *
--------------------------------------------------------------------------------
Index 2 *
--------------------------------------------------------------------------------
Index 1: Standard and Poor's 500 Composite Stock Price Index (S&P 500), an
unmanaged capitalization-weighted index that includes 500 large-cap U.S. stocks.
Index 2: Russell 1000 Index, an unmanaged price-only index of 1,000 of the
largest capitalized companies that are domiciled in the United States and whose
common stocks are traded there.
The table includes the effects of maximum sales loads. In 1995, 1996, 1998 and
1999, for Class A Shares; and in 1995 through 1999, for Class B and C Shares,
total returns would have been lower in the table and the bar chart if operating
expenses hadn't been reduced.
* Index comparison begins 10/31/1995
--------------------------------------------------------------------------------
47
<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) 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 % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses**
--------------------------------------------------------------------------------
Total Annual Operating Expenses
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge of
1.00% if redeemed within one year of purchase and 0.50% if redeemed during
the second year following purchase.
** 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 $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
48
<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. For the most recent fiscal year, the actual amount the fund paid
in management fees was __% of its average daily net assets.
[ICON]
--------------------------------------------------------------------------------
FUND MANAGER
Donald E. Hall handles the fund's day-to-day management. He
began his investment career and joined the advisor in 1982,
and joined the fund in 1999.
49
<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 These funds' equity investments are mainly common stocks,
but may also include other types of equities, such as
preferred or convertible stocks
Keep in mind that there is no assurance that any mutual
fund will achieve its goal.
Euro conversion
Funds which 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. Scudder Kemper is working to
address euro-related issues as they occur and
understands that other key service providers are
taking similar steps. Still, there's some risk that
this problem could materially affect a fund's
operation (including its ability to calculate net
asset value and to handle purchases and redemptions),
its investments or securities markets in general.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
This prospectus doesn't tell you about every policy or risk of investing in a
fund. For more information, request a copy of the Statement of Additional
Information (see back cover).
50
<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 Classic Growth Fund, which has been audited
by PricewaterhouseCoopers 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 Aggressive Growth Fund
51
<PAGE>
Kemper Blue Chip Fund
52
<PAGE>
Kemper Classic Growth Fund
53
<PAGE>
Kemper Growth Fund
54
<PAGE>
Kemper Small Capitalization Equity Fund
55
<PAGE>
Kemper Technology Fund
56
<PAGE>
Kemper Total Return Fund
57
<PAGE>
Kemper Value+Growth Fund
58
<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. The Kemper
Classic Growth Fund offers a fourth class of shares separately. Each class has
its own fees and expenses, offering you a choice of cost structures.
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
o In most cases, no charges when you charges; see next page
sell shares o Total annual expenses are lower
o No distribution fee than those for Class B or Class C
--------------------------------------------------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate
o Deferred sales charge of up to falls to zero after six years
4.00%, charged when you sell shares o Shares automatically convert to
you bought within the last six years Class A after six years after
purchase, which means lower
o 0.75% distribution fee annual expenses going forward
--------------------------------------------------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never
o Deferred sales charge of 1.00%, convert to Class A, so annual
charged when you sell shares you expenses remain higher
bought within the last year
o 0.75% distribution fee
------------------------------------------------------------------------------
60
<PAGE>
Class A shares
Class A shares have a sales charge that varies with the
amount you invest:
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 below and next page
-----------------------------------------------------------
The offering price includes the sales charge.
You may be able to lower your Class A sales charges if:
o you plan to invest at least $50,000 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 ("cumulative
discount")
o you are investing a total of $50,000 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.
61
<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.
62
<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 can be a logical choice for long-term investors who would prefer
to see all of their investment go to work right away, and can accept somewhat
higher annual expenses in exchange.
63
<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 some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.
64
<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 the method that's most convenient
for 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)
65
<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 ordered in
$100 or more for exchanges between writing with a signature guarantee; if
existing accounts you're in doubt, see page 69
--------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by
method that's most convenient for the method that's most convenient
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 number o the fund, class and account
you're exchanging out of number from which you want to
o the dollar amount or number of sell shares
shares you want to exchange o the dollar amount or number of
o the name and class of the fund you shares you want to sell
want to exchange into o your name(s), signature(s) and
o your name(s), signature(s) and address, as they appear on your
address, as they appear on your account
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
--------------------------------------------------------------------------------
66
<PAGE>
--------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the
policies below may affect you as a shareholder.
If you are investing through an investment provider,
check the materials you received from them. As a
general rule, you should follow the information in
those materials wherever it contradicts the
information given here. Please note that an
investment provider may charge its own fees.
In order to reduce the amount of mail you receive and to
help reduce fund expenses, we generally send a single copy
of any shareholder report and prospectus to each household.
If you do not want the mailing of these documents to be
combined with those for other members of your household,
please call (800) 621-1048.
Policies about transactions
The funds are open for business each day the New York
Stock Exchange is open. Each fund calculates its
share price every business day, as of the close of
regular trading on the Exchange (typically 3 p.m.
Central time, but sometimes earlier, as in the case
of scheduled half-day trading or unscheduled
suspensions of trading).
You can place an order to buy or sell shares at any
time. Once your order is received by Kemper Service
Company, and they have determined that it is a "good
order," it will be processed at the next share price
calculated.
Because orders placed through investment providers must be
forwarded to Kemper Service Company before they can be
processed, you'll need to allow extra time. A
representative of your investment provider should be able
to tell you when your order will be processed.
KemperACCESS, the Kemper Automated Information Line, is
available 24 hours a day by calling (800) 972-3060. You can
use Kemper ACCESS to get information on Kemper funds
generally and on accounts held directly at Kemper. You can
also use it to make exchanges and sell shares.
67
<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 your shares 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.
68
<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.
69
<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 received in proper form,
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.
70
<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 and Class C shares-- net asset value per share,
or NAV
To calculate NAV, each share class of each fund uses the
following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For 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.
71
<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
o change, add or withdraw various services, fees and
account policies (for example, we may change or terminate
the exchange privilege at any time)
72
<PAGE>
--------------------------------------------------------------------------------
Understanding Distributions And Taxes
By law, a mutual fund is required to pass through to its
shareholders virtually all of its net earnings. A fund can
earn money in two ways: by receiving interest, dividends or
other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's
earnings are separate from any gains or losses stemming
from your own purchase of shares.) A fund may not always
pay a distribution for a given period.
The fund intends to pay dividends and distributions to its
shareholders in 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.
73
<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.
74
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. For more copies, call (800) 621-1048.
Statements of Additional Information (SAIs) -- These tell you more about each
fund's features and policies, including additional risk information. The SAIs
are incorporated by reference into this document (meaning that they're 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.
SEC
450 Fifth Street, N.W.
Washington, DC 20549-0102
www.sec.gov
Tel (800) SEC-0330
Kemper Funds
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
Tel (800) 621-1048
SEC File Numbers
Kemper Aggressive Growth Fund 811-07855
Kemper Blue Chip Fund 811-5357
Classic Growth Fund 811-43
Kemper Growth Fund 811-1365
Kemper Small Capitalization Equity Fund 811-1702
Kemper Technology Fund 811-0547
Kemper Total Return Fund 811-1236
Kemper Value+Growth Fund 811-7331
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[LOGO] KEMPER FUNDS
Long-term investing in a short-term world(SM)
<PAGE>
Supplement to the currently effective Prospectus of each of the listed funds:
<TABLE>
<S> <C>
Kemper Asian Growth Fund Kemper Income and Capital Preservation Fund
Classic Growth Fund (Classes A, B and C only) Kemper Intermediate Municipal Bond Fund
Kemper Global Blue Chip Fund Kemper International Fund
Kemper Global Income Fund Kemper Municipal Bond Fund
Kemper High Yield Opportunity Fund Kemper Ohio Tax-Free Income Fund
Kemper High Yield Fund II Kemper Short-Term U.S. Government Fund
Kemper Horizon 20+ Portfolio Kemper U.S. Growth and Income Fund
Kemper Horizon 10+ Portfolio Kemper U.S. Mortgage Fund
Kemper Horizon 5 Portfolio Value Fund (Classes A, B and C only)
</TABLE>
The applicable Board of each of the above-mentioned funds (identified in the
table below under the heading "Acquired Fund") recently approved an Agreement
and Plan of Reorganization (the "Plan") between each Fund and the corresponding
Acquiring Fund identified in the chart below. The proposed transaction is part
of Scudder Kemper's initiative to restructure and streamline the management and
operations of the funds it manages.
The Plan applicable to each Fund provides for the transfer of substantially all
of the assets and the assumption of all of the liabilities of the Fund solely in
exchange for voting shares of the corresponding Acquiring Fund. Following the
exchange, the Fund will distribute shares of the corresponding Acquiring Fund to
the Fund's shareholders as part of the Fund's cessation of operations as
provided for in the Plan. (Each transaction contemplated by a Plan is referred
to as a "Reorganization.")
Each Reorganization can be consummated only if, among other things, it is
approved by a majority vote of shareholders of the applicable Fund. A Special
Meeting (the "Meeting") of the shareholders of each Fund will be held on or
about May 15, 2001 or May 24, 2001 and shareholders will be given the
opportunity to vote on the Plan and any other matters affecting the Fund at that
time. In connection with each Meeting, the applicable Fund will deliver to its
shareholders: (i) a Proxy Statement/Prospectus describing in detail the
Reorganization and the Board's considerations in recommending that shareholders
approve the Reorganization, and (ii) a Prospectus for the Acquiring Fund.
If the Plan for a Fund is approved at the applicable Meeting and certain
conditions required by the Plan are satisfied, the Reorganization is expected to
become effective at 9:00 a.m. Eastern standard time on or about the appropriate
Proposed Reorganization Date identified in the chart below. If shareholder
approval of a Plan is delayed due to failure to obtain a quorum or otherwise,
the Reorganization will become effective as soon as practicable after the
receipt of shareholder approval.
In the event the shareholders of a Fund fail to approve the Plan for that Fund,
the Fund will continue to operate and the Fund's Board may resubmit the Plan for
shareholder approval or consider other proposals.
<TABLE>
<CAPTION>
Acquired Fund Acquiring Fund Proposed Reorganization Date
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kemper Asian Growth Fund Scudder Pacific Opportunities Fund May 28, 2001
------------------------------------------------------------------------------------------------------------------------------------
Classic Growth Fund Scudder Capital Growth Fund June 25, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Global Blue Chip Fund Scudder Global Fund June 18, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Global Income Fund Scudder Global Bond Fund June 18, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper High Yield Opportunity Fund Scudder High Yield Bond Fund (to be renamed June 25, 2001
Scudder High Yield Opportunity Fund)
------------------------------------------------------------------------------------------------------------------------------------
Kemper High Yield Fund II Kemper High Yield Fund May 28, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Horizon 20+ Portfolio Kemper Total Return Fund June 11, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Horizon 10+ Portfolio Kemper Total Return Fund June 11, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Horizon 5 Portfolio Kemper Total Return Fund June 11, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Income and Capital Preservation Fund Scudder Income Fund June 25, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Intermediate Municipal Bond Fund Scudder Medium Term Tax Free Fund June 11, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper International Fund Scudder International Fund June 18, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Municipal Bond Fund Scudder Managed Municipal Bonds June 11, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Ohio Tax-Free Income Fund Scudder Managed Municipal Bonds June 11, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper Short-Term U.S. Government Fund Scudder Short Term Bond Fund June 25, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund Scudder Growth and Income Fund June 11, 2001
------------------------------------------------------------------------------------------------------------------------------------
Kemper U.S. Mortgage Fund Kemper U.S. Government Securities Fund May 28, 2001
------------------------------------------------------------------------------------------------------------------------------------
Value Fund Scudder Large Company Value Fund June 25, 2001
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
November 30, 2000
<PAGE>
KEMPER EQUITY FUNDS
Kemper Aggressive Growth Fund ("Aggressive Growth Fund")
Kemper Blue Chip Fund ("Blue Chip Fund")
Kemper Growth Fund ("Growth Fund")
Kemper Small Capitalization Equity Fund ("Small Cap Fund")
Kemper Technology Fund ("Technology Fund")
Kemper Total Return Fund ("Total Return Fund")
Kemper Value Plus Growth Fund ("Value+Growth Fund")
Kemper Classic Growth Fund ("Classic Growth Fund")
Class A, Class B and Class C Shares
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2001
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus for the Funds, as amended from time
to time, a copy of which may be obtained without charge by contacting Kemper
Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606,
1-800-621-1048, or from the firm from which this Statement of Additional
Information was obtained.
The Annual Report to Shareholders of each Fund, dated August 31, 2000
for Kemper Classic Growth Fund, dated September 30, 2000 for Kemper Aggressive
Growth Fund, Kemper Small Capitalization Equity Fund, Kemper Growth Fund, Kemper
Total Return Fund and Kemper Technology Fund, respectively, and dated November
30, 2000 for Kemper Value+Growth Fund accompanies this Statement of Additional
Information. They are incorporated by reference and are hereby deemed to be part
of this Statement of Additional Information.
This Statement of Additional Information is incorporated by reference
into the combined prospectus.
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
AGGRESSIVE GROWTH FUND. The Aggressive Growth Fund is a non-diversified
investment company that seeks capital appreciation through the use of aggressive
investment techniques. In seeking to achieve its objective, the Fund invests
primarily in equity securities of U.S. companies that the investment manager
believes offer the best opportunities for capital appreciation at any given
time. The investment manager pursues a flexible investment strategy in the
selection of securities, not limited to any particular investment sector,
industry or company size; and it may, depending upon market circumstances,
emphasize the securities of small, medium or large-sized companies from time to
time. The Fund may invest a portion of its assets in initial public offerings
("IPOs"), which are typically securities of small, unseasoned issuers. In
addition, since the Fund is a non-diversified investment company, when
attractive investments are identified, the investment manager may establish
relatively large individual positions, sometimes representing more than 5% of
total assets. Therefore, the Fund has broader latitude in its selection of
securities than a typical equity mutual fund. There is no assurance that the
management strategy for the Fund will be successful or that the Fund will
achieve its objective.
The investment manager uses a disciplined approach to stock selection and
fundamental research to help it identify quality "growth" companies. Growth
stocks are stocks of companies whose earnings per share are expected by the
investment manager to grow faster than the market average. Growth stocks tend to
trade at higher price to earnings (P/E) ratios than the general market, but the
investment manager believes that the potential of such stocks for above average
earnings more than justifies their price. The investment manager relies heavily
upon the fundamental analysis and research of its large research staff, and will
generally seek to invest in growth companies not fully recognized by the market
at large. Such companies may be:
o Expected to achieve accelerating earnings growth, perhaps due to strong
demand for their products or services;
o Undergoing financial restructuring;
o Involved in takeover or arbitrage situations;
o Expected to benefit from evolving market cycles or changing economic
conditions; or
o Representing special situations, such as changes in management or favorable
regulatory developments.
Because of the flexible nature of the Fund's investment policies, the Fund may
have a higher portfolio turnover than a typical equity mutual fund. To some
extent, the Fund may trade in securities for the short term. In addition, the
investment manager may use market volatility in an attempt to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
undervalued positions and to sell or reduce overvalued holdings. For example,
during market declines, the Fund may add to positions in favored securities,
while becoming more aggressive as it gradually reduces the number of companies
represented in its portfolio. Conversely, in rising markets, the Fund may reduce
or eliminate fully valued positions, while becoming more conservative as it
gradually increases the number of companies in its portfolio.
Although the Fund will not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest 25% or more of its total assets in
one or more market sectors, such as the technology sector. A sector is made up
of numerous industries. If the Fund focuses its investments in a market sector,
financial, economic, business and other developments affecting issuers in that
sector may have a greater effect on the Fund than if it had not focuses its
assets in that sector.
Under normal conditions, the Fund will invest at least 65%, and may invest up to
100%, of its total assets in equity securities. Equity securities include common
stocks, preferred stocks, securities convertible into or exchangeable for common
or preferred stocks, equity investments in partnerships, joint ventures and
other forms of non-corporate investment and warrants and rights exercisable for
equity securities.
2
<PAGE>
The Fund may also engage in strategic transactions, purchase foreign securities,
illiquid securities and REITs and lend its portfolio securities. The Fund will
not purchase illiquid securities, including repurchase agreements maturing in
more than seven days, if, as a result thereof, more than 15% of the Fund's net
assets, valued at the time of the transaction, would be invested in such
securities. The Fund may engage in short sales against-the-box, although it is
the Fund's current intention that no more than 5% of its net assets will be at
risk. When a defensive position is deemed advisable, all or a significant
portion of the Fund's assets may be held temporarily in cash or defensive type
securities, such as high-grade debt securities, securities of the U.S.
Government or its agencies and high quality money market instruments, including
repurchase agreements. It is impossible to predict for how long such alternative
strategies may be utilized.
BLUE CHIP FUND. The Blue Chip Fund seeks growth of capital and of income. In
seeking to achieve its objective, the Fund will invest primarily in common
stocks of well capitalized, established companies that the Fund's investment
manager believes to have the potential for growth of capital, earnings and
dividends. Under normal market conditions, the Fund will invest at least 65%,
and may invest up to 100%, of its total assets in the common stocks of companies
with a market capitalization of at least $1 billion at the time of investment.
In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known, high quality companies. Companies of this general type are
often referred to as "Blue Chip" companies. Blue Chip companies are generally
identified by their substantial capitalization, established history of earnings
and dividends, easy access to credit, good industry position and superior
management structure. Blue Chip companies are believed to generally exhibit less
investment risk and less price volatility than companies lacking these high
quality characteristics, such as smaller, less seasoned companies. In addition,
the large market of publicly held shares for such companies and the generally
high trading volume in those shares results in a relatively high degree of
liquidity for such investments. The characteristics of high quality and high
liquidity of Blue Chip investments should make the market for such stocks
attractive to investors both within and outside the United States. The Fund will
generally attempt to avoid speculative securities or those with significant
speculative characteristics.
In general, the Fund will seek to invest in those established, high quality
companies whose industries are experiencing favorable secular or cyclical
change. Thus, the Fund in seeking its objective will endeavor to select its
investments from among high quality companies operating in the more attractive
industries.
As indicated above, the Fund's investment portfolio will normally consist
primarily of common stocks. The Fund may invest to a more limited extent in
preferred stocks, debt securities and securities convertible into or
exchangeable for common stocks, including warrants and rights, when they are
believed to offer opportunities for growth of capital and of income. The Fund
may also engage in strategic transactions, purchase foreign securities and lend
its portfolio securities. The Fund may engage in short sales against-the-box,
although it is the Fund's current intention that no more than 5% of its net
assets will be at risk. The Fund will not purchase illiquid securities,
including repurchase agreements maturing in more than seven days, if, as a
result thereof, more than 15% of the Fund's net assets, valued at the time of
the transaction, would be invested in such securities. The Fund does not
generally make investments for short-term profits, but it is not restricted in
policy with regard to portfolio turnover and will make changes in its investment
portfolio from time to time as business and economic conditions and market
prices may dictate and as its investment policy may require.
There are risks inherent in the investment in any security, including shares of
the Fund. The investment manager attempts to reduce risk through diversification
of the Fund's portfolio and fundamental research; however, there is no guarantee
that such efforts will be successful. The investment manager believes that there
are opportunities for growth of capital and growth of dividends from investments
in Blue Chip companies over time. The Fund's shares are intended for long-term
investment. When a defensive position is deemed advisable, all or a significant
portion of the Fund's assets may be held temporarily in cash or defensive type
securities, such as high-grade debt securities, securities of the U.S.
Government or its agencies and high quality money market instruments, including
repurchase agreements. It is impossible to predict for how long such alternative
strategies may be utilized.
3
<PAGE>
GROWTH FUND. The Growth Fund seeks growth of capital through professional
management and diversification of investments in securities it believes to have
potential for capital appreciation.
In seeking to achieve its objective, it will be the Fund's policy to invest
primarily in securities that it believes offer the potential for increasing the
Fund's total asset value. While it is anticipated that most investments will be
in common stocks of companies with above-average growth prospects, investments
may also be made to a limited degree in other common stocks and in convertible
securities (including warrants), such as bonds and preferred stocks. The Fund
may also engage in strategic transactions, purchase foreign securities and lend
its portfolio securities. The Fund will not purchase illiquid securities,
including repurchase agreements maturing in more than seven days, if, as a
result thereof, more than 15% of the Fund's net assets, valued at the time of
the transaction, would be invested in such securities.
Some of the factors the Fund's management will consider in making its
investments are patterns of increasing growth in sales and earnings, the
development of new or improved products or services, favorable outlooks for
growth in the industry, the probability of increased operating efficiencies,
emphasis on research and development, cyclical conditions, or other signs that a
company is expected to show greater than average capital appreciation and
earnings growth.
When a defensive position is deemed advisable, all or a significant portion of
the Fund's assets may be held temporarily in cash or defensive type securities,
such as high-grade debt securities, securities of the U.S. Government or its
agencies and high quality money market instruments, including repurchase
agreements. It is impossible to predict for how long such alternative strategies
may be utilized.
SMALL CAP FUND. The Small Cap Fund seeks maximum appreciation of investors'
capital. Current income will not be a significant factor.
The Fund seeks attractive areas for investment opportunity arising from such
factors as technological advances, new marketing methods, and changes in the
economy and population. Currently, the investment manager believes that such
investment opportunities may be found among the following: (a) companies engaged
in high technology fields such as electronics, medical technology, computer
software and specialty retailing; (b) companies having a significantly improved
earnings outlook as the result of a changed economic environment, acquisitions,
mergers, new management, changed corporate strategy or product innovation; (c)
companies supplying new or rapidly growing services to consumers and businesses
in such fields as automation, data processing, communications, marketing and
finance; and (d) companies having innovative concepts or ideas.
At least 65% of the Fund's total assets normally will be invested in small
capitalization stocks similar in size to those comprising the Russell 2000
Index. The investment manager currently believes that investment in such
companies may offer greater opportunities for growth of capital than larger,
more established companies, but also involves certain special risks. Smaller
companies often have limited product lines, markets, or financial resources, and
they may be dependent upon one or a few key people for management. The
securities of such companies generally are subject to more abrupt or erratic
market movements and may be less liquid than securities of larger, more
established companies or the market averages in general.
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed by the investment manager to
offer opportunities for capital growth. The Fund may engage in strategic
transactions, purchase foreign securities and lend its portfolio securities.
In the selection of investments, long-term capital appreciation will take
precedence over short range market fluctuations. The Fund does not intend to
engage actively in trading for short-term profits, although it may occasionally
make investments for short-term capital appreciation when such action is
believed to be desirable and consistent with sound investment procedure.
Generally, the Fund will make long-term rather than short-term investments.
Nevertheless, it may dispose of such investments at any time it may be deemed
advisable because of a subsequent change in the circumstances of a particular
company or industry or in general market or
4
<PAGE>
economic conditions. For example, a security initially purchased for long-term
growth potential may be sold at any time when it is determined that future
growth may not be at an acceptable rate or that there is a risk of substantial
decline in market price. The rate of portfolio turnover is not a limiting factor
when changes in investments are deemed appropriate. In addition, market
conditions, cash requirements for redemption and repurchase of Fund shares or
other factors could affect the portfolio turnover rate. The Fund will not
purchase illiquid securities, including repurchase agreements maturing in more
than seven days, if, as a result thereof, more than 15% of the Fund's net
assets, valued at the time of the transaction, would be invested in such
securities.
Since many of the securities in the Fund's portfolio may be considered
speculative in nature by traditional investment standards, substantially greater
than average market volatility and investment risk may be involved. There can be
no assurance that the Fund's shareholders will be protected from the risk of
loss inherent in security ownership.
When a defensive position is deemed advisable, all or a significant portion of
the Fund's assets may be held temporarily in cash or defensive type securities,
such as high-grade debt securities, securities of the U.S. Government or its
agencies and high quality money market instruments, including repurchase
agreements. It is impossible to predict for how long such alternative strategies
may be utilized.
TECHNOLOGY FUND. The Technology Fund seeks growth of capital. In seeking to
achieve its objective, the Fund will invest primarily in securities of companies
which the investment manager expects to benefit from technological advances and
improvements ("technology companies") with an emphasis on the securities of
companies that the investment manager believes have potential for long-term
capital growth. Receipt of income from such securities will be entirely
incidental. Technology companies include those whose processes, products or
services, in the judgment of the investment manager, are or may be expected to
be significantly benefited by scientific developments and the application of
technical advances in industry, manufacturing and commerce resulting from
improving technology in such fields as, for example, aerospace, chemistry,
electronics, genetic engineering, geology, information sciences (including
computers and computer software), metallurgy, medicine (including pharmacology,
biotechnology and biophysics) and oceanography. This investment policy permits
the investment manager to seek stocks having superior growth potential in
virtually any industry in which they may be found.
The investment manager currently believes that investments in smaller emerging
growth technology companies may offer greater opportunities for growth of
capital than investments in larger, more established technology companies.
However, such investments also involve certain special risks. Smaller companies
often have limited product lines, markets, or financial resources; and they may
be dependent upon one or a few persons for management. The securities of such
companies generally are subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. Thus, investment by the Fund in smaller emerging growth technology
companies may expose investors to greater than average financial and market
risk. There is no assurance that the Fund's objective will be achieved.
The Fund's investment portfolio will normally consist primarily of common stocks
and securities convertible into or exchangeable for common stocks, including
warrants and rights. The Fund may also invest to a limited degree in preferred
stocks and debt securities when they are believed to offer opportunities for
capital growth. The Fund may also engage in strategic transactions, purchase
foreign securities and lend its portfolio securities. The Fund's shares are
intended for long-term investment.
The Fund may invest up to 10% of its total assets in entities, such as limited
partnerships or trusts, that invest primarily in the securities of technology
companies. The investment manager believes that the flexibility to make limited
indirect investment in technology companies through entities such as limited
partnerships and trusts will provide the Fund with increased opportunities for
growth of capital. However, there is no assurance that such investments will be
profitable. Entities that invest in the securities of technology companies
normally have management fees and other costs that are in addition to those of
the Fund. Such fees and costs will reduce any returns directly attributable to
the underlying technology companies. The effect of these fees will be considered
by the investment manager in connection with any decision to invest in such
entities. Securities
5
<PAGE>
issued by these entities are normally privately placed, restricted and illiquid.
The Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities.
The Fund purchases securities for long-term investment, but it is the investment
manager's belief that a sound investment program must be flexible in order to
meet changing conditions, and changes in holdings will be made whenever deemed
advisable.
When a defensive position is deemed advisable, all or a significant portion of
the Fund's assets may be held temporarily in cash or defensive type securities,
such as high-grade debt securities, securities of the U.S. Government or its
agencies and high quality money market instruments, including repurchase
agreements. It is impossible to predict for how long such alternative strategies
may be utilized.
TOTAL RETURN FUND. The Total Return Fund seeks the highest total return, a
combination of income and capital appreciation, consistent with reasonable risk.
The Fund will emphasize liberal current income in seeking its objective. The
Fund's investments will normally consist of domestic and foreign fixed income
and equity securities. Fixed income securities will include bonds and other debt
securities (such as U.S. and foreign Government securities and investment grade
and high yield corporate obligations) and preferred stocks, some of which may
have a call on common stocks through attached warrants or a conversion
privilege. The percentage of assets invested in specific categories of fixed
income and equity securities will vary from time to time depending upon the
judgment of management as to general market and economic conditions, trends in
yields and interest rates and changes in fiscal or monetary policies. The Fund
may also engage in strategic transactions and lend its portfolio securities.
As noted above, the Fund may invest in high yield fixed income securities which
are in the lower rating categories and those which are unrated. Thus, the Fund
could invest in some instruments considered by the rating services to have
predominantly speculative characteristics. Investments in lower rated or
non-rated securities, while generally providing greater income and opportunity
for gain than investments in higher rated securities, entail greater risk of
loss of income and principal. Currently, it is anticipated that the Fund would
invest less than 35% of its total assets in high yield bonds. The Fund will not
purchase illiquid securities, including repurchase agreements maturing in more
than seven days, if, as a result thereof, more than 15% of the Fund's net
assets, valued at the time of the transaction, would be invested in such
securities.
The Fund does not make investments for short-term profits, but it is not
restricted in policy with regard to portfolio turnover and will make changes in
its investment portfolio from time to time as business and economic conditions
and market prices may dictate and as its investment policy may require.
When a defensive position is deemed advisable, all or a significant portion of
the Fund's assets may be held temporarily in cash or defensive type securities,
such as high-grade debt securities, securities of the U.S. Government or its
agencies and high quality money market instruments, including repurchase
agreements. It is impossible to predict for how long such alternative strategies
may be utilized.
VALUE+GROWTH FUND. The Value+Growth Fund seeks growth of capital through
professional management of a portfolio of growth and value stocks. These stocks
include stocks of large established companies, as well as stocks of small
companies. A secondary objective is the reduction of risk over a full market
cycle compared to a portfolio of only growth stocks or only value stocks.
Growth stocks are stocks of companies whose earnings per share are expected by
the investment manager to grow faster than the market average. Growth stocks
tend to trade at higher price to earnings (P/E) ratios than the general market,
but the investment manager believes that the potential of such stocks for above
average earnings more than justifies their price. Value stocks are considered
"bargain stocks" because they are perceived as undervalued, i.e., attractively
priced in relation to their earnings potential (low P/E ratios). Value stocks
typically have dividend yields higher than the average of the companies
represented in the Standard & Poor's 500 Stock Index.
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The allocation between growth and value stocks in the Fund's portfolio will be
made by the investment manager's Quantitative Research Department with the help
of a proprietary model that evaluates macro-economic factors such as the
strength of the economy, interest rates and special factors concerning growth
and value stocks. Historically, the performance of growth and value stocks has
tended to be counter-cyclical, i.e., when one was in favor, the other was out of
favor relative to the equity market in general. Through the allocation process,
the investment manager will seek to weight the portfolio more heavily in the
type of stocks that are believed to present greater return opportunities at the
time. The neutral allocation between growth and value stocks would be 50%/50%.
The allocation to growth or value may be up to 75% at any time. Allocation
decisions are normally based upon long-term considerations and changes would
normally be expected to be gradual. There is no assurance that the allocation
process will improve investment results.
In managing the growth portion of the portfolio, the investment manager
emphasizes stock selection and fundamental research in seeking to enhance
long-term performance potential. The investment manager considers a number of
quantitative factors in considering whether to invest in a stock including
historical earnings growth, projected earnings growth, return on equity, debt to
capital and other balance sheet data. In managing the value portion of the
portfolio, the investment manager seeks stocks it believes to be undervalued.
The factors considered include price-to-earnings ratios, price-to-book ratios,
price-to-cash-flow, dividend growth rates, earnings estimates and growth rates,
return on equity and other balance sheet data.
Although it is anticipated that the Fund will invest primarily in common stocks
of domestic companies, the Fund may also purchase foreign securities, as well as
convertible securities, such as bonds and preferred stocks (including warrants
and rights). The Fund may also engage in strategic transactions and lend its
portfolio securities. The Fund will not purchase illiquid securities, including
repurchase agreements maturing in more than seven days, if, as a result thereof,
more than 15% of the Fund's net assets, valued at the time of the transaction,
would be invested in such securities. The Fund does not generally make
investments for short-term profits, but it is not restricted in policy with
regard to portfolio turnover and will make changes in its investment portfolio
from time to time as business and economic conditions and market prices may
dictate and as its investment policy may require.
When a defensive position is deemed advisable, all or a significant portion of
the Fund's assets may be held temporarily in cash or defensive type securities,
such as high-grade debt securities, securities of the U.S. Government or its
agencies and high quality money market instruments, including repurchase
agreements. It is impossible to predict for how long such alternative strategies
may be utilized.
CLASSIC GROWTH FUND. Classic Growth Fund offers the following classes of shares:
Scudder Shares (the "Scudder Shares" or "Shares") and Classic Growth Fund Class
A, B and C shares (the "Kemper Shares"). Only the A, B and C Shares of Classic
Growth Fund are offered herein.
General. The Fund's investment objectives are to seek long-term growth of
capital with reduced share price volatility compared to other growth mutual
funds. This diversified equity fund is designed for investors looking to grow
their investment principal over time for retirement and other long-term needs.
While current income is not a stated objective of the Fund, many of the Fund's
securities may provide regular dividends, which are also expected to grow over
time.
While the Fund is broadly diversified and conservatively managed, with attention
paid to stock valuation and risk, its share price will move up and down with
changes in the general level of financial markets. Accordingly, shareholders
should be comfortable with stock market risk and view the Fund as a long-term
investment.
Except as otherwise indicated, the Fund's investment objectives 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 objectives will be
met.
Under normal market conditions, the Fund invests primarily in a diversified
portfolio of common stocks which the Fund's investment adviser, Scudder Kemper
Investments, Inc. (the "Investment Manager"), believes offers
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above-average appreciation potential yet, as a portfolio, offers the potential
for less share price volatility than other growth mutual funds.
In seeking such investments, the Investment Manager focuses its investment in
securities of high quality, medium-to-large sized U.S. companies with leading
competitive positions. Using in-depth fundamental company research along with
proprietary financial quality, stock rating and risk measures, the Investment
Manager looks for companies with strong and sustainable earnings growth, a
proven ability to add value over time, and reasonable stock market valuations.
These companies often have important business franchises, leading products,
services or technologies, or dominant marketing and distribution systems.
Classic Growth Fund's investment approach centers on identifying a group of
stocks with both attractive return potential and moderate risk. In order to
serve the Fund's dual objectives, the Fund's managers avoid "high-expectation"
stocks--stocks with tremendous performance potential but whose prices can
quickly tumble on earnings disappointments. Additionally, the portfolio managers
select stocks with higher average market capitalizations and lower average
price-earnings ratios than those held by the average growth fund. In general, a
fund comprised of stocks with lower P/E ratios will exhibit less volatility over
time. The portfolio managers will use portfolio construction techniques to
reduce overall portfolio risk. Although individual securities may experience
price volatility, the Fund will be managed for reduced share price fluctuation
in comparison to other growth funds.
The Fund allocates its investments among different industries and companies, and
adjusts its portfolio securities based on long-term investment considerations as
opposed to short-term trading. While the Fund emphasizes U.S. investments, it
can commit a portion of assets to the equity securities of foreign growth
companies that meet the criteria applicable to the Fund's domestic investments.
The Fund may invest up to 25% of the Fund's assets in listed and unlisted
foreign securities.
While the Fund invests primarily in common stocks, it can purchase other types
of equity securities including securities convertible into common stocks,
preferred stocks, rights, illiquid securities and warrants. The Fund's policy is
to remain substantially invested in these securities, which may be listed on
national securities exchanges or, less commonly, trade over-the-counter.
The Fund may purchase "investment-grade" bonds, rated Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard &
Poor's Corporation ("S&P") or, if unrated, judged to be of equivalent quality as
determined by the Investment Manager. The Fund may invest up to 20% of its net
assets in such debt securities when the Investment Manager anticipates that the
capital appreciation on debt securities is likely to equal or exceed the capital
appreciation on common stocks over a selected time, such as during periods of
unusually high interest rates. As interest rates fall, the prices of debt
securities tend to rise. The Fund may also invest in money market securities in
anticipation of meeting redemptions or paying Fund expenses. Also, the Fund may
purchase securities of other investment companies, enter into repurchase
agreements, reverse repurchase agreements and engage in strategic transactions.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as U.S. Government obligations and corporate debt instruments when the
Adviser deems such a position advisable in light of economic or market
conditions. It is impossible to accurately predict for how long such alternative
strategies may be utilized.
Additional Information about Investment Techniques
The following section includes disclosure about investment practices and
techniques which may be utilized by one or more funds described in this
Statement of Additional Information. The name of each fund authorized to utilize
the technique precedes its discussion. Specific limitations and policies
regarding the use of these techniques may be found in each fund's "Investment
Objective and Policies" section, as well as in "Investment Restrictions" below.
Descriptions in this Statement of Additional Information of a particular
investment
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practice or technique in which a Fund may engage or a financial instrument which
a Fund may purchase are meant to describe the spectrum of investments that
Scudder Kemper Investments, Inc. (the "Investment Manager"), in its discretion,
might, but is not required to, use in managing a Fund's portfolio assets. The
Investment Manager may, in its discretion, at any time employ such practice,
technique or instrument for one or more funds but not for all funds advised by
it. Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
Borrowing. The Fund will borrow only when the Investment Manager believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing. Borrowing by the Fund will involve special risk
considerations. Although the principal of the Fund's borrowings will be fixed,
the Fund's assets may change in value during the time a borrowing is
outstanding, proportionately increasing exposure to capital risk.
Common Stocks. Common stock is issued by companies to raise cash for business
purposes and represents a proportionate interest in the issuing companies.
Therefore, the Fund participates in the success or failure of any company in
which it holds stock. The market values of common stock can fluctuate
significantly, reflecting the business performance of the issuing company,
investor perception and general economic and financial market movements. Despite
the risk of price volatility, however, common stocks have historically offered a
greater potential for long-term gain on investment, compared to other classes of
financial assets such as bonds or cash equivalents, although there can be no
assurance that this will be true in the future.
Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest are either fixed income
or zero coupon debt securities which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. The
exchange ratio for any particular convertible security may be adjusted from time
to time due to stock splits, dividends, spin-offs, other corporate distributions
or scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
Of course, like all debt securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations.
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Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).
Investment-Grade Bonds. The Fund may purchase "investment-grade" bonds, which
are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Investment
Manager. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. To the extent that the Fund invests in
higher-grade securities, the Fund will not be able to avail itself of
opportunities for higher income which may be available at lower grades.
Depositary Receipts. The Fund may invest in sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and
other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary receipts provide
indirect investment in securities of foreign issuers. Prices of unsponsored
Depositary Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. ADRs are Depositary
Receipts which are bought and sold in the United States and are typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities by a foreign corporation. GDRs, IDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities. Depositary Receipts, including those denominated in U.S.
dollars will be subject to foreign currency exchange rate risk. However, by
investing in U.S. dollar-denominated ADRs rather than directly in foreign
issuers' stock, the Fund avoids currency risks during the settlement period. In
general, there is a large, liquid market in the United States for most ADRs.
However, certain Depositary Receipts may not be listed on an exchange and
therefore may be illiquid securities.
Euro. The implementation of the Euro may result in uncertainties for European
securities and the operation of the Fund. The Euro was introduced on January 1,
1999 by eleven members countries of the European Economic and Monetary Union
(EMU). Implementation of the Euro requires the redenomination of European debt
and equity securities over a period of time, which may result in various
accounting differences and/or tax treatments which would not otherwise occur.
Additional questions are raised by the fact that certain other European
Community members, including the United Kingdom, did not officially implement
the Euro on January 1, 1999.
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various currencies.
Fluctuations in exchange rates may also affect the earning power and asset value
of the foreign entity issuing the security.
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The strength or weakness of the U.S. dollar against these currencies is
responsible for part of the Fund's investment performance. If the dollar falls
in value relative to the Japanese yen, for example, the dollar value of a
Japanese stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall. Many foreign
currencies have experienced significant devaluation relative to the dollar.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
options or forward or futures contracts to purchase or sell foreign currencies.
Foreign Fixed Income Securities. Since most foreign fixed income securities are
not rated, the Fund will invest in foreign fixed income securities based on the
Investment Manager's analysis without relying on published ratings. Since such
investments will be based upon the Investment Manager's analysis rather than
upon published ratings, achievement of the Fund's goals may depend more upon the
abilities of the Investment Manager than would otherwise be the case.
The value of the foreign fixed income securities held by the Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which the Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of the Fund's
investments in foreign fixed income securities, and the extent to which the Fund
hedges its interest rate, credit and currency exchange rate risks. A longer
average maturity generally is associated with a higher level of volatility in
the market value of such securities in response to changes in market conditions.
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and the Fund may be unable to
collect all or any part of its investment in a particular issue. Foreign
investment in certain sovereign debt is restricted or controlled to varying
degrees, including requiring governmental approval for the repatriation of
income, capital or proceed of sales by foreign investors. These restrictions or
controls may at times limit or preclude foreign investment in certain sovereign
debt or increase the costs and expenses of the Fund. Sovereign debt may be
issued as part of debt restructuring and such debt is to be considered
speculative. There is a history of defaults with respect to commercial bank
loans by public and private entities issuing Brady Bonds. All or a portion of
the interest payments and/or principal repayment with respect to Brady Bonds may
be uncollateralized.
Foreign Securities. Investing in foreign securities involves certain special
considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity,
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have substantially less volume than the U.S. market, and securities of some
foreign issuers are less liquid and more volatile than securities of domestic
issuers. Similarly, volume and liquidity in most foreign bond markets is less
than in the U.S. and, at times, volatility of price can be greater than in the
U.S. Fixed commissions on some foreign securities exchanges and bid to asked
spreads in foreign bond markets are generally higher than commissions or bid to
asked spreads on U.S. markets, although the Investment Manager will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less governmental supervision and regulation of securities exchanges,
brokers and listed companies in foreign countries than in the U.S. It may be
more difficult for the Fund's agents to keep currently informed about corporate
actions in foreign countries which may affect the prices of portfolio
securities. Communications between the U.S. and foreign countries may be less
reliable than within the U.S., thus increasing the risk of delayed settlements
of portfolio transactions or loss of certificates for portfolio securities.
Payment for securities without delivery may be required in certain foreign
markets. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect U.S. investments in
those countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. The management of the Fund seeks to mitigate the
risks associated with the foregoing considerations through continuous
professional management.
High Yield/High Risk Bonds. The Fund may also purchase debt securities which are
rated below investment-grade (commonly referred to as "junk bonds"), that is,
rated below Baa by Moody's or below BBB by S&P and unrated securities judged to
be of equivalent quality as determined by the Investment Manager. These
securities usually entail greater risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk to principal and income, and may be less liquid,
than securities in the higher rating categories. The lower the ratings of such
debt securities, the more their risks render them like equity securities.
Securities rated D may be in default with respect to payment of principal or
interest. [See the Appendix to this Statement of Additional Information for a
more complete description of the ratings assigned by ratings organizations and
their respective characteristics].
Issuers of such high yielding securities often are highly leveraged and may not
have available to them more traditional methods of financing. Therefore, the
risk associated with acquiring the securities of such issuers generally is
greater than is the case with higher rated securities. For example, during an
economic downturn or or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yield securities because
such securities are generally unsecured and are often subordinated to other
creditors of the issuer. Prices and yields of high yield securities will
fluctuate over time and, during periods of economic uncertainty, volatility of
high yield securities may adversely affect the Fund's net asset value. In
addition, investments in high yield zero coupon or pay-in-kind bonds, rather
than income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The Fund may have difficulty disposing of certain high yield (high risk)
securities because they may have a thin trading market. Because not all dealers
maintain markets in all high yield securities, the Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market may have an adverse effect on
the market price and the Fund's ability to dispose of particular issues and may
also make it more difficult for the Fund to obtain accurate market quotations
for purposes of valuing the Fund's assets. Market quotations generally are
available on many high yield issues only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales.
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Adverse publicity and investor perceptions may decrease the values and liquidity
of high yield securities. These securities may also involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
generally the policy of the Investment Manager not to rely exclusively on
ratings issued by established credit rating agencies, but to supplement such
ratings with its own independent and on-going review of credit quality. The
achievement of the Fund's investment objective by investment in such securities
may be more dependent on the Investment Manager's credit analysis than is the
case for higher quality bonds. Should the rating of a portfolio security be
downgraded, the Investment Manager will determine whether it is in the best
interests of the Fund to retain or dispose of such security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. Also, Congress has from time to time considered
legislation which would restrict or eliminate the corporate tax deduction for
interest payments in these securities and regulate corporate restructurings.
Such legislation may significantly depress the prices of outstanding securities
of this type.
Illiquid Securities and Restricted Securities. The Fund may purchase securities
that are subject to legal or contractual restrictions on resale ("restricted
securities"). Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the Securities Act of 1933, as
amended. Issuers of restricted securities may not be subject to the disclosure
and other investor protection requirements that would be applicable if their
securities were publicly traded.
Restricted securities are often illiquid, but they may also be liquid. For
example, restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid. ).
[The Fund's Board has approved guidelines for use by the Investment Manager in
determining whether a security is liquid or illiquid. Among the factors the
Investment Manager may consider in reaching liquidity decisions relating to Rule
144A securities are: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the market
for the security (i.e., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of the transfer).]
Issuers of restricted securities may not be subject to the disclosure and other
investor protection requirement that would be applicable if their securities
were publicly traded. Where a registration statement is required for the resale
of restricted securities, the Fund may be required to bear all or part of the
registration expenses. The Fund may be deemed to be an "underwriter" for
purposes of the Securities Act of 1933, as amended when selling restricted
securities to the public and, in such event, the Fund may be liable to
purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
The Fund may also purchase securities that are not subject to legal or
contractual restrictions on resale, but that are deemed illiquid. Such
securities may be illiquid, for example, because there is a limited trading
market for them.
The Fund may be unable to sell a restricted or illiquid security. In addition,
it may be more difficult to determine a market value for restricted or illiquid
securities. Moreover, if If adverse market conditions were to develop during the
period between the Fund's decision to sell a restricted or illiquid security and
the point at which the Fund is permitted or able to sell such security, the Fund
might obtain a price less favorable than the price that prevailed when it
decided to sell.
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This investment practice, therefore, could have the effect of increasing the
level of illiquidity of the Fund.
Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC which permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Manager. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.
[*Explanatory note: Depending on the non-fundamental borrowing policy of the
Fund[s] for which this SAI disclosure is made, the borrowing exceptions noted
for reverse repurchase agreements and dollar rolls may have to be revised.]
Investing in Emerging Markets. The Fund's investments in foreign securities may
be in developed countries or in countries considered by the Fund's Investment
Manager to have developing or "emerging" markets, which involves exposure to
economic structures that are generally less diverse and mature than in the
United States, and to political systems that may be less stable. A developing or
emerging market country can be considered to be a country that is in the initial
stages of its industrialization cycle. Currently, emerging markets generally
include every country in the world other than the United States, Canada, Japan,
Australia, New Zealand, Hong Kong, Singapore and most Western European
countries. Currently, investing in many emerging markets may not be desirable or
feasible because of the lack of adequate custody arrangements for the Fund's
assets, overly burdensome repatriation and similar restrictions, the lack of
organized and liquid securities markets, unacceptable political risks or other
reasons. As opportunities to invest in securities in emerging markets develop,
the Fund may expand and further broaden the group of emerging markets in which
it invests. In the past, markets of developing or emerging market countries have
been more volatile than the markets of developed countries; however, such
markets often have provided higher rates of return to investors. The Investment
Manager believes that these characteristics may be expected to continue in the
future.
Most emerging securities markets have substantially less volume and are subject
to less governmental supervision than U.S. securities markets. Securities of
many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. In addition, there is less regulation
of securities exchanges, securities dealers, and listed and unlisted companies
in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Costs associated with transactions in foreign securities are
generally higher than costs
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associated with transactions in U.S. securities. Such transactions also involve
additional costs for the purchase or sale of foreign currency.
Certain emerging markets require prior governmental approval of investments by
foreign persons, limit the amount of investment by foreign persons in a
particular company, limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors. Certain emerging markets may also
restrict investment opportunities in issuers in industries deemed important to
national interest.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
In the course of investment in emerging markets, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. While the Fund will manage its assets in a manner that
will seek to minimize the exposure to such risks, there can be no assurance that
adverse political, social or economic changes will not cause the Fund to suffer
a loss of value in respect of the securities in the Fund's portfolio.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available. The Fund may suspend redemption of its shares for any
period during which an emergency exists, as determined by the Securities and
Exchange Commission. Accordingly if the Fund believes that appropriate
circumstances exist, it will promptly apply to the Securities and Exchange
Commissionfor a determination that an emergency is present. During the period
commencing from the Fund's identification of such condition until the date of
the Securities and Exchange Commission action, the Fund's securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Fund's Board.
Volume and liquidity in most foreign markets are less than in the U.S., and
securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for certificated portfolio securities. In addition, with respect to
certain emerging markets, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect the Fund's investments in those countries.
Moreover, individual emerging market economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
The Fund may have limited legal recourse in the event of a default with respect
to certain debt obligations it holds. If the issuer of a fixed-income security
owned by the Fund defaults, the Fund may incur additional expenses to seek
recovery. Debt obligations issued by emerging market country governments differ
from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
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that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements.
Income from securities held by the Fund could be reduced by a withholding tax at
the source or other taxes imposed by the emerging market countries in which the
Fund makes its investments. The Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the Fund or to
entities in which the Fund has invested. The Investment Manager will consider
the cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the taxes will not be subject to
change.
Many emerging markets have experienced substantial, and, in some periods,
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. Certain emerging market governmental issuers have not
been able to make payments of interest on or principal of debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given country. As a result, government actions in the future could have a
significant effect on economic conditions in emerging markets, which in turn,
may adversely affect companies in the private sector, general market conditions
and prices and yields of certain of the securities in the Fund's portfolio.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments have occurred frequently over
the history of certain emerging markets and could adversely affect the Fund's
assets should these conditions recur.
The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.
To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and inflows of foreign investment. The access of emerging markets to these forms
of external funding may not be certain, and a withdrawal of external funding
could adversely affect the capacity of emerging market country governmental
issuers to make payments on their obligations. In addition, the cost of
servicing emerging market debt obligations can be affected by a change in
international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.
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.
Investment of Uninvested Cash Balances. The Fund may have cash balances that
have not been invested in portfolio securities ("Uninvested Cash"). Uninvested
Cash may result from a variety of sources, including dividends or interest
received from portfolio securities, unsettled securities transactions, reserves
held for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions and
dividend payments, and new cash received from investors. Uninvested Cash may be
invested directly in money market instruments or other short-term debt
obligations. Pursuant to an Exemptive Order issued by the SEC, the Fund may use
Uninvested Cash to purchase shares of affiliated funds including money market
funds, short-term bond funds and Scudder Cash Management Investment Trust, or
one or more future entities for which Scudder Kemper Investments acts as trustee
or investment advisor that operate as cash management investment vehicles and
that are excluded from the definition of investment company pursuant to section
3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (collectively, the
"Central Funds") in excess of the limitations of Section 12(d)(1) of the
Investment Company Act. Investment by the Fund in shares of the Central Funds
will be in accordance with the Fund's investment policies and restrictions as
set forth in its registration statement.
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Certain of the Central Funds comply with rule 2a-7 under the Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance the Fund's ability to
manage Uninvested Cash.
The Fund will invest Uninvested Cash in Central Funds only to the extent that
the Fund's aggregate investment in the Central Funds does not exceed 25% of its
total assets in shares of the Central Funds. Purchase and sales of shares of
Central Funds are made at net asset value.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions, and are required to be secured
continuously by collateral in cash or liquid assets, maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. The Fund has the right to call a loan and obtain the
securities loaned on five days' notice or, in connection with securities trading
on foreign markets, within such longer period of time which coincides with the
normal settlement period for purchases and sales of such securities in such
foreign markets. During the existence of a loan, the Fund continues to receive
the equivalent of any distributions paid by the issuer on the securities loaned
and also receives compensation based on investment of the collateral. The risks
in lending securities, as with other extensions of secured credit, consist of a
possible delay in recovery and a loss of rights in the collateral should the
borrower of the securities fail financially. Loans may be made only to firms
deemed by the Investment Manager to be of good standing and will not be made
unless, in the judgment of the Investment Manager, the consideration to be
earned from such loans would justify the risk.
Non-diversified. As a non-diversified fund, the Fund may invest a greater
proportion of its assets in the obligations of a small number of issuers, and
may be subject to greater risk and substantial losses as a result of changes in
the financial condition or the market's assessment of the issuers. While not
limited by the 1940 Act as to the proportion of its assets that it may invest in
obligations of a single issuer, the Fund will comply with the diversification
requirements imposed by the Internal Revenue Code for qualification as a
regulated investment company.
Privatized Enterprises. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. The Fund's investments in the
securities of privatized enterprises may include privately negotiated
investments in a government or state-owned or controlled company or enterprise
that has not yet conducted an initial equity offering, investments in the
initial offering of equity securities of a state enterprise or former state
enterprise and investments in the securities of a state enterprise following its
initial equity offering.
In certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which the Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as an enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
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years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering, these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
operate effectively in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
Real Estate Investment Trusts ("REITs"). REITs are sometimes informally
characterized as equity REITs, mortgage REITs and hybrid REITs. Investment in
REITs may subject the Fund to risks associated with the direct ownership of real
estate, such as decreases in real estate values, overbuilding, increased
competition and other risks related to local or general economic conditions,
increases in operating costs and property taxes, changes in zoning laws,
casualty or condemnation losses, possible environmental liabilities, regulatory
limitations on rent and fluctuations in rental income. Equity REITs generally
experience these risks directly through fee or leasehold interests, whereas
mortgage REITs generally experience these risks indirectly through mortgage
interests, unless the mortgage REIT forecloses on the underlying real estate.
Changes in interest rates may also affect the value of the Fund's investment in
REITs. For instance, during periods of declining interest rates, certain
mortgage REITs may hold mortgages that the mortgagors elect to prepay, which
prepayment may diminish the yield on securities issued by those REITs.
Certain REITs have relatively small market capitalizations, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended, and to maintain exemption from the registration requirements of the
Investment Company Act of 1940, as amended. By investing in REITs indirectly
through the Fund, a shareholder will bear not only his or her proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of the
REITs. In addition, REITs depend generally on their ability to generate cash
flow to make distributions to shareholders.
Repurchase Agreements. The Fund may invest in repurchase agreements pursuant to
its investment guidelines. In a repurchase agreement, the Fund acquires
ownership of a security and simultaneously commits to resell that security to
the seller, typically a bank or broker/dealer.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and, as described in more detail below, the value of such securities is
kept at least equal to the repurchase price on a daily basis. The repurchase
price may be higher than the purchase price, the difference being income to the
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to the Fund together with the repurchase price upon repurchase.
In either case, the income to the Fund is unrelated to the interest rate on the
Obligation itself. Obligations will be held by the custodian or in the Federal
Reserve Book Entry System.
[It is not clear whether a court would consider the Obligation
purchased by the Fund subject to a repurchase agreement as being owned by the
Fund or as being collateral for a loan by the Fund to the seller.] In the event
of the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. [If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all
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of the principal and income involved in the transaction.] As with any unsecured
debt Obligation purchased for the Fund, the Investment Manager seeks to reduce
the risk of loss through repurchase agreements by analyzing the creditworthiness
of the obligor, in this case the seller of the Obligation. Apart from the risk
of bankruptcy or insolvency proceedings, there is also the risk that the seller
may fail to repurchase the Obligation, in which case the Fund may incur a loss
if the proceeds to the Fund of the sale to a third party are less than the
repurchase price. However, if the market value (including interest) of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value (including interest) of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase such securities at an agreed time and
price. The Fund maintains a segregated account in connection with outstanding
reverse repurchase agreements. The Fund will enter into reverse repurchase
agreements only when the Investment Manager believes that the interest income to
be earned from the investment of the proceeds of the transaction will be greater
than the interest expense of the transaction. Such transactions may increase
fluctuations in the market value of Fund assets and its yield.
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 Manager'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 Manager'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
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transactions can result in the Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than 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
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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 Manager 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 Manager. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by the Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject to
the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts other
than futures on individual corporate debt and individual equity securities. The
Fund will not sell put options if, as a result, more than 50% of the Fund's
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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 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
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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 Manager.
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 Manager considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Manager believes
that the value of schillings will decline against the U.S. dollar, the Manager
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
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subject to the maintenance of a liquid market which may not always be available.
Currency exchange rates may fluctuate based on factors extrinsic to that
country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Manager, 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 Manager'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 Manager 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
Manager. 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.
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Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency will
generally require the Fund to hold an amount of that currency or liquid assets
denominated in that currency equal to the Fund's obligations or to segregate
cash or liquid assets equal to the amount of the Fund's obligation.
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.
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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.
Warrants. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Investment Restrictions
The following restrictions may not be changed with respect to a Fund without the
approval of a majority of the outstanding voting securities of such Fund which,
under the 1940 Act and the rules thereunder and as used in this Statement of
Additional Information, means the lesser of (i) 67% of the shares of such Fund
present at a meeting if the holders of more than 50% of the outstanding shares
of such Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of such Fund.
The Aggressive Growth Fund has elected to be classified as a non-diversified
open-end investment fund. The Blue Chip Fund, Classic Growth Fund, Growth Fund,
Small Cap Fund, Technology Fund, Total Return Fund and Value+Growth Fund have
elected to be classified as diversified open-end investment funds.
In addition, as a matter of fundamental policy, each Fund will not:
(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(3) purchase physical commodities or contracts relating to
physical commodities;
(4) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(5) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(6) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities; and
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(7) make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
Each Fund has adopted the following non-fundamental restrictions, which may be
changed by the Board without shareholder approval. Each Fund may not:
1. borrow money in an amount greater than 5% of its total assets
(one-third of total assets for Aggressive Growth Fund and Kemper Blue
Chip Fund), except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or other
investments or transactions described in the Fund's registration
statement which may be deemed to be borrowings;
2. enter into either of reverse repurchase agreements or dollar rolls in
an amount greater than 5% of its total assets;
3. purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage transactions,
(iii) for margin deposits in connection with futures contracts, options
or other permitted investments, (iv) that transactions in futures
contracts and options shall not be deemed to constitute selling
securities short, and (v) that the Fund may obtain such short-term
credits as may be necessary for the clearance of securities
transactions;
4. purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of the
obligations underlying such put options would exceed 50% of its total
assets;
5. enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf of
the Fund and the premiums paid for such options on futures contracts
does not exceed 5% of the fair market value of the Fund's total assets;
provided that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in computing the
5% limit;
6. purchase warrants if as a result, such securities, taken at the lower
of cost or market value, would represent more than 5% of the value of
the Fund's total assets (for this purpose, warrants acquired in units
or attached to securities will be deemed to have no value); and
7. lend portfolio securities in an amount greater than one-third of its
total assets (5% for Classic Growth Fund)
8. invest more than 15% of net assets in illiquid securities (except
Classic Growth Fund, which limits investments in illiquid securities
according to the Investment Company Act of 1940).
Net Asset Value
The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A shares of a Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of [the/a] Fund is computed as of the close of regular
trading on the New York Stock Exchange (the "Exchange") on each day the Exchange
is open for trading (the "Value Time"). The Exchange is scheduled to be closed
on the following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively. Net
asset value per share is determined separately for each class of shares by
dividing the value of the total assets of [the/a] Fund attributable to the share
of that class, less all liabilities, by the total number of shares outstanding.
28
<PAGE>
An exchange-traded equity security is valued at its most recent sale price on
the exchange it is traded as of the Value Time. Lacking any sales, the security
is valued at the calculated mean between the most recent bid quotation and the
most recent asked quotation (the "Calculated Mean") on such exchange as of the
Value Time. Lacking a Calculated Mean the security is valued at the most recent
bid quotation on such exchange as of the Value Time. An equity security which is
traded on the National Association of Securities Dealers Automated Quotation
("Nasdaq") system will be valued at its most recent sale price on such system as
of the Value Time. Lacking any sales, the security is valued at the most recent
bid quotation as of the Value Time. The value of an equity security not quoted
on the Nasdaq System, but traded in another over-the-counter market, is its most
recent sale price if there are any sales of such security on such market as of
the Value Time. Lacking any sales, the security is valued at the Calculated Mean
quotation for such security as of the Value Time. Lacking a Calculated Mean
quotation the security is valued at the most recent bid quotation as of the
Value Time.
Debt securities, other than money market instruments, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide market maker. If it is not possible to value a particular debt
security pursuant to the above methods, the Investment Manager of the particular
fund may calculate the price of that debt security, subject to limitations
established by the Board.
An exchange traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Valuation Committee, the value of a portfolio asset as
determined in accordance with these procedures does not represent the fair
market value of the portfolio asset, the value of the portfolio asset is taken
to be an amount which, in the opinion of the Valuation Committee, represents
fair market value on the basis of all available information. The value of other
portfolio holdings owned by [the/a] Fund is determined in a manner which, in the
discretion of the Valuation Committee most fairly reflects fair market value of
the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.
Transaction Information
PURCHASE OF SHARES
Alternative Purchase Arrangements. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales
29
<PAGE>
charge payable upon certain redemptions within the first year following
purchase, and do not convert into another class. [IF APPROPRIATE: Class I shares
are offered at net asset value without an initial sales charge and are not
subject to a contingent deferred sales charge or a Rule 12b-1 distribution fee.]
When placing purchase orders, investors must specify which class of shares the
order is for.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. 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>
--------------------------------------------------------------------------------------------------------------
Sales Annual 12b-1 Fees(as a % of
Charge average daily net assets) Other Information
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge
5.75% of the public offering waived or reduced for
price certain purchases
(4. 5% for Kemper Global Income
Fund)
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B Maximum contingent deferred 0.75% Shares convert to
sales charge of 4% of redemption Class A shares six years
proceeds; declines to zero after after issuance
six years
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
--------------------------------------------------------------------------------------------------------------
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond value of 2% or more of the certificate value is normally required).
30
<PAGE>
Initial Sales Charge Alternative -- Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge Allowed to
As a Percentage of As a Percentage of Net Dealers as a Percentage of
Amount of Purchase Offering Price Asset Value* Offering Price
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.20%
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over 0.00** 0.00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales
charge as discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
Kemper Distributors, Inc. ("KDI"), the Funds' principal underwriter, retains the
sales charge on sales of Class A shares from which it allows discounts from the
applicable public offering price to investment dealers, which discounts are
uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow to dealers up to the
full applicable sales charge, as shown in the above table, during periods and
for transactions specified in such notice and such reallowances may be based
upon attainment of minimum sales levels. During periods when 90% or more of the
sales charge is reallowed, such dealers may be deemed to be underwriters as that
term is defined in the Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or Kemper Mutual Funds
listed under "Special Features -- Class A Shares -- Combined Purchases" totals
at least $1,000,000 (the "Large Order NAV Purchase Privilege") including
purchases of Class A shares pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features;"
or (b) a participant-directed qualified retirement plan described in Code
Section 401(a) or a participant-directed non-qualified deferred compensation
plan described in Code Section 457 or a participant-directed qualified
retirement plan described in Code Section 403(b)(7) which is not sponsored by a
K-12 school district, provided in each case that such plan has not less than 200
eligible employees] (the "Large Order NAV Purchase Privilege"). Redemption
within two years of shares purchased under the Large Order NAV Purchase
Privilege may be subject to a contingent deferred sales charge. See "Purchase,
Repurchase and Redemption of Shares -- Contingent Deferred Sales Charge -- Large
Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on
31
<PAGE>
the next $45 million and 0.25% on amounts over $50 million. The commission
schedule will be reset on a calendar year basis for sales of shares pursuant to
the Large Order NAV Purchase Privilege to employer sponsored employee benefit
plans using the subaccount record keeping system made available through KSvC.
For purposes of determining the appropriate commission percentage to be applied
to a particular sale under the Funds' foregoing schedule, KDI will consider the
cumulative amount invested by the purchaser in a Fund and other Kemper Mutual
Funds listed under "Special Features -- Class A Shares -- Combined Purchases,"
including purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above and including purchases of
class R shares of certain Scudder funds. The privilege of purchasing Class A
shares of a Fund at net asset value under the Large Order NAV Purchase Privilege
is not available if another net asset value purchase privilege also applies.
Class A shares of a Fund or any other Kemper Mutual Fund listed under "Special
Features -- Class A Shares -- Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at net asset
value pursuant to this privilege, KDI may at its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to 0.25% of net assets attributable to such shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to shares purchased under this
privilege in the month after the month of purchase and the concession continues
until terminated by KDI. The privilege of purchasing Class A shares of a Fund at
net asset value under this privilege is not available if another net asset value
purchase privilege also applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its Manager , its principal underwriter or certain affiliated companies,
for themselves or members of their families; (b) registered representatives and
employees of broker-dealers having selling group agreements with KDI and
officers, directors and employees of service agents of the Funds, for themselves
or their spouses or dependent children; (c) shareholders who owned shares of
Kemper Value Series, Inc. ("KVS") on September 8, 1995, and have continuously
owned shares of KVS (or a Kemper Fund acquired by exchange of KVS shares) since
that date, for themselves or members of their families; (d) any trust, pension,
profit-sharing or other benefit plan for only such persons; (e) persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm; and (f) persons who purchase shares of the Fund
through KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Funds for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase a Fund's Class A shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisors registered under the Investment Advisors Act of 1940
and other financial services firms that adhere to certain standards established
by KDI, including a requirement that
32
<PAGE>
such shares be sold for the benefit of their clients participating in an
investment advisory program under which such clients pay a fee to the investment
advisor or other firm for portfolio management and other services. Such shares
are sold for investment purposes and on the condition that they will not be
resold except through redemption or repurchase by the Funds. The Funds may also
issue Class A shares at net asset value in connection with the acquisition of
the assets of or merger or consolidation with another investment company, or to
shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Purchase, Repurchase and Redemption of Shares -- Contingent
Deferred Sales Charge -- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share. The purpose of the conversion feature is to relieve holders of Class
B shares from the distribution services fee when they have been outstanding long
enough for KDI to have been compensated for distribution related expenses. For
purposes of conversion to Class A shares, shares purchased through the
reinvestment of dividends and other distributions paid with respect to Class B
shares in a shareholder's Fund account will be converted to Class A shares on a
pro rata basis.
Purchase of Class C Shares. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Purchase, Repurchase and Redemption of Shares -- Contingent Deferred Sales
Charge -- Class C Shares." KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms for sales of
Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75%
of net assets attributable to Class C shares maintained and serviced by the
firm. KDI is compensated by each Fund for services as distributor and principal
underwriter for Class C shares. See "Investment Manager and Underwriter."
Purchase of Class I Shares. Class I shares are offered at net asset value
without an initial sales charge and are not subject to a contingent deferred
sales charge or a Rule 12b-1 distribution fee. Also, there is no administration
services fee charged to Class I
33
<PAGE>
shares. As a result of the relatively lower expenses for Class I shares, the
level of income dividends per share (as a percentage of net asset value) and,
therefore, the overall investment value, will typically be higher for Class I
shares than for Class A, Class B, or Class C shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper and its affiliates and rollover accounts from those plans; (2) the
following investment advisory clients of Scudder Kemper and its investment
advisory affiliates that invest at least $1 million in a Fund: unaffiliated
benefit plans, such as qualified retirement plans (other than individual
retirement accounts and self-directed retirement plans); unaffiliated banks and
insurance companies purchasing for their own accounts; and endowment funds of
unaffiliated non-profit organizations; (3) investment-only accounts for large
qualified plans, with at least $50 million in total plan assets or at least 1000
participants; (4) trust and fiduciary accounts of trust companies and bank trust
departments providing fee based advisory services that invest at least $1
million in a Fund on behalf of each trust; (5) policy holders under
Zurich-American Insurance Group's collateral investment program investing at
least $200,000 in a Fund; and (6) investment companies managed by Scudder Kemper
that invest primarily in other investment companies. Class I shares currently
are available for purchase only from KDI, principal underwriter for the Funds,
and, in the case of category (4) above, selected dealers authorized by KDI.
Share certificates are not available for Class I shares.
Which Arrangement is Better for You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or Kemper Mutual Funds listed
under "Special Features -- Class A Shares -- Combined Purchases" is in excess of
$5 million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
[ONLY FOR FUNDS OFFERING CLASS I SHARES: Class I shares are available only to
certain institutional investors.]
General. Shares of a Fund are sold at their public offering price, which is the
net asset value per share of the Fund next determined after an order is received
in proper form plus, with respect to Class A shares, an initial sales charge.
The minimum initial investment is $1,000 and the minimum subsequent investment
is $100 but such minimum amounts may be changed at any time. An order for the
purchase of shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until a Fund determines that it
has received payment of the proceeds of the check. The time required for such a
determination will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by a Fund at the applicable net asset value
per share of such Fund. The amount received by a shareholder upon redemption or
repurchase may be more or less than the amount paid for such shares depending on
the market value of a Trust's portfolio securities at the time.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemption of Class B or Class C shares by certain classes of persons or through
certain types of transactions are provided because of anticipated economies in
sales and sales related efforts.
34
<PAGE>
Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires each Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. Each Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period. Shareholders should
direct their inquiries to Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105-2005 or to the firm from which they received this Statement of
Additional Information.
Redemptions and Exchanges
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange ("Exchange") is closed
other than customary weekend and holiday closings or during any period in which
trading on the Exchange is restricted, (b) during any period when an emergency
exists as a result of which (i) disposal of a Fund's investments is not
reasonably practicable, or (ii) it is not reasonably practicable for a Fund to
determine the value of its net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of a
Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares and the assessment of the administrative services fee with
respect to each class does not result in a Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date.
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI to accept purchase and
redemption orders for a Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on a Fund's behalf. Orders for
purchase or redemption will be deemed to have been received by a Fund when such
brokers or their authorized designees accept the orders. Subject to the terms of
the contract between a Fund and the broker, ordinarily orders will be priced at
a Fund's net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or redemptions of a Fund's shares
are arranged and settlement is made at an investor's election through any other
authorized NASD member, that member may, at its discretion, charge a fee for
that service. The Board of Trustees or Directors as the case may be ("Board") of
a Fund and KDI each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Board and KDI may suspend or terminate the
offering of shares of a Fund at any time for any reason.
General. Any shareholder may require a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Funds' transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is
35
<PAGE>
normally required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet received
good payment (i.e., purchases by check, EXPRESS-Transfer or Bank Direct
Deposit), it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which may be up to 10 days from receipt by a Fund of the purchase
amount. The redemption within two years of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge (see "Purchase, Repurchase and Redemption of
Shares -- Initial Sales Charge Alternative -- Class A Shares"), the redemption
of Class B shares within six years may be subject to a contingent deferred sales
charge (see "Contingent Deferred Sales Charge -- Class B Shares" below), and the
redemption of Class C shares within the first year following purchase may be
subject to a contingent deferred sales charge (see "Contingent Deferred Sales
Charge -- Class C Shares" below).
Because of the high cost of maintaining small accounts, the Funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless a Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephone instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor, guardian and custodial account
holders, provided the trustee, executor, guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the
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telephone redemption privilege, although investors can still redeem by mail. The
Funds reserve the right to terminate or modify this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the applicable Fund next determined after receipt
of a request by KDI. However, requests for repurchases received by dealers or
other firms prior to the determination of net asset value (see "Net Asset
Value") and received by KDI prior to the close of KDI's business day will be
confirmed at the net asset value effective on that day. The offer to repurchase
may be suspended at any time. Requirements as to stock powers, certificates,
payments and delay of payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of a Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by a Fund for up to seven days if
the Fund or the Shareholder Servicing Agent deems it appropriate under then
current market conditions. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048 or in writing,
subject to the limitations on liability described under "General" above. The
Funds are not responsible for the efficiency of the federal wire system or the
account holder's financial services firm or bank. The Funds currently do not
charge the account holder for wire transfers. The account holder is responsible
for any charges imposed by the account holder's firm or bank. There is a $1,000
wire redemption minimum (including any contingent deferred sales charge). To
change the designated account to receive wire redemption proceeds, send a
written request to the Shareholder Service Agent with signatures guaranteed as
described above or contact the firm through which shares of a Fund were
purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire transfer until such shares have been owned
for at least 10 days. Account holders may not use this privilege to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege. The Funds reserve the right to
terminate or modify this privilege at any time.
Contingent Deferred Sales Charge -- Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.
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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) and (d) for redemptions made pursuant to
any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2; and (e)
for redemptions to satisfy required minimum distributions after age 70 1/2 from
an IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
Contingent Deferred Sales Charge--Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of: (a)
redemptions by a participant-directed qualified retirement plan described in
Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457; (b) redemptions by employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent; (c) redemption of shares of a
shareholder (including a registered joint owner) who has died; (d) redemption of
shares of a shareholder (including a registered joint owner) who after purchase
of the shares being redeemed becomes totally disabled
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(as evidenced by a determination by the federal Social Security Administration);
(e) redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account; (f) any participant-directed
redemption of shares held by employer sponsored employee benefit plans
maintained on the subaccount record keeping system made available by the
Shareholder Service Agent; (g) redemption of shares by an employer sponsored
employee benefit plan that offers funds in addition to Kemper Funds and whose
dealer of record has waived the advance of the first year administrative service
and distribution fees applicable to such shares and agrees to receive such fees
quarterly; and (h) redemption of shares purchased through a dealer-sponsored
asset allocation program maintained on an omnibus record-keeping system provided
the dealer of record has waived the advance of the first year administrative
services and distribution fees applicable to such shares and has agreed to
receive such fees quarterly.
Contingent Deferred Sales Charge -- General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of a Fund's Class B shares and that
16 months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge under the schedule above is
determined by the length of the period of ownership. Investments are tracked on
a monthly basis. The period of ownership for this purpose begins the first day
of the month in which the order for the investment is received. In the event no
specific order is requested when redeeming shares subject to a contingent
deferred sales charge, the redemption will be made first from shares
representing reinvested dividends and then from the earliest purchase of shares.
KDI receives any contingent deferred sales charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of a Fund
or any Kemper Mutual Fund listed under "Special Features -- Class A Shares --
Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the listed Kemper Mutual Funds. A shareholder of a Fund or Kemper
Mutual Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase, Repurchase and Redemption of Shares --
Initial Sales Charge Alternative -- Class A Shares") or Class B shares or Class
C shares and incurs a contingent deferred sales charge may reinvest up to the
full amount redeemed at net asset value at the time of the reinvestment in Class
A shares, Class B shares or Class C shares, as the case may be, of a Fund or of
Kemper Mutual Funds. The amount of any contingent deferred sales charge also
will be reinvested. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares of a Fund or of the Kemper Mutual Funds listed under "Special
Features -- Class A Shares -- Combined Purchases." Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Mutual
Funds available for sale in the shareholder's state of residence as listed under
"Special Features -- Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of a Funds'
shares, the reinvestment in the same Fund may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. In addition, upon
a reinvestment, the shareholder may not be permitted to take into account sales
charges incurred on the original purchase of shares in computing their taxable
gain or loss. The reinvestment privilege may be terminated or modified at any
time.
SPECIAL FEATURES
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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
Florida Tax-Free Income Fund, Kemper Global Blue Chip Fund, Kemper Global Income
Fund, Kemper Growth Fund, Kemper High Yield Fund, Kemper High Yield Fund II,
Kemper High Yield Opportunity Fund, Kemper Horizon 10+ Portfolio, Kemper Horizon
20+ Portfolio, Kemper Horizon 5 Portfolio, Kemper Income and Capital
Preservation Fund, Kemper Intermediate Municipal Bond Fund, Kemper International
Fund, Kemper International Research Fund, Kemper Large Company Growth Fund
(currently available only to employees of Scudder Kemper Investments, Inc.; not
available in all states), Kemper Latin America Fund, Kemper Municipal Bond Fund,
Kemper New Europe Fund, Kemper New York Tax-Free Income Fund, Kemper Ohio
Tax-Free Income Fund, Kemper Research Fund (currently available only to
employees of Scudder Kemper Investments, Inc.; not available in all states),
Kemper Retirement Fund -- Series II, Kemper Retirement Fund -- Series III,
Kemper Retirement Fund -- Series IV, Kemper Retirement Fund -- Series V, Kemper
Retirement Fund -- Series VI, Kemper Retirement Fund -- Series VII, Kemper S&P
500 Index Fund, Kemper Short-Term U.S. Government Fund, Kemper Small Cap Value
Fund, Kemper Small Cap Value+Growth Fund (currently available only to employees
of Scudder Kemper Investments, Inc.; not available in all states), Kemper Small
Capitalization Equity Fund, Kemper Strategic Income Fund, Kemper Target 2010
Fund, Kemper Technology Fund, Kemper Total Return Fund, Kemper U.S. Government
Securities Fund, Kemper U.S. Growth and Income Fund, Kemper U.S. Mortgage Fund,
Kemper Value+Growth Fund, Kemper Worldwide 2004 Fund, Kemper-Dreman Financial
Services Fund, Kemper-Dreman High Return Equity Fund ("Kemper Mutual Funds").
Except as noted below, there is no combined purchase credit for direct purchases
of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California
Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund or
Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Mutual Funds" for purposes hereof. For purposes of the Combined Purchases
feature described above as well as for the Letter of Intent and Cumulative
Discount features described below, employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent or its affiliates may include: (a) Money Market Funds
as "Kemper Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund,
and (c) the value of any other plan investments, such as guaranteed investment
contracts and employer stock, maintained on such subaccount record keeping
system.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares of a Fund are included for this privilege.
Class A Shares -- Cumulative Discount. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value
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of all Class A shares of the above mentioned Kemper Mutual Funds (computed at
the maximum offering price at the time of the purchase for which the discount is
applicable) already owned by the investor.
Class A Shares -- Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of Kemper Mutual
Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features -- Class A Shares -- Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of any Kemper Mutual Fund or a Money Market
Fund under the exchange privilege described above without paying any contingent
deferred sales charge at the time of exchange. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of the
contingent deferred sales charge.
Class B Shares. Class B shares of a Fund and Class B shares of any Kemper Mutual
Fund listed under "Special Features -- Class A Shares -- Combined Purchases" may
be exchanged for each other at their relative net asset values. Class B shares
may be exchanged without any contingent deferred sales charge being imposed at
the time of exchange. For purposes of the contingent deferred sales charge that
may be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
Class C Shares. Class C shares of a Fund and Class C shares of any Kemper Mutual
Fund listed under "Special Features -- Class A Shares -- Combined Purchases" may
be exchanged for each other at their relative net asset values. Class C shares
may be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For determining whether there is a contingent deferred sales
charge that may be imposed upon the redemption of the Class C shares received by
exchange, amounts exchanged retain their cost and purchase.
General. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be exchanged thereafter until
they have been owned for 15 days (the "15 Day Hold Policy"). The Fund reserves
the right to invoke the 15-Day Hold Policy of exchanges of $1,000,000 or less
if, in the Investment Manager's judgment, the exchange activity may have an
adverse effect on the fund. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to the Kemper fund and
therefore may be subject to the 15-Day Hold Policy. For purposes of determining
whether the 15 Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all accounts under common control, direction, or advice,
including without limitation, accounts administered by a financial services firm
offering market timing, asset allocation or similar services. The total value of
shares being exchanged must at least equal the minimum investment requirement of
the Kemper Fund into which they are being exchanged. Exchanges are made based on
relative dollar values of the shares involved in the exchange. There is no
service fee for an exchange; however, dealers or other firms may charge for
their services in effecting exchange transactions. Exchanges will be effected by
redemption of shares of the fund held and purchase of shares of the other fund.
For federal income tax purposes, any such
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exchange constitutes a sale upon which a gain or loss may be realized, depending
upon whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis. Shareholders interested in exercising the
exchange privilege may obtain prospectuses of the other funds from dealers,
other firms or KDI. Exchanges may be accomplished by a written request to KSvC,
Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Purchase, Repurchase and Redemption of Shares -- General." Any share
certificates must be deposited prior to any exchange of such shares. During
periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
Exchanges may only be made for Kemper Funds that are eligible for sale in the
shareholder's state of residence. Currently, Tax-Exempt California Money Market
Fund is available for sale only in California and the portfolios of Investors
Municipal Cash Fund are available for sale only in certain states.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Fund, a Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another Kemper Fund. If selected, exchanges will be
made automatically until the privilege is terminated by the shareholder or the
other Kemper Fund. Exchanges are subject to the terms and conditions described
above under "Exchange Privilege" except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Purchase, Repurchase and Redemption of Shares -- General." Once
enrolled in EXPRESS-Transfer, a shareholder can initiate a transaction by
calling Kemper Shareholder Services toll free at 1-800-621-1048 Monday through
Friday, 8:00 a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this
privilege by sending written notice to KSvC, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable time to act upon the request.
EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (minimum $50
and maximum $50,000) from the shareholder's account at a bank, savings and loan
or credit union into the shareholder's Fund account. By enrolling in Bank Direct
Deposit, the shareholder authorizes the Fund and its agents to either draw
checks or initiate Automated Clearing House debits against the designated
account at a bank or other financial institution. This privilege may be selected
by completing the appropriate section on the Account Application or by
contacting the Shareholder Service Agent for appropriate forms. A shareholder
may terminate his or her Plan by sending written notice to KSvC, P.O. Box
419415, Kansas City, Missouri 64141-6415. Termination by a shareholder will
become effective within thirty days after the Shareholder Service Agent has
received the request. A Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Funds may terminate or modify this privilege at any time.
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Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares, Class A shares purchased under the Large Order NAV Purchase Privilege
and Class C shares in their first year following the purchase may be redeemed
under a systematic withdrawal plan is 10% of the net asset value of the account.
Shares are redeemed so that the payee will receive payment approximately the
first of the month. Any income and capital gain dividends will be automatically
reinvested at net asset value. A sufficient number of full and fractional shares
will be redeemed to make the designated payment. Depending upon the size of the
payments requested and fluctuations in the net asset value of the shares
redeemed, redemptions for the purpose of making such payments may reduce or even
exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or the Funds.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts
("IRAs"). This includes Savings Incentive Match Plan for Employees of Small
Employers ("SIMPLE"), IRA accounts and Simplified Employee Pension Plan ("SEP")
IRA accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to
employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be
adopted by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with the Fund's custodian describe the current
fees payable for its services as custodian. Investors should consult with their
own tax advisers before establishing a retirement plan.
ADDITIONAL TRANSACTION INFORMATION
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks or other financial services firms may be subject to
various federal and state laws regarding the
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services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over" of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
Kemper Service Company ("KSvC"), (iii) the registered representative placing the
trade is a member of ProStar, a group of persons designated by KDI in
acknowledgment of their dedication to the employee benefit plan area and (iv)
the purchase is not otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, to firms that sell shares of the Funds. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Funds or other funds underwritten by
KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). [CHECK INDIVIDUAL FUNDS: The Funds reserve the right to determine the
net asset value more frequently than once a day if deemed desirable.] Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares."
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Funds through the Shareholder Service Agent for
these services. This Statement of Additional Information should be read in
connection with such firms' material regarding their fees and services.
The Funds reserve the right to withdraw all or any part of the offering made by
this Statement of Additional Information and to reject purchase orders. Also,
from time to time, each Fund may temporarily suspend the offering of shares of
any Fund or class of a Fund to new investors. During the period of such
suspension, persons who are already shareholders of a class of a Fund normally
are permitted to continue to purchase additional shares of such class or Fund
and to have dividends reinvested.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this Statement of Additional Information.
44
<PAGE>
Initial Sales Charge Alternative -- Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
As a As a Allowed to Dealers as a
Percentage of Percentage of Net Percentage of
Amount of Purchase Offering Price Amount Invested* Offering Price
------------------ -------------- ---------------- --------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.20%
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over 0.00** 0.00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales
charge as discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all of its Class A shares sold.
Kemper Distributors, Inc. ("KDI"), the Funds' principal underwriter, retains the
sales charge on sales of Class A shares from which it allows discounts from the
applicable public offering price to investment dealers, which discounts are
uniform for all dealers in the United States and its territories. The normal
discount allowed to dealers is set forth in the above table. Upon notice to all
dealers with whom it has sales agreements, KDI may reallow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based upon
attainment of minimum sales levels. During periods when 90% or more of the sales
charge is reallowed, such dealers may be deemed to be underwriters as that term
is defined in the 1933 Act.
Class A shares of each Fund can be purchased at net asset value in certain
circumstances. (See the Funds' prospectus for details).
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount 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 a Fund and other Kemper Mutual Funds listed under
"Special Features -- Class A Shares -- Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above, including Class R Shares of certain
Scudder Funds. The privilege of purchasing Class A shares of a Fund at net asset
value under the Large Order NAV Purchase Privilege is not available if another
net asset value purchase privilege also applies.
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
45
<PAGE>
upon redemption of Class B shares. See "Redemption or Repurchase of Shares --
Contingent Deferred Sales Charge -- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Purchase of Class C Shares. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks or other financial services firms may be subject to
various federal and state laws regarding the services described above and may be
required to register as dealers pursuant to state law. If banking firms were
prohibited from acting in any capacity or providing any of the described
services, management would consider what action, if any, would be appropriate.
KDI does not believe that termination of a relationship with a bank would result
in any material adverse consequences to a Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by 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 Funds. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Funds, or other funds underwritten by
KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). The Funds reserve the right to determine the net asset value more
frequently than once a day if deemed desirable. Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take
significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control
46
<PAGE>
over the accounts of specific shareholders. Such shareholders may obtain access
to their accounts and information about their accounts only from their firm.
Certain of these firms may receive compensation from the Funds through the
Shareholder Service Agent for recordkeeping and other expenses relating to these
nominee accounts. In addition, certain privileges with respect to the purchase
and redemption of shares or the reinvestment of dividends may not be available
through such firms. Some firms may participate in a program allowing them access
to their clients' accounts for servicing including, without limitation,
transfers of registration and dividend payee changes; and may perform functions
such as generation of confirmation statements and disbursement of cash
dividends. Such firms, including affiliates of KDI, may receive compensation
from the Funds through the Shareholder Service Agent for these services. This
Statement of Additional Information should be read in connection with such
firms' material regarding their fees and services.
The Funds reserve the right to withdraw all or any part of the offering made
pursuant to the prospectus and to reject purchase orders. Also, from time to
time, each Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
the prospectus.
[FOR EACH OF Kemper International Fund; Kemper Global Discovery Fund;
Kemper-Dreman High Return Equity Fund; Kemper Aggressive Growth Fund; Kemper
Technology Fund: From September 25, 2000 through December 31, 2000, for the
above-listed funds, Kemper Distributors, Inc. ("KDI"), the principal
underwriter, intends to reallow to certain firms the 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. ]
Dividends. Each Fund normally distributes dividends of net investment income as
follows: annually for the Aggressive Growth, Classic Growth, Growth, Small Cap,
Technology and Value+Growth Funds; semi-annually for the Blue Chip Fund; and
quarterly for the Total Return Fund. Each Fund distributes any net realized
short-term and long-term capital gains at least annually. The quarterly
distribution to shareholders of the Total Return Fund may include short-term
capital gains.
Each Fund may at any time vary its foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as its Board determines appropriate under the then
current circumstances. In particular, and without limiting the foregoing, a Fund
may make additional distributions of net investment income or capital gain net
income in order to satisfy the minimum distribution requirements contained in
the Internal Revenue Code (the "Code").
Dividends paid by a Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same portion for
each class.
47
<PAGE>
Income and capital gain dividends, if any, for a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of the Fund
at net asset value except that, upon written request to the Shareholder Service
Agent, a shareholder may select one of the following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset value;
or
(2) To receive both income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have Fund dividends
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Purchase, Repurchase, and
Redemption of Shares", "Special Features--Class A Shares--Combined Purchases",
for a list of such other Kemper Funds. To use this privilege of investing a
Fund's dividends in shares of another Kemper Fund, shareholders must maintain a
minimum account value of $1,000 in the Fund distributing the dividends. The
Funds will reinvest dividend checks (and future dividends) in shares of that
same Fund and class if checks are returned as undeliverable. Dividends and other
distributions of [the/a] Fund in the aggregate amount of $10 or less are
automatically reinvested in shares of the Fund unless the shareholder requests
that such policy not be applied to the shareholder's account.
Performance Information
A Fund may advertise several types of performance information for a class of
shares, including "yield" and "average annual total return" and "total return."
Performance information will be computed separately for each class. Each of
these figures is based upon historical results and is not representative of the
future performance of any class of a Fund. A Fund with fees or expenses being
waived or absorbed by Scudder Kemper may also advertise performance information
before and after the effect of the fee waiver or expense absorption.
A Fund's historical performance or return for a class of shares may be shown in
the form of "average annual total return" and "total return" figures. These
various measures of performance are described below. Performance information
will be computed separately for each class.
Each 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 a Fund for a specific period is found by first taking a hypothetical
$1,000 investment ("initial investment") in the Fund's shares on the first day
of the period, adjusting to deduct the maximum sales charge (in the case of
Class A shares), and computing the "redeemable value" of that investment at the
end of the period. The redeemable value in the case of Class B or Class C shares
includes the effect of the applicable contingent deferred sales charge that may
be imposed at the end of the period. The redeemable value is then divided by the
initial investment, and this quotient is taken to the Nth root (N representing
the number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Average annual total return may
also be calculated without deducting the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the Fund's "Financial Highlights" table
in the Fund's financial statements and prospectus. Total return performance for
a specific period is calculated by first taking an investment (assumed below to
be $10,000) ("initial investment") in a Fund's shares on the first day of the
period, either adjusting or not adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "ending value" of that investment
at the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B and Class C shares may or may not
include the effect of the applicable contingent deferred sales charge that may
be imposed at the end of the period. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on
48
<PAGE>
the reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B and Class C shares
would be reduced if such charge were included. Total return figures for Class A
shares for various periods are set forth in the tables below.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one-, five- and ten-year periods ending on a recent calendar quarter
(or if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
A Fund's performance figures are based upon historical results and are not
representative of future performance. Each 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
shares and Class C shares are sold at net asset value. Redemptions of Class B
shares may be subject to a contingent deferred sales charge that is 4% in the
first year following the purchase, declines by a specified percentage thereafter
and becomes zero after six years. Redemption of Class C shares may be subject to
a 1% contingent deferred sales charge in the first year following purchase.
Average annual total return figures do, and total return figures may, include
the effect of the contingent deferred sales charge for the Class B shares and
Class C shares that may be imposed at the end of the period in question.
Performance figures for the Class B shares and Class C shares not including the
effect of the applicable contingent deferred sales charge would be reduced if it
were included. Returns and net asset value will fluctuate. Factors affecting
each Fund's performance include general market conditions, operating expenses
and investment management. Any additional fees charged by a dealer or other
financial services firm would reduce the returns described in this section.
Shares of each Fund are redeemable at the then current net asset value, which
may be more or less than original cost.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged bond indexes including, but not limited to, the Salomon
Brothers High Grade Corporate Bond Index, the Lehman Brothers Adjustable Rate
Index, the Lehman Brothers Aggregate Bond Index, the Lehman Brothers Government/
Corporate Bond Index, the Salomon Brothers Long-Term High Yield Index, the
Salomon Brothers 30 Year GNMA Index and the Merrill Lynch Market Weighted Index
and may also be compared to the performance of other mutual funds or mutual fund
indexes with similar objectives and policies as reported by independent mutual
fund reporting services such as Lipper Analytical Services, Inc. (""Lipper").
Lipper performance calculations are based upon changes in net asset value with
all dividends reinvested and do not include the effect of any sales charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit and other bank products, money market
funds and U.S. Treasury obligations. Bank product performance may be based upon,
among other things, the BANK RATE MONITOR National Index? or various certificate
of deposit indexes. Money market fund performance may be based upon, among other
things, the IBC/Donoghue's Money Fund Report? or Money Market Insight?,
reporting services on money market funds. Performance of U.S. Treasury
obligations may be based upon, among other things, various U.S. Treasury bill
indexes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured. Economic indicators may
include, without limitation, indicators of market rate trends and cost of funds,
such as Federal Home Loan Bank Board 11th District Cost of Funds Index ("COFI").
49
<PAGE>
A Fund may depict the historical performance of the securities in which the Fund
may invest over periods reflecting a variety of market or economic conditions
either alone or in comparison with alternative investments, performance indexes
of those investments or economic indicators. A Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund.
Each Fund's returns and net asset value will fluctuate and shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information about each Fund's performance also appears in its Annual Report to
Shareholders, which is available without charge from the applicable Fund.
The figures below show performance information for various periods. The net
asset values and returns of each class of shares of the Funds will fluctuate. No
adjustment has been made for taxes payable on dividends. The periods indicated
were ones of fluctuating securities prices and interest rates.
Performance figures for Class B and C shares for the period May 31, 1994 through
each Fund's most recent fiscal year end reflect the actual performance of these
classes of shares. Returns for Class B and C shares for the period beginning
with the inception date of each Fund's Class A shares to May 31, 1994 are
derived from the historical performance of Class A shares, adjusted to reflect
the operating expenses applicable to Class B and C shares, which may be higher
or lower than those of Class A shares. The performance figures are also adjusted
to reflect the maximum sales charge of 5.75% for Class A shares and the maximum
current contingent deferred sales charge of 4% for Class B shares and 1% for
Class C shares.
The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class B and C shares of each Fund as described above;
they do not guarantee future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
KEMPER AGGRESSIVE GROWTH FUND -- AS OF SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL Class A Class B Class C
RETURNS Shares Shares Shares
Life of Class(+) % % %
One Year % % %
(+) Since December 31, 1996 for Class A, B and C shares.
KEMPER VALUE+GROWTH FUND -- AS OF NOVEMBER 30, 2000
AVERAGE ANNUAL TOTAL Class A Class B Class C
RETURNS Shares Shares Shares
Life of Class(+) % % %
Three Years % % %
One Year % % %
(+) Since October 16, 1995 for Class A, B and C shares.
KEMPER BLUE CHIP FUND
KEMPER GROWTH FUND
KEMPER SMALL CAP EQUITY FUND
50
<PAGE>
KEMPER TECHNOLOGY FUND
KEMPER TOTAL RETURN FUND
Performance figures for Class B and C shares for the period May 31, 1994 through
each Fund's most recent fiscal year end reflect the actual performance of these
classes of shares. Returns for Class B and C shares for the period beginning
with the inception date of each Fund's Class A shares to May 31, 1994 are
derived from the historical performance of Class A shares, adjusted to reflect
the operating expenses applicable to Class B and C shares, which may be higher
or lower than those of Class A shares. The performance figures are also adjusted
to reflect the maximum sales charge of 5.75% for Class A shares and the maximum
current contingent deferred sales charge of 4% for Class B shares and 1% for
Class C shares.
The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class B and C shares of each Fund as described above;
they do not guarantee future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND - AS OF OCTOBER 31, 2000*
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURNS Shares Shares Shares
<S> <C> <C> <C>
Life of Class(+) % % %
Ten Years % % %
Five Years % % %
One Year % % %
(+) Since November 23, 1987 for Class A shares. Since May 31, 1994 for Class B
and Class C shares.
KEMPER GROWTH FUND - AS OF SEPTEMBER 30, 2000*
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURNS Shares Shares Shares
Life of Class(+) % % %
Ten Years % % %
Five Years % % %
One Year % % %
(+) Since April 4, 1966 for Class A shares. Since May 31, 1994 for Class B and
Class C shares.
KEMPER SMALL CAP EQUITY FUND - AS OF SEPTEMBER 30, 2000*
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURNS Shares Shares Shares
Life of Class(+) % % %
Ten Years % % %
Five Years % % %
One Year % % %
(+) Since February 20, 1969 for Class A shares. Since May 31, 1994 for Class B
and Class C shares.
KEMPER TECHNOLOGY FUND - AS OF OCTOBER 31, 2000*
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURNS Shares Shares Shares
Life of Class(+) % % %
Ten Years % % %
Five Years % % %
51
<PAGE>
One Year % % %
(+) Since September 7, 1948 for Class A shares. Since May 31, 1994 for Class B
and Class C shares.
KEMPER TOTAL RETURN FUND - AS OF OCTOBER 31, 2000*
AVERAGE ANNUAL Class A Class B Class C
TOTAL RETURNS Shares Shares Shares
Life of Class(+) % % %
Ten Years % % %
Five Years % % %
One Year % % %
(+) Since March 2, 1964 for Class A shares. Since May 31, 1994 for Class B and
Class C shares.
</TABLE>
* Because Class B and C shares were not introduced for each Fund until May 31,
1994, the total return for Class B and C shares for the periods prior to their
introduction is based upon the performance of Class A shares from the inception
date of each Fund's Class A shares through May 31, 1994. Actual performance of
Class B and C shares is shown beginning May 31, 1994.
KEMPER CLASSIC GROWTH FUND - AS OF OCTOBER 31, 2000
Performance figures for Class A, B and C shares for the period April 16, 1998 to
October 31, 1999 reflect the actual performance of these classes of shares.
Returns for Class A, B and C shares for the period September 9, 1996 to April
16, 1998 are derived from the historical performance of Class S shares, adjusted
to reflect the operating expenses applicable to Class A, B and C shares, which
may be higher or lower than those of Class S shares. The performance figures are
also adjusted to reflect the maximum sales charge of 5.75% for Class A shares
and the current contingent deferred sales charge of 4% for Class B shares and 1%
for Class C shares.
The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class A, B and C shares of the Fund as described
above; they do not guarantee future results. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Average Annual Total Return for the periods ended October 31, 2000
One Year Life of Class*
Class A % %
Class B % %
Class C % %
* Because Class A, B and C shares were not introduced until April 16, 1998, the
total return for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S shares from the
commencement of investment operations, September 9, 1996 through April 16, 1998.
Actual performance of Class A, B and C shares is shown beginning April 16, 1998.
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were
adjusted for the maximum initial sales charge at the beginning of the
period, which is 5.75%. The Initial Investment for Class B and Class C
shares was not adjusted. Amounts were adjusted for Class B shares for the
contingent deferred sales charge that may be imposed at the end of the
period based upon the schedule for shares sold currently, see "Redemption
or Repurchase of Shares" in the prospectus. No adjustments were made to
Class C shares. Amounts were adjusted for Class C shares for the contingent
deferred sales charge that may be imposed for periods less than one year.
(2) Includes short-term capital gain dividends, if any.
Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty.
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Rates offered by banks and other depository institutions are subject to change
at any time specified by the issuing institution. Information regarding bank
products may be based upon, among other things, the BANK RATE MONITOR National
Index(TM) for certificates of deposit, which is an unmanaged index and is based
on stated rates and the annual effective yields of certificates of deposit in
the ten largest banking markets in the United States, or the CDA Investment
Technologies, Inc. Certificate of Deposit Index, which is an unmanaged index
based on the average monthly yields of certificates of deposit.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of a Fund, such as the Total
Return Fund, to the performance of a hypothetical portfolio weighted 60% in the
Standard & Poor's 500 Stock Index (an unmanaged index generally representative
of the U.S. stock market) and 40% in the Lehman Brothers Government/Corporate
Bond Index (an unmanaged index generally representative of intermediate and
long-term government and investment grade corporate debt securities). See the
footnotes above for a more complete description of these indexes. The Total
Return Fund may invest in both equity and fixed income securities. The
percentage of assets invested in each type of security will vary from time to
time in the discretion of the Fund's investment manager and will not necessarily
approximate the 60%/40% weighting of this hypothetical index.
Investors may want to compare the performance of a 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 (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 following tables compare the performance of the Class A shares of the Funds
over various periods with that of other mutual funds within the categories
described below according to data reported by Lipper Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service. Lipper
performance figures are based on changes in net asset value, with all income and
capital gain dividends reinvested. Such calculations do not include the effect
of any sales charges. Future performance cannot be guaranteed. Lipper publishes
performance analyses on a regular basis. Each category includes funds with a
variety of objectives, policies and market and credit risks that should be
considered in reviewing these rankings.
Fund Organization
The Funds are open-end management investment companies, organized as separate
business trusts under the laws of Massachusetts. The Aggressive Growth Fund was
organized as a business trust under the laws of Massachusetts on October 3,
1996. The Blue Chip Fund was organized as a business trust under the laws of
Massachusetts on May 28, 1987. The Growth Fund was organized as a business trust
under the laws of Massachusetts on October 24, 1985 and, effective January 31,
1986, that Fund pursuant to a reorganization succeeded to the assets and
liabilities of Kemper Growth Fund, Inc., a Maryland corporation organized in
1965. The Small Cap Fund was organized as a business trust under the laws of
Massachusetts on October 24, 1985 and, effective January 31, 1986, that Fund
pursuant to a reorganization succeeded to the assets and liabilities of Kemper
Summit Fund, Inc., a Maryland corporation organized in 1968. Prior to February
1, 1992, the Small Cap Fund was known as "Kemper Summit Fund." The Technology
Fund was organized as a business trust under the laws of Massachusetts on
October 24, 1985 as Technology Fund and changed its name to Kemper Technology
Fund effective February 1, 1988. Effective January 31, 1986, Technology Fund
pursuant to a reorganization succeeded to the assets and liabilities of
Technology Fund, Inc., a Maryland corporation originally organized as a Delaware
corporation in 1948. Technology Fund was known as Television Fund, Inc.
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<PAGE>
until 1950 and as Television-Electronics Fund, Inc. until 1968. The Total Return
Fund was organized as a business trust under the laws of Massachusetts on
October 24, 1985 and, effective January 31, 1986, that Fund pursuant to a
reorganization succeeded to the assets and liabilities of Kemper Total Return
Fund, Inc., a Maryland corporation organized in 1963. The Total Return Fund was
known as Balanced Income Fund, Inc. until 1972 and as Supervised Investors
Income Fund, Inc. until 1977. The Value+Growth Fund was organized as a business
trust under the laws of Massachusetts on June 14, 1995 under the name Kemper
Value Plus Growth Fund and does business as Kemper Value+Growth Fund. Classic
Growth Fund is an open-end diversified series of Investment Trust, a
Massachusetts business trust established under a Declaration of Trust dated
September 20, 1984, as amended. The name of the Trust was changed, effective
April 16, 1998, from Scudder Classic Growth Fund. The Trust's authorized capital
consists of an unlimited number of shares of beneficial interest, par value
$0.01 per share. The Trust's shares are currently divided into four classes, the
Scudder Shares, Kemper Classic Growth Fund Class A, B and C Shares.
The Technology Fund may in the future seek to achieve its investment objective
by pooling its assets with assets of other mutual funds for investment in
another investment company having the same investment objective and
substantially the same investment policies and restrictions as such Fund. The
purpose of such an arrangement is to achieve greater operational efficiencies
and to reduce costs. It is expected that any such investment company will be
managed by Scudder Kemper in substantially the same manner as the corresponding
Fund. Shareholders of a Fund will be given at least 30 days' prior notice of any
such investment, although they will not be entitled to vote on the action. Such
investment would be made only if the Trustees determine it to be in the best
interests of the respective Fund and its shareholders.
Currently, each Fund (other than Classic Growth Fund) offers four classes of
shares. These are Class A, Class B and Class C shares, as well as Class I
shares, which have different expenses, which may affect performance. Class I
shares are available for purchase exclusively by the following categories of
institutional investors: (1) tax-exempt retirement plans (Profit Sharing,
401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder Kemper
Investments, Inc. ("Scudder Kemper") and its affiliates and rollover accounts
from those plans; (2) the following investment advisory clients of Scudder
Kemper and its investment advisory affiliates that invest at least $1 million in
a Fund: unaffiliated benefit plans, such as qualified retirement plans (other
than individual retirement accounts and self-directed retirement plans);
unaffiliated banks and insurance companies purchasing for their own accounts;
and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; and (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund and (6) investment
companies managed by Scudder Kemper that invest primarily in other investment
companies. The Board of Trustees of a Fund may authorize the issuance of
additional classes and additional Portfolios if deemed desirable, each with its
own investment objectives, policies and restrictions. Since the Funds may offer
multiple Portfolios, each is known as a "series company." Shares of a Fund have
equal noncumulative voting rights except that Class B and Class C shares have
separate and exclusive voting rights with respect to each Fund's Rule 12b-1
Plan. Shares of each class also have equal rights with respect to dividends,
assets and liquidation of such Fund subject to any preferences (such as
resulting from different Rule 12b-1 distribution fees), rights or privileges of
any classes of shares of the Fund. Shares of each Fund are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Funds are not required to hold annual
shareholder meetings and do not intend to do so. However, they will hold special
meetings as required or deemed desirable for such purposes as electing trustees,
changing fundamental policies or approving an investment management agreement.
Subject to the Agreement and Declaration of Trust of each Fund, shareholders may
remove trustees. If shares of more than one Portfolio for any Fund are
outstanding, shareholders will vote by Portfolio and not in the aggregate or by
class except when voting in the aggregate is required, under the 1940 Act, such
as for the election of trustees or when voting by class is appropriate.
The Funds generally are not required to hold meetings of their shareholders.
Under the Agreement and Declaration of Trust of each Fund ("Declaration of
Trust"), however, shareholder meetings will be held in
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connection with the following matters: (a) the election or removal of trustees
if a meeting is called for such purpose; (b) the adoption of any contract for
which shareholder approval is required by the 1940 Act); (c) any termination of
the Fund or a class to the extent and as provided in the Declaration of Trust;
(d) any amendment of the Declaration of Trust (other than amendments changing
the name of the Fund, supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision thereof);
and (e) such additional matters as may be required by law, the Declaration of
Trust, the By-laws of the Fund, or any registration of the Fund with the SEC or
any state, or as the trustees may consider necessary or desirable. The
shareholders also would vote upon changes in fundamental investment objectives,
policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) each Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of a Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, each
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
Each Fund's Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares entitled to vote on
a matter shall constitute a quorum. Thus, a meeting of shareholders of a Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
auditors. Some matters requiring a larger vote under the Declaration of Trust,
such as termination or reorganization of a Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
Each Fund's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any Portfolio or class by notice to the shareholders
without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of each Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by a
Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of a Fund and each Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by Scudder Kemper remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and such Fund itself is unable to meet its obligations.
Master/feeder structure
The Board has the discretion to retain the current distribution arrangement for
[the/each] Fund while investing in a master fund in a master/feeder structure
fund as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company
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<PAGE>
(the "master fund") with substantially the same investment objective and
policies as the feeder fund. Such a structure permits the pooling of assets of
two or more feeder funds, preserving separate identities or distribution
channels at the feeder fund level. Based on the premise that certain of the
expenses of operating an investment portfolio are relatively fixed, a larger
investment portfolio may eventually achieve a lower ratio of operating expenses
to average net assets. An existing investment company is able to convert to a
feeder fund by selling all of its investments, which involves brokerage and
other transaction costs and realization of a taxable gain or loss, or by
contributing its assets to the master fund and avoiding transaction costs and,
if proper procedures are followed, the realization of taxable gain or loss.
Investment manager
Scudder Kemper Investments, Inc. (the "Investment Manager"), 345 Park Avenue,
New York, NY, an investment counsel firm, acts as investment adviser to the
[Fund / Funds]. This organization, the predecessor of which is Scudder, Stevens
& Clark, Inc., is one of the most experienced investment counsel firms in the U.
S. It was established as a partnership in 1919 and pioneered the practice of
providing investment counsel to individual clients on a fee basis. In 1928 it
introduced the first no-load mutual fund to the public. In 1953 the Investment
Manager introduced Scudder International Fund, Inc., the first mutual fund
available in the U.S. investing internationally in securities of issuers in
several foreign countries. The predecessor firm reorganized from a partnership
to a corporation on June 28, 1985. On December 31, 1997, Zurich Insurance
Company ("Zurich") acquired a majority interest in the Investment Manager, and
Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of the
Investment Manager. The Investment Manager's name changed to Scudder Kemper
Investments, Inc. On September 7, 1998, the businesses of Zurich (including
Zurich's 70% interest in Scudder Kemper) and the financial services businesses
of B.A.T Industries p.l.c. ("B.A.T") were combined to form a new global
insurance and financial services company known as Zurich Financial Services
Group. By way of a dual holding company structure, former Zurich shareholders
initially owned approximately 57% of Zurich Financial Services Group, with the
balance initially owned by former B.A.T shareholders. On October 17, 2000, the
dual-headed holding company structure of Zurich Financial Services Group,
comprised of Allied Zurich p.l.c. in the United Kingdom and Zurich Allied in
Switzerland, was unified into a single Swiss holding company, Zurich Financial
Services.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
The principal source of the Investment Manager's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over [XX] open and
closed-end mutual funds.
The Investment Manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Investment Manager receives
published reports and statistical compilations from issuers and other sources,
as well as analyses from brokers and dealers who may execute portfolio
transactions for the Investment Manager's clients. However, the Investment
Manager regards this information and material as an adjunct to its own research
activities. The Investment Manager's international investment management team
travels the world, researching hundreds of companies. In selecting the
securities in which the [Fund / Funds] may invest, the conclusions and
investment decisions of the Investment Manager with respect to the Funds are
based primarily on the analyses of its own research department.
Certain investments may be appropriate for a fund and also for other clients
advised by the Investment Manager. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold
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for only one client or in different amounts and at different times for more than
one but less than all clients. Likewise, a particular security may be bought for
one or more clients when one or more other clients are selling the security. In
addition, purchases or sales of the same security may be made for two or more
clients on the same day. In such event, such transactions will be allocated
among the clients in a manner believed by the Investment Manager to be equitable
to each. In some cases, this procedure could have an adverse effect on the price
or amount of the securities purchased or sold by a fund. Purchase and sale
orders for a fund may be combined with those of other clients of the Investment
Manager in the interest of achieving the most favorable net results to that
fund.
In certain cases, the investments for a fund are managed by the same individuals
who manage one or more other mutual funds advised by the Investment Manager,
that have similar names, objectives and investment styles. You should be aware
that the Funds are likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Funds can be expected to vary from those of these other mutual funds.
The Funds (other than the Aggressive Growth Fund, Classic Growth Fund and the
Small Cap Fund) pay Scudder Kemper investment management fees, payable monthly,
at 1/12 of the annual rates shown below. The Aggressive Growth Fund and the
Small Cap Fund each pay a base annual management fee, payable monthly, at the
annual rate of 0.65% of the average daily net assets of the Fund. This base fee
is subject to upward or downward adjustment on the basis of the investment
performance of the Class A shares of the Fund compared with the performance of
the Standard & Poor's 500 Stock Index as described herein. After the effect of
the adjustment, the management fee rate for the Aggressive Growth Fund may range
between 0.45% and 0.85% and the management fee rate for the Small Cap Fund may
range between 0.35% and 0.95%.
Blue Chip,
Growth,
Technology
and Total Value+
Return Growth
Average Daily Net Assets Funds Fund
---------------------------------------------------------- ----
$0 - $250 million 0.58% 0.72%
$250 million - $1 billion 0.55 0.69
$1 billion - $2.5 billion 0.53 0.66
$2.5 billion - $5 billion 0.51 0.64
$5 billion - $7.5 billion 0.48 0.60
$7.5 billion - $10 billion 0.46 0.58
$10 billion - $12.5 billion 0.44 0.56
Over $12.5 billion 0.42 0.54
The Small Cap Fund pays a base annual investment management fee, payable
monthly, at the rate of 0.65% of the average daily net assets of the Fund. This
base fee is subject to upward or downward adjustment on the basis of the
investment performance of the Class A shares of the Fund as compared with the
performance of the Standard & Poor's 500 Stock Index (the "Index"). The Small
Cap Fund will pay an additional monthly fee at an annual rate of 0.05% of such
average daily net assets for each percentage point (fractions to be prorated) by
which the performance of the Class A shares of the Fund exceeds that of the
Index for the immediately preceding twelve months; provided that such additional
monthly fee shall not exceed 1/12 of 0.30% of the average daily net assets.
Conversely, the compensation payable by the Small Cap Fund will be reduced by an
annual rate of 0.05% of such average daily net assets for each percentage point
(fractions to be prorated) by which the performance of the Class A shares of the
Fund falls below that of the Index, provided that such reduction in the monthly
fee shall not exceed 1/12 of 0.30% of the average net assets. The total fee on
an annual basis can range from 0.35% to 0.95% of average daily net assets. The
Small Cap Fund's investment performance during any twelve month period is
measured by the percentage difference between (a) the opening
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net asset value of one Class A share of the Fund and (b) the sum of the closing
net asset value of one Class A share of the Fund plus the value of any income
and capital gain dividends on such share during the period treated as if
reinvested in Class A shares of the Fund at the time of distribution. The
performance of the Index is measured by the percentage change in the Index
between the beginning and the end of the twelve month period with cash
distributions on the securities which comprise the Index being treated as
reinvested in the Index at the end of each month following the payment of the
dividend. Each monthly calculation of the incentive portion of the fee may be
illustrated as follows: if over the preceding twelve month period the Small Cap
Fund's adjusted net asset value applicable to one Class A share went from $10.00
to $11.00 (10% appreciation), and the Index, after adjustment, went from 100 to
104 (or only 4%), the entire incentive compensation would have been earned by
Scudder Kemper. On the other hand, if the Index rose from 100 to 110 (10%), no
incentive fee would have been payable. A rise in the Index from 100 to 116 (16%)
would have resulted in the minimum monthly fee of 1/12 of 0.35%. Since the
computation is not cumulative from year to year, an additional management fee
may be payable with respect to a particular year, although the Small Cap Fund's
performance over some longer period of time may be less favorable than that of
the Index. Conversely, a lower management fee may be payable in a year in which
the performance of the Fund's Class A shares' is less favorable than that of the
Index, although the performance of the Fund's Class A shares over a longer
period of time might be better than that of the Index.
The Aggressive Growth Fund pays a base annual investment management fee, payable
monthly, at the rate of 0.65 of 1% of the average daily net assets of the Fund.
This base fee is subject to upward or downward adjustment on the basis of the
investment performance of the Class A shares of the Fund as compared with the
performance of the Standard & Poor's 500 Stock Index (the "Index"). The
Aggressive Growth Fund will pay an additional monthly fee at an annual rate of
0.02% of such average daily net assets for each percentage point (fractions to
be prorated) by which the performance of the Class A shares of the Fund exceeds
that of the Index for the immediately preceding twelve months; provided that
such additional monthly fee shall not exceed 1/12 of 0.20% of the average daily
net assets. Conversely, the compensation payable by the Aggressive Growth Fund
will be reduced by an annual rate of 0.02% of such average daily net assets for
each percentage point (fractions to be prorated) by which the performance of the
Class A shares of the Fund falls below that of the Index, provided that such
reduction in the monthly fee shall not exceed 1/12 of 0.20% of the average net
assets. The total fee on an annual basis can range from 0.45% to 0.85% of
average daily net assets. The Aggressive Growth Fund's investment performance
during any twelve month period is measured by the percentage difference between
(a) the opening net asset value of one Class A share of the Fund and (b) the sum
of the closing net asset value of one Class A share of the Fund plus the value
of any income and capital gain dividends on such share during the period treated
as if reinvested in Class A shares of the Fund at the time of distribution. The
performance of the Index is measured by the percentage change in the Index
between the beginning and the end of the twelve month period with cash
distributions on the securities which comprise the Index being treated as
reinvested in the Index at the end of each month following the payment of the
dividend. Each monthly calculation of the incentive portion of the fee may be
illustrated as follows: if over the preceding twelve month period the Aggressive
Growth Fund's adjusted net asset value applicable to one Class A share went from
$10.00 to $11.50 (15% appreciation), and the Index, after adjustment, went from
100 to 104 (or only 4%), the entire incentive compensation would have been
earned by Scudder Kemper. On the other hand, if the Index rose from 100 to 115
(15%), no incentive fee would have been payable. A rise in the Index from 100 to
125 (25%) would have resulted in the minimum monthly fee of 1/12 of 0.45%. Since
the computation is not cumulative from year to year, an additional management
fee may be payable with respect to a particular year, although the Aggressive
Growth Fund's performance over some longer period of time may be less favorable
than that of the Index. Conversely, a lower management fee may be payable in a
year in which the performance of the Fund's Class A shares is less favorable
than that of the Index, although the performance of the Fund's Class A shares
over a longer period of time might be better than that of the Index.
The Classic Growth Fund will pay the Adviser an annual fee equal to 0.70% of the
Fund's average daily net assets, payable monthly, provided the Fund will make
such interim payments as may be requested by the Adviser not to exceed 75% of
the amount of the fee then accrued on the books of the Fund and unpaid.
Effective April 16, 1998, the Adviser agreed to waive 0.25% of its management
fee until December 31, 1998.
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For the fiscal period September 9, 1996 (commencement of operations) to August
31, 1997, the Adviser did not impose any portion of its management fee amounting
to $164,645. For the fiscal year ended August 31, 1998, the Adviser waived a
portion of its management fee amounting to $281,142, and the fee imposed
amounted to $371,001. For the fiscal year ended August 31, 1999, the Adviser
waived a portion of its management fee amounting to $466,794, and the fee
imposed amounted to $840,228. For the two month period ended October 31, 1999,
the Adviser waived a portion of its management fee amounting to $96,046, and the
fee imposed amounted to $172,882, of which $86,750 was unpaid at October 31,
1999. The Adviser has agreed to continue to waive 0.25% of its management fee
until December 31, 2000.
The investment management fees paid by each Fund for its last three fiscal years
are shown in the table below.
<TABLE>
<CAPTION>
Fund Fiscal 2000 Fiscal 1999 Fiscal 1998
---- ----------- ----------- -----------
<S> <C> <C>
Aggressive $241,000 98,000^(3)
Blue Chip $4,172,000 3,104,000
Classic Growth
Growth $14,408,000 14,891,000
Small Cap $2,966,000 3,519,000^(4)
Technology $10,608,000 6,842,000
Total Return $19,069,000 18,088,000
Value+Growth $1,171,000 906,000
</TABLE>
^(1) Fee was increased $1,000 from $36,000 base fee; for the period December
31, 1996 (commencement of operations) to September 30, 1997.
^(2) Fee was decreased $2,617,000 from $5,810,000 base fee.
^(3) Fee was decreased $9,000 from $107,000 base fee.
^(4) Fee was decreased $2,791,000 from $6,310,000 base fee.
The Manager may serve as adviser to other funds with investment objectives and
policies similar to those of the Funds that may have different distribution
arrangements or expenses, which may affect performance.
Code of Ethics
The Funds, the Investment Manager and principal underwriter have each adopted
codes of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Funds and employees of the Investment Manager and principal
underwriter are permitted to make personal securities transactions, including
transactions in securities that may be purchased or held by the [Fund/Funds],
subject to requirements and restrictions set forth in the applicable Code of
Ethics. The Investment Manager's Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of the Funds. Among
other things, the Investment Manager's Code of Ethics prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and quarterly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Investment Manager's Code of
Ethics may be granted in particular circumstances after review by appropriate
personnel.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. Each
Fund pays KDI an administrative services fee, payable monthly, at an annual rate
of up to 0.25% of average daily net assets of Class A, B and C shares of each
Fund.
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KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms"), that provide services and facilities
for their customers or clients who are shareholders of a Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the 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. For Class A shares, KDI
pays each firm a service fee, normally payable quarterly, at an annual rate of
up to 0.25% of the net assets in Fund accounts that it maintains and services
attributable to Class A shares commencing with the month after investment. With
respect to Class B and Class C shares, KDI currently advances to firms the
first-year service fee at a rate of up to 0.25% of the purchase price of such
shares. For periods after the first year, KDI currently intends to pay firms a
service fee at 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. KDI may, from time to time, from its own resources pay certain firms
additional amounts for ongoing administrative services and assistance provided
to their customers and clients who are shareholders of the Trusts. In addition,
effective January 1, 2000 with respect to assets for which KDI provides
administrative services, each Fund will pay KDI an administrative services fee
of 0.15% of such assets.
The following information concerns the administrative services fee paid by each
Fund for the last three fiscal years.
<TABLE>
<CAPTION>
Administrative Service Fees Paid by Fund
----------------------------------------
Service Fees Paid Service Fees Paid
by Administrator by Administrator to
Fund Fiscal Year Class A Class B Class C to Firms Affiliated firms
---- ----------- ------- ------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive 2000
1999* $0 $0 $0 $139,000 $0
1998* $2,000 $1,000 $0 $80,000 $0
Blue Chip 2000
1999 $1,166,000 $581,000 $83,000 $1,629,000 $0
1998 $879,000 $394,000 $44,000 $1,311,000 $5,000
Administrative Service Fees Paid by Fund
----------------------------------------
Service Fees Paid Service Fees Paid
by Administrator by Administrator to
Fund Fiscal Year Class A Class B Class C to Firms Affiliated firms
---- ----------- ------- ------- ------- -------- ----------------
Growth 2000
1999 $4,587,000 $1,333,000 $58,000 $6,146,000 $26,000
1998 $4,274,000 $1,829,000 $47,000 $6,179,000 $37,000
Small Cap 2000
1999 $1,207,000 $396,000 $26,000 $1,664,000 $0
1998 $1,407,000 $614,000 $33,000 $2,071,000 $5,000
Technology 2000
1999 $2,834,000 $633,000 $92,000 $3,738,000 $6,000
1998 $1,763,000 $284,000 $32,000 $2,114,000 $5,000
Total Return 2000
1999 $6,635,000 $2,043,000 $87,000 $8,476,000 $11,000
1998 $5,353,000 $2,504,000 $56,000 $7,976,000 $17,000
60
<PAGE>
Value+Growth 2000
1999 $200,000 $174,000 $19,000 $391,000 $0
1998 $152,000 $130,000 $10,000 $299,000 $0
</TABLE>
+ For the period December 31, 1996 (commencement of operations) to
September 30, 1997.
* Amounts shown after expense waiver.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for a Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fee that it receives
from a Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of a 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 Trustees of a Fund,
in its discretion, may approve basing the fee to KDI on all Fund assets in the
future.
Certain trustees or officers of a Fund are also directors or officers of Scudder
Kemper or KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of each Fund. It attends to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by each Fund. Investors Fiduciary Trust Company,
801 Pennsylvania Avenue, Kansas City, Missouri, 64105 ("IFTC") is each Fund's
transfer agent and dividend-paying agent. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSvC"), an affiliate of Scudder Kemper, serves as
"Shareholder Service Agent" of each Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend paying agent. IFTC receives as transfer
agent, and pays to KSvC as follows: prior to January 1, 1999, annual account
fees at a maximum rate of $6 per account plus account set up, transaction and
maintenance charges, annual fees associated with the contingent deferred sales
charge (Class B only) and out-of-pocket expense reimbursement and effective
January 1, 1999, annual account fees of $10.00 ($18.00 for retirement accounts)
plus set up charges, annual fees associated with the contingent deferred sales
charges (Class B only), an asset-based fee of 0.08% and out-of-pocket
reimbursement. The following shows for each Fund's 2000 fiscal year the
shareholder service fees IFTC remitted to KSvC.
Fund Fees IFTC Paid to KSvC
---- ----------------------
Aggressive $
Blue Chip $
Growth $
Small Cap $
Technology $
Total Return $
Value+Growth $
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Funds.
61
<PAGE>
Trustees and Officers
The officers and trustees of the Funds, their birth dates, their principal
occupations and their affiliations, if any, with the Advisor and KDI are listed
below. All persons named as trustees also serve in similar capacities for other
funds advised by the Adviser.
All Funds:
The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper and KDI, are
listed below. All persons named as officers and trustees also serve in similar
capacities for other funds advised by the Adviser.
JOHN W. BALLANTINE (2/16/46), Trustee, 1500 North Lake Shore Drive, Chicago,
Illinois; First Chicago NBD Corporation/The First National Bank of Chicago:
1996-1998 Executive Vice President and Chief Risk Management Officer; 1995-1996
Executive Vice President and Head of International Banking; 1992-1995 Executive
Vice President, Chief Credit and Market Risk Officer.
LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
LINDA C. COUGHLIN (1/1/52), Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A.O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 800 North Lindbergh Boulevard, St. Louis,
Missouri; Vice Chairman and Chief Financial Officer, Monsanto Company
(agricultural, pharmaceutical and nutritional/food products); formerly, Vice
President, Head of International Operations, FMC Corporation (manufacturer of
machinery and chemicals).
DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
THOMAS W. LITTAUER (4/26/55), Trustee and Vice President*, Two International
Place, Boston, Massachusetts; Managing Director, Scudder Kemper; formerly, Head
of Broker Dealer Division of an unaffiliated investment management firm during
1997; prior thereto, President of Client Management Services of an unaffiliated
investment management firm from 1991 to 1996.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, Partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General, U.S. Department of Justice; Director, Bethlehem Steel Corp.
WILLIAM P. SOMMERS (7/22/33), Trustee, 24717 Harbour View Drive, Ponte Vedra
Beach, Florida; Consultant and Director, SRI International (research and
development); prior thereto, President and Chief Executive Officer, SRI
International; prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton Inc. (management consulting
firm); Director, PSI Inc., Evergreen Solar, Inc. and Litton Industries.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper; formerly, Institutional Sales Manager of an
unaffiliated mutual fund distributor.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President and Assistant Secretary, Scudder
Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
62
<PAGE>
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.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper; formerly,
Associate, Dechert Price & Rhoads (law firm) 1989 to 1997.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
Aggressive Growth Fund:
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
SEWALL HODGES (1/9/55), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
Blue Chip Fund:
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
TRACY MCCORMICK (9/27/54), Vice President*, 222 South Riverside Plaza, Chicago,
Illinois; Managing Director, Scudder Kemper.
Growth Fund:
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
VALERIE MALTER (7/25/58), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
GEORGE P. FRAISE (9/28/64), Vice President*, 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, Scudder Kemper.
Small Capitalization Equity Fund:
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
JESUS A. CABRERA (12/25/61), Vice President*, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper.
Technology Fund:
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
JAMES BURKART (2/16/47), Vice President*, 222 South Riverside Plaza, Chicago,
Illinois; Vice President, Scudder Kemper.
Total Return Fund:
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
GARY A. LANGBAUM (12/16/48), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper.
63
<PAGE>
Value+Growth Fund:
WILLIAM F. TRUSCOTT (9/14/60), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
DONALD E. HALL (8/22/52), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
* Interested persons of the Fund as defined in the 1940 Act.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Funds. The table below shows amounts paid
or accrued to those trustees who are not designated "interested persons"
during each Fund's 1999 fiscal year except that the information in the last
column is for calendar year 1999.
Aggregate Compensation From Funds
<TABLE>
<CAPTION>
Total
Compensation
From Fund and
Kemper Fund
Complex
Name of Trustee Aggressive Blue Chip Growth Small Cap Tech Total Value Paid
Return Growth Trustees**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Ballantine
Lewis A. Burnham
Donald L. Dunaway*
Robert B. Hoffman
Donald R. Jones
Shirley D. Peterson
William P. Sommers
</TABLE>
* Includes deferred fees. Pursuant to deferred compensation agreements with
Kemper funds deferred amounts accrue interest monthly at a rate equal to
the yield of Zurich Money Funds -- Zurich Money Market Fund. Total deferred
amounts (including interest thereon) payable from the Kemper Funds through
each Fund's fiscal year are $0, $13,500, $34,800, $21,900, $25,600, $37,900
and $2,100 for Mr. Dunaway for the Aggressive, Blue Chip, Growth, Small
Cap, Technology, Total Return and Value+Growth Funds, respectively.
** Includes compensation for service on the boards of 26 Kemper funds with 48
fund portfolios. Each trustee currently serves as a trustee of 26 Kemper
funds with 45 fund portfolios.
As of December 31, 2000, the officers and trustees of the Funds, as a group,
owned less than 1% of the then outstanding shares of each Fund and no person
owned of record 5% or more of the outstanding shares of any class of any Fund,
except the persons indicated in the charts below.
<TABLE>
<CAPTION>
Kemper Aggressive Growth Fund
-------------------------------------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Kemper Growth Fund
-------------------------------------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Kemper Small Capitalization Equity Fund
64
<PAGE>
-------------------------------------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Kemper Total Return Fund
-------------------------------------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Kemper Value + Growth Fund
-------------------------------------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Kemper Technology Fund
-------------------------------------------------------------------------------------------------------------
NAME CLASS PERCENTAGE
---- ----- ----------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period December 31, 1998 (commencement of operations) through
August 31, 1999.]
Class A Shares. KDI receives no compensation from the [Fund/Funds] as
principal underwriter for Class A shares and pays all expenses of distribution
of [each/the] Fund's Class A shares under the distribution agreement not
otherwise paid by dealers or other financial services firms. As indicated under
"Purchase, Repurchase and Redemption of Shares," KDI retains the sales charge
upon the purchase of shares and pays or allows concessions or discounts to firms
for the sale of [each/the] Fund's shares. The following information concerns the
underwriting commissions paid in connection with the distribution of [each/the]
Fund's Class A shares for the fiscal years noted.
* From 11/1/94 to 9/30/95.
** From 3/15/95 to 8/31/95.
* Amounts paid from January 1, 1997 through November 30, 1997.
** For the period of May 6, 1998 (commencement of operations) to September
30, 1998.
*** For the period of January 30, 1998 to September 30, 1998.
(1) No contingent deferred sales charges have been imposed on Class C
shares purchased prior to April 1, 1996.
* Amounts paid from January 1, 1997 through November 30, 1997.
65
<PAGE>
** Amounts paid from May 6, 1998 (commencement of operations) to September
30, 1998.
*** Amounts shown are after expense waiver.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of
Scudder Kemper, is the principal underwriter and distributor for the shares of
each Fund and acts as agent of each Fund in the continuous offering of its
shares. KDI bears all its expenses of providing services pursuant to the
distribution agreements, including the payment of any commissions. Each Fund
pays the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI, as principal underwriter, pays for
the printing and distribution of copies thereof used in connection with the
offering of shares to prospective investors. KDI also pays for supplementary
sales literature and advertising costs.
Class A Shares. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares. The
following information concerns the underwriting commissions paid in connection
with the distribution of each Fund's Class A shares for the fiscal years noted.
<TABLE>
<CAPTION>
Commissions Retained by Commissions Underwriter Commissions Paid to Kemper
Fund Fiscal Year Underwriter Paid to All Firms Affiliated Firms
<S> <C> <C> <C> <C>
Aggressive 2000
1999 $31,000 $146,000 $0
1998 $32,000 $323,000 $5,000
Blue Chip 2000
1999 $159,000 $930,000 $0
1998 $183,000 $1,286,000 $6,000
Growth 2000
1999 $238,000 $1,220,000 $6,000
1998 $326,000 $1,998,000 $5,000
Small Cap 2000
1999 $65,000 $384,000 $0
1998 $154,000 $875,000 $0
Technology 2000
1999 $393,000 $1,170,000 $0
1998 $163,000 $824,000 $7,000
Total Return 2000
1999 $257,000 $1,241,000 $0
1998 $233,000 $2,219,000 $6,000
Value+Growth 2000
1999 $38,000 $262,000 $0
1998 $61,000 $462,000 $0
</TABLE>
+ For the period December 31, 1996 (commencement of operations) to
September 30, 1997.
Class B Shares and Class C Shares. Each Fund has adopted a plan under Rule 12b-1
(the "Rule 12b-1 Plan") that provides for fees payable as an expense of the
Class B shares and Class C shares that are used by KDI to
66
<PAGE>
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.
For its services under the distribution agreement, KDI receives a fee from each
Fund under a Rule 12b-1 Plan, payable monthly, at the annual rate of 0.75% of
average daily net assets of each Fund attributable to Class B shares. This fee,
pursuant to the 12b-1 Plan, 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%.
For its services under the distribution agreement, KDI receives a fee from each
Fund under a Rule 12b-1 Plan, payable monthly, at the annual rate of 0.75% of
average daily net assets of each Fund attributable to Class C shares. This fee,
pursuant to the Rule 12b-1 Plan, is accrued daily as an expense of Class C
shares. KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of Class C shares. For periods after the
first year, KDI currently pays firms for sales of Class C shares a distribution
fee, payable quarterly, at an annual rate of 0.75% of net assets attributable to
Class C shares maintained and serviced by the firm and the fee continues until
terminated by KDI or a Fund. KDI also receives any contingent deferred sales
charges. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charges--Class C Shares".
Expenses of the Funds and of KDI in connection with the Rule 12b-1 Plans for the
Class B and Class C Shares are set forth below. A portion of the marketing sales
and operating expenses shown below could be considered overhead expense.
<TABLE>
<CAPTION>
Distribution Contingent Total Commissions
Fees Paid by Deferred Commissions Paid Paid by
Fund Class Fiscal Fund to Sales Charges by Underwriter Underwriter to
B Shares Year Underwriter to Underwriter to Firms Affiliated Firms
-------- ---- ----------- -------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Aggressive 2000
1999 $100,000(a) $89,000 $283,000 $0
1998 $28,000 $28,000 $337,000 $0
Blue Chip 2000
Blue Chip 1999 $1,173,000 $643,000 $2,051,000 $0
1998 $1,198,000 $293,000 $2,266,000 $0
Growth 2000
1999 $4,238,000 $1,428,000 $2,138,000 $0
1998 $5,791,000 $1,180,000 $2,647,000 $0
Small Cap 2000
1999 $1,225,000 $481,000 $721,000 $0
1998 $1,938,000 $438,000 $1,229,000 $0
Technology 2000
</TABLE>
Other Distribution Expenses Paid by Underwriter
-----------------------------------------------
Misc.
Fund Class Advertising Prospectus Marketing and Operating Interest
B Shares and Literature Printing Sales Expenses Expenses Expenses
-------- -------------- -------- -------------- -------- --------
Aggressive $25,623 $2,931 $66,040 $19,784 $90,803
$31,000 $3,000 $65,000 $29,000 $31,000
Blue Chip $177,922 $11,384 $474,444 $70,127 $817,908
Blue Chip $289,000 $34,000 $598,000 $113,000 $482,000
Growth $215,196 $24,910 $552,766 $93,237 ($551,313)
$355,000 $31,000 $731,000 $124,000 ($318,000)
Small Cap $81,411 $9,525 $203,603 $40,323 $296,956
$165,000 $14,000 $334,000 $66,000 $397,000
Technology
67
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1999 $1,930,000 $555,000 $3,383,000 $0
1998 $884,000 $273,000 $1,248,000 $0
Total Return 2000
1999 $6,179,000 $1,406,000 $3,461,000 $0
1998 $7,774,000 $1,259,000 $3,718,000 $0
Value+Growth 2000
1999 $448,000(a) $173,000 $386,000 $0
1998 $345,000 $86,000 $697,000 $0
</TABLE>
$217,770 $17,780 $650,080 $100,802 $641,408
$167,000 $19,000 $340,000 $68,000 $404,000
Total Return $337,430 $22,366 $901,664 $126,892 ($745,251)
$484,000 $57,000 $1,008,000 $171,000 ($373,000)
Value+Growth $38,592 $3,577 $104,968 $13,460 $241,870
$96,000 $10,000 $183,000 $40,000 $ 1,213,000
+ For the period December 31, 1996 (commencement of operations) to
September 30, 1997.
(a) Amounts shown after expense waiver.
68
<PAGE>
<TABLE>
<CAPTION>
Distribution Contingent Total Distribution Distribution Fee
Fees Paid by Deferred Fees Paid by Paid by
Fund Class Fiscal Fund to Sales Charges Underwriter Underwriter to
C Shares Year Underwriter to Underwriter to Firms Affiliated Firms
-------- ---- ----------- -------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Aggressive 2000
1999 $20,000(a) $3,000 $43,000 $0
1998 $6,000 $1,000 $21,000 $0
Blue Chip 2000
1999 $220,000 $6,000 $240,000 $0
1998 $134,000 $6,000 $140,000 $0
Growth 2000
1999 $185,000 $3,000 $181,000 $0
1998 $148,000 $3,000 $148,000 $0
Small Cap 2000
1999 $90,000 $3,000 $87,000 $0
1998 $106,000 $4,000 $97,000 $0
Technology 2000
1999 $288,000 $7,000 $366,000 $0
1998 $108,000 $2,000 $104,000 $0
Total Return 2000
1999 $269,000 $22,000 $289,000 $0
1998 $167,000 $5,000 $173,000 $0
Value+Growth 2000
1999 $16,000(a) $3,000 $0 $0
1998 $9,000 $3,000 $31,000 $0
</TABLE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by Underwriter
Misc.
Advertising Prospectus Marketing and Operating Interest
and Literature Printing Sales Expenses Expenses Expenses
-------------- -------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Aggressive $9,743 $1,122 $26,028 $11,812 $8,720
$6,000 $1,000 $12,000 $3,000 $4,000
Blue Chip $41,606 $2,798 $113,295 $23,261 $42,205
$56,000 $7,000 $111,000 $30,000 $27,000
Growth $20,988 $2,432 $56,162 $15,800 $59,625
$29,000 $3,000 $59,000 $19,000 $51,000
Small Cap $13,215 $1,542 $33,915 $14,540 $35,369
$24,000 $2,000 $48,000 $19,000 $29,000
Technology $53,868 $4,478 $164,379 $30,590 $41,886
$33,000 $4,000 $67,000 $22,000 $31,000
Total Return $49,088 $3,766 $140,116 $26,728 $66,561
$42,000 $5,000 $90,000 $24,000 $53,000
Value+Growth $8,352 $823 $24,051 $2,659 $13,853
$12,000 $1,000 $24,000 $9,000 $11,000
</TABLE>
+ For the period December 31, 1996 (commencement of operations) to
September 30, 1997.
* For the period February 15, 1996 to November 30, 1996.
(a) Amount shown after expense waiver.
Rule 12b-1 Plan. If a Rule 12b-1 Plan (the "Plan") is terminated in accordance
with its terms, the obligation of a Fund to make payments to KDI pursuant to the
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred
69
<PAGE>
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.
Each distribution agreement and Rule 12b-1 Plan continues in effect from year to
year so long as such continuance is approved for each class at least annually by
a vote of the Board of Trustees of the Fund, including the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement. Each agreement automatically terminates in the event
of its assignment and may be terminated for a class at any time without penalty
by a Fund or by KDI upon 60 days' notice. Termination by a Fund with respect to
a class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act. The agreement may not be amended for a class to increase the fee to be
paid by a Fund with respect to such class without approval by a majority of the
outstanding voting securities of such class of the Fund and all material
amendments must in any event be approved by the Board of Trustees in the manner
described above with respect to the continuation of the agreement. The
provisions concerning the continuation, amendment and termination of the
distribution agreement are on a Fund by Fund basis and for each Fund on a class
by class basis.
TAXES
Each Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, will not be liable for federal
income taxes to the extent its earnings are distributed. Such qualification does
not involve governmental supervision or management of investment practices or
policy.
A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including net short-term capital gain) and generally is
not subject to federal income tax to the extent that it distributes annually its
investment company taxable income and net realized capital gains in the manner
required under the Code. Long-term capital gain dividends received by individual
shareholders are taxed at a maximum rate of 20% on gains realized by a Fund from
securities held more than 12 months.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 of 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. Each Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax. If any net realized long-term
capital gains in excess of net realized short-term capital losses are retained
by a Fund for reinvestment, requiring federal income taxes to be paid thereon by
a Fund, the Fund intends to elect to treat such capital gains as having been
distributed to shareholders. As a result, each shareholder will report such
capital gains as long-term capital gains, will be able to claim a relative share
of federal income taxes paid by the Fund on such gains as a credit against
personal federal income tax liability, and will be entitled to increase the
adjusted tax basis on Fund shares by the difference between a pro rata share of
such gains owned and the individual tax credit.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of a Fund or other Kemper Mutual Fund listed above under
"Special Features--Class A Shares--Combined Purchases" (other than shares of
Kemper Cash Reserves Fund not
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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 any
Fund or in shares of a Kemper Mutual Fund within six months of the redemption as
described above under "Redemption or Repurchase of Shares--Reinvestment
Privilege." If redeemed shares were purchased after October 3, 1989 and were
held less than 91 days, then the lesser of (a) the sales charge waived on the
reinvested shares, or (b) the sales charge incurred on the redeemed shares, is
included in the basis of the reinvested shares and is not included in the basis
of the redeemed shares. If a shareholder realized a loss on the redemption or
exchange of a Fund's shares and reinvests in shares of the same Fund 30 days
before or after the redemption or exchange, the transactions may be subject to
the wash sale rules resulting in a postponement of the recognition of such loss
for federal income tax purposes. An exchange of a Fund's shares for shares of
another fund is treated as a redemption and reinvestment for federal income tax
purposes upon which gain or loss may be recognized.
A Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
a Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which the Fund held the PFIC shares. The Fund will be subject to
tax on the portion, if any, of an excess distribution that is allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Excess distributions allocated
to the current taxable year are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions might have
been classified as capital gain.
A Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, a Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by a Fund will
be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by a Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on the Fund's holding period for the option, and in the case of
an exercise of a put option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If a
Fund writes a put or call option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as a
short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
a Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts entered
into by a Fund and all listed non-equity options written or purchased by a Fund
(including options on futures contracts and options on broad-based stock
indices) will be governed by Section 1256 of the Code. Absent a tax election to
the contrary, gain or loss attributable to the lapse, exercise or closing out of
any such position generally will be treated as 60% long-term and 40% short-term
capital gain or loss, and on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e. treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-
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related forward contracts and similar financial instruments entered into or
acquired by a Fund will be treated as ordinary income. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in the
Fund's portfolio.
Positions of a Fund which consist of at least one stock and at least one other
position with respect to a related security which substantially diminishes a
Fund's risk of loss with respect to such stock could be treated as a "straddle"
which is governed by Section 1092 of the Code, the operation of which may cause
deferral of losses, adjustments in the holding periods of stock or securities
and conversion of short-term capital losses into long-term capital losses. An
exception to these straddle rules exists for certain "qualified covered call
options" on stock written by the Fund.
Positions of a Fund which consist of at least one position not governed by
Section 1256 and at least one futures or forward contract or non-equity option
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. The Fund intends to monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require a Fund
to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if a Fund enters into a short sale, offsetting
notional principal contract, futures or forward contract transaction with
respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain options, futures contracts and
forward contracts, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition are also treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income
Dividends from domestic corporations are expected to comprise a substantial part
of each Fund's gross income. To the extent that such dividends constitute a
portion of a Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of a Fund with
respect to which the dividends are received are treated as debt-financed under
federal income tax law, and is eliminated if either those shares or the shares
of the Fund are deemed to have been held by a Fund or the shareholder, as the
case may be, for less than 46 days during the 90-day period beginning 45 days
before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gain, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated
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as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
The Funds will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of a Fund may be subject to state and local taxes on distributions
received from a Fund and on redemptions of the Fund's shares. Each distribution
is accompanied by a brief explanation of the form and character of the
distribution. In January of each year the Fund issues to each shareholder a
statement of the federal income tax status of all distributions.
Each Fund is organized as a Massachusetts business trust and is not liable for
any income or franchise tax in the Commonwealth of Massachusetts, provided that
it qualifies as a regulated investment company for federal income tax purposes.
An individual may make a deductible IRA contribution for any taxable year only
if (i) the individual is not an active participant in an employer's retirement
plan, or (ii) the individual has an adjusted gross income below a certain level
($52,000 for married individuals filing a joint return, with a phase-out of the
deduction for adjusted gross income between $52,000 and $62,000; $32,000 for a
single individual, with a phase-out for adjusted gross income between $32,000
and $42,000). An individual is not considered an active participant in an
employer's retirement plan if the individual's spouse is an active participant
in such a plan. However, in the case of a joint return, the amount of the
deductible contribution by the individual who is not an active participant (but
whose spouse is) is phased out for adjusted gross income between $150,000 and
$160,000. However, an individual not permitted to make a deductible contribution
to an IRA for any such taxable year may nonetheless make nondeductible
contributions up to $2,000 to an IRA (up to $2,000 per individual for married
couples if only one spouse has earned income) for that year. There are special
rules for determining how withdrawals are to be taxed if an IRA contains both
deductible and nondeductible amounts. In general, a proportionate amount of each
withdrawal will be deemed to be made from nondeductible contributions; amounts
treated as a return of nondeductible contributions will not be taxable. Also,
annual contributions may be made to a spousal IRA even if the spouse has
earnings in a given year if the spouse elects to be treated as having no
earnings (for IRA contribution purposes) for the year.
Distributions by a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to
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the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at that time
includes the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty. Trustees of
qualified retirement plans and 403(b)(7) accounts are required by law to
withhold 20% of the taxable portion of any distribution that is eligible to be
"rolled over". The 20% withholding requirement does not apply to distributions
from Individual Retirement Accounts (IRAs) or any part of a distribution that is
transferred directly to another qualified retirement plan, 403(b)(7) account, or
IRA. Shareholders should consult with their tax Advisors regarding the 20%
withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes,
including, when appropriate, information regarding any foreign taxes and
credits, will be provided after the end of the calendar year. Shareholders are
encouraged to retain copies of their account confirmation statements or year-end
statements for tax reporting purposes. However, those who have incomplete
records may obtain historical account transaction information at a reasonable
fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each - - shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Dividend and interest income received by a Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Shareholders should consult their tax advisors about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Investment Manager.
The primary objective of the Investment Manager in placing orders for the
purchase and sale of securities for a 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 Investment Manager seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by a Fund to reported
commissions paid by others. The Investment
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Manager routinely reviews commission rates, execution and settlement services
performed and makes internal and external comparisons.
A Fund's purchases and sales of fixed-income securities are generally placed by
the Investment Manager with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Investment Manager's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Investment Manager is authorized when placing portfolio transactions for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research, market or statistical information. The Investment
Manager may place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Investment Manager will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Investment
Manager; the Distributor will place orders on behalf of a Fund with issuers,
underwriters or other brokers and dealers. The Distributor will not receive any
commission, fee or other remuneration from a Fund for this service.
Although certain research, market and statistical services from broker/dealers
may be useful to [the/a] Fund and to the Investment Manager, it is the opinion
of the Investment Manager that such information only supplements the Investment
Manager's own research effort since the information must still be analyzed,
weighed, and reviewed by the Investment Manager's staff. Such information may be
useful to the Investment Manager in providing services to clients other than a
Fund, and not all such information is used by the Investment Manager in
connection with a Fund. Conversely, such information provided to the Investment
Manager by broker/dealers through whom other clients of the Investment Manager
effect securities transactions may be useful to the Investment Manager in
providing services to [the/a] Fund.
The Board reviews, from time to time, whether the recapture for the benefit of a
Fund of some portion of the brokerage commissions or similar fees paid by
[the/a] Fund on portfolio transactions is legally permissible and advisable.
[INSERT INDIVIDUAL DISCLOSURE REGARDING BROKERAGE COMMISSIONs PAID IN THE LAST
THREE YEARS.]
Portfolio Turnover
Portfolio turnover rate is defined by the SEC as the ratio of the lesser of
sales or purchases to the monthly average value of such securities owned during
the year, excluding all securities whose remaining maturities at the time of
acquisition were one year or less.
Higher levels of activity by [a/the] Fund result in higher transaction costs and
may also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for [a/the] Fund whenever necessary,
in management's opinion, to meet a Fund's objective.
Portfolio turnover rates for the three most recent fiscal periods are as
follows:
[REPEAT THE FOLLOWING TABLE AS NEEDED FOR ADDITIONAL FUNDS (EXCEPT MONEY
FUNDS).]
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[See Item 12(e) of Form N-1A - Also explain any significant variation in a
fund's portfolio turnover rates over the two most recently completed FYs or any
anticipated variation in the portfolio turnover rate from that reported for the
last fiscal year in response to Item 9.]
--------------------------------------------------------------------------------
Fund Fiscal Year/Period Fiscal Year/Period Fiscal Year/Period
Ended _____: Ended _____: Ended _____:
FINANCIAL STATEMENTS
The financial statements appearing in [the/each] Fund's Annual Report to
Shareholders are incorporated herein by reference. [The/Each] Fund's Annual
Report accompanies this Statement of Additional Information.
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APPENDIX--RATINGS OF INVESTMENTS
Standard & Poor's Corporation Bond Ratings
AAA. Debt rated AAA had the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC and C. Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Moody's Investors Service, Inc., Bond Ratings
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
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Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch Long-Term Debt Ratings
AAA
Highest credit quality. `AAA' ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA
Very high credit quality. `AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A
High credit quality. `A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB
Good credit quality. `BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
BB
Speculative. `BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B
Highly speculative. `B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C
High default risk. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favorable business or economic
developments. A `CC' rating indicates that default of some kind appears
probable. `C' ratings signal imminent default.
DDD, DD, D
Default. The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. 'DDD' obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. 'DD' indicates
potential recoveries in the range of 50%-90%, and 'D' the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated 'DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities rated 'D' have a
poor prospect for repaying all obligations.
Fitch Short-Term Debt Ratings
78
<PAGE>
F1
Highest credit quality. Indicates the Best capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.
F2
Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3
Fair credit quality. The capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B
Speculative. Minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
C
High default risk. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
D
Default. Denotes actual or imminent payment default.
COMMERCIAL PAPER RATINGS
Commercial paper rated by Standard & Poor's Ratings Services ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-1 or A-2.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors
considered by it in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated Prime-1 or 2.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term obligations are
"MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the case of
an issue having a variable rate demand feature). Notes rated "MIG 1" or "VMIG 1"
are judged to be of the "best quality". Notes rated "MIG 2" or "VMIG 2" are of
"high quality," with margins or protection "ample although not as large as in
the preceding group". Notes rated "MIG 3" or "VMIG 3" are of "favorable
quality," with all security elements accounted for but lacking the strength of
the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest". Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+". The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.
Fitch: The highest ratings for state and municipal short-term obligations are
"F-1+," "F-1," and "F-2".
79
<PAGE>
SCUDDER
INVESTMENTS(SM)
[LOGO]
--------------------------------------------------------------------------------
EQUITY/GROWTH
--------------------------------------------------------------------------------
Class S Shares
Scudder Classic Growth Fund
Prospectus
February 1, 2001
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
Scudder Classic Growth Fund
How the fund works
4 Investment Approach
5 Main Risks To Investors
6 The Fund's Track Record
7 How Much Investors Pay
How to invest in the fund
13 How to Buy and Sell Class S Shares
15 Policies You Should Know About
20 Understanding Distributions and Taxes
<PAGE>
How the fund works
On the next few pages, you'll find information about this fund's
investment goal, the main strategies it uses to pursue that goal,
and the main risks that could affect its performance.
Whether you are considering investing in the fund or are already a
shareholder, you'll probably want to look this information over
carefully. You may want to keep it on hand for reference as well.
Remember that mutual funds are investments, not bank deposits.
They're not insured or guaranteed by the FDIC or any other
government agency, and you could lose money by investing in them.
You can find Scudder prospectuses on the Internet at
www.scudder.com.
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class S SCCGX fund number | Class S 058
Scudder Classic Growth Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital with reduced share price
volatility compared with other growth mutual funds. The fund
invests primarily in common stocks of U.S. companies. Although the
fund can invest in companies of any size, it generally focuses on
established companies with market values of $2 billion or more.
In choosing stocks, the portfolio managers look for individual
companies that have strong competitive positions, prospects for
consistent growth, effective management and strong balance sheets.
The managers use several strategies in seeking to reduce share
price volatility. They diversify the fund's investments, by
company as well as by industry and sector. They prefer to
invest in companies whose stock appears reasonably valued in
light of potential growth based on various factors such as
price-to-earnings ratios and market capitalization. They also
prefer to avoid companies whose business fundamentals are
deteriorating. Depending on their outlook, the managers may
increase or reduce the fund's exposure to a given industry or
company. The fund will normally sell a stock when the managers
believe it is too highly valued, its fundamental qualities
have deteriorated or its potential risks have increased.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in U.S. common stocks, it could invest up to 25%
of total assets in foreign securities. Also, while the fund is 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.
4
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund makes sense for investors interested in a long-term
investment that seeks to lower its share price volatility.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's
performance, cause you to lose money or make the fund perform less
well than other investments.
As with most stock funds, the most important factor with this fund
is how stock markets perform -- in this case, the large company
portion of the U.S. stock market. When stock prices fall, you
should expect the value of your investment to fall as well. 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.
To the extent that the fund focuses on a given industry or a
particular size of company, any factors affecting that industry or
size of company could affect portfolio securities. For example, a
rise in unemployment could hurt manufacturers of consumer goods.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies,
industries, risk factors or other matters o growth stocks may
be out of favor for certain periods
o foreign securities may be more volatile than their U.S.
counterparts, for reasons such as currency fluctuations and
political and economic uncertainty
o derivatives could produce disproportionate losses
o at times, it might be hard to value some investments or to get
an attractive price for them
5
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how it will
do in the future, it can be valuable for an investor to know. This page
looks at fund performance two different ways: year by year and over
time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the returns of the fund's Class S shares
have varied from year to year, which may give some idea of risk.
The table shows average annual total returns of the fund's Class S
shares and a broad-based market index (which, unlike the fund, does
not have any fees or expenses). The performance of both the fund
and the index varies over time. All figures on this page assume
reinvestment of dividends and distributions.
-------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class S
-------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
2000 Total Return as of [DATE]: ___%
Best Quarter: Worst Quarter:
-------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/2000
-------------------------------------------------------------------
1 Year since inception*
-------------------------------------------------------------------
Fund -- Class S*
-------------------------------------------------------------------
Index
-------------------------------------------------------------------
Index: Standard & Poor's 500 Composite Stock Price Index (S&P 500
Index), an unmanaged capitalization-weighted index that includes
500 large-cap U.S. stocks.
Total returns since inception through 1999 would have been lower if
operating expenses hadn't been reduced.
* Share class inception: 9/9/1996. Index comparison begins
9/30/1996.
* Class AARP shares are invested in the same portfolio and annual
returns would differ only to the extent that the classes have
different fees and expenses.
6
<PAGE>
How Much Investors Pay
This fund has no sales charge or other shareholder fees. The fund
does have annual operating expenses, and as a shareholder of Class
S shares, you pay them indirectly.
-------------------------------------------------------------------
Fee Table
-------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
-------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
-------------------------------------------------------------------
Management Fee
-------------------------------------------------------------------
Distribution (12b-1) Fee None
-------------------------------------------------------------------
Other Expenses* __%
-------------------------------------------------------------------
Total Annual Operating Expenses __%
-------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.25%.
Information in the table has been restated to reflect a new fixed
rate administrative fee and a new investment management agreement.
-------------------------------------------------------------------
Expense Example
-------------------------------------------------------------------
Based on the cost above, this example helps you compare this fund's
expenses to those of other mutual funds. The example assumes the
expenses above remain the same. It also assumes that you invested
$10,000, earned 5% annual returns, reinvested all dividends and
distributions and sold your shares at the end of each period. This
is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------
$xx $xxx $xxx $xxxx
-------------------------------------------------------------------
7
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points
of the fund's strategy and risks, there are a few other issues to
know about:
o Although major changes tend to be infrequent, the fund's Board
could change the fund's investment goal without seeking
shareholder approval.
o As a temporary defensive measure, the fund could shift up to
100% of its assets into investments such as money market
securities. This could prevent losses, but would mean that the
fund was not pursuing its goal.
o This fund may trade securities more actively than many funds,
which could mean higher expenses (thus lowering return) and
higher taxable distributions.
Euro conversion
Funds which 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 Adviser is working to address
euro-related issues as they occur and understands that other key
service providers are taking similar steps. Still, there's some
risk that this problem could materially affect a fund's operation
(including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets
in general.
For more information
This prospectus doesn't tell you about every policy or risk of
investing in the fund.
If you want more information on the fund's allowable securities and
investment practices and the characteristics and risks of each one,
you may want to request a copy of the Statement of Additional
Information (the back cover tells you how to do this).
Keep in mind that there is no assurance that any mutual fund will
achieve its goal.
8
<PAGE>
--------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for managing
the fund, takes a team approach to asset management.
--------------------------------------------------------------------------------
Who Manages and Oversees the Fund
The investment adviser
The fund's investment adviser is Scudder Kemper Investments, Inc.,
345 Park Avenue, New York, NY. Scudder Kemper has more than 80
years of experience managing mutual funds, and currently has more
than $290 billion in assets under management. Scudder Kemper's
asset management teams include investment professionals,
economists, research analysts, traders and other investment
specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper
receives a management fee from the fund. For the most recent fiscal
year, the actual amount the fund paid in management fees was X.XX%
of average daily net assets.
Scudder Classic Growth Fund %
-------------------------------------------------------------------
The fund has entered into a new investment management agreement
with Scudder Kemper. This table describes the new fee rates for the
fund and the effective date of these agreements.
-------------------------------------------------------------------
Investment Management Fee
-------------------------------------------------------------------
Average Daily Net Assets Fee Rate
-------------------------------------------------------------------
-------------------------------------------------------------------
first $500 million %
-------------------------------------------------------------------
next $500 million %
-------------------------------------------------------------------
more than $1 billion %
-------------------------------------------------------------------
9
<PAGE>
The portfolio managers
The following people handle the day-to-day management of the fund.
William F. Gadsden
Lead Portfolio Manager
o Began investment career in 1981
o Joined the adviser in 1983
o Joined the fund team in 1996
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. The majority of the Board is not affiliated with Scudder Kemper. These
independent members have primary responsibility for assuring that the fund is
managed in the best interests of its shareholders.
The following people comprise the fund's Board.
Linda C. Coughlin Joan E. Spero
o Managing Director, Scudder o President, Doris Duke
Kemper Investments, Inc. Charitable Foundation
o President of the fund
Jean Gleason Stromberg
Henry P. Becton, Jr. o Consultant
o President, WGBH Educational
Foundation Jean C. Tempel
o Managing Director, First
Dawn-Marie Driscoll Light Capital, LLC (venture
o Executive Fellow, Center for capital firm)
Business Ethics, Bentley College
o President, Driscoll Associates Steven Zaleznick
(consulting firm) o President and Chief Executive
Officer, AARP Services, Inc.
Edgar Fiedler
o Senior Fellow and Economic
Counsellor, The Conference
Board, Inc. (a not-for-profit
business research organization)
Keith R. Fox
o General Partner, The Exeter
Group of Funds
10
<PAGE>
Financial Highlights
This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of each table are for a single
share. The total return figures represent the percentage that an investor in the
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
annual report (see "Shareholder reports" on the back cover).
11
<PAGE>
How to invest in the fund
The following pages tell you how to invest in these funds and what
to expect as a shareholder. If you're investing directly with
Scudder, all of this information applies to you.
If you're investing through a "third party provider" -- for
example, a workplace retirement plan, financial supermarket or
financial adviser -- your provider may have its own policies or
instructions, and you should follow those.
<PAGE>
How to Buy and Sell Class S Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
First investment Additional investments
-----------------------------------------------------------------------------------
<S> <C>
$2,500 or more for regular accounts $100 or more for regular accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
-----------------------------------------------------------------------------------
By mail or express (see below)
o Fill out and sign an application Send a Scudder investment slip or
short note that includes:
o Send it to us at the appropriate
address, along with an investment check o fund and class name
o account number
o check payable to "The Scudder Funds"
-----------------------------------------------------------------------------------
By wire
o Call 1-800-SCUDDER for instructions o Call 1-800-SCUDDER for instructions
-----------------------------------------------------------------------------------
By phone
-- o Call 1-800-SCUDDER for instructions
-----------------------------------------------------------------------------------
With an automatic investment plan
o Fill in the information on your o To set up regular investments from a
application and include a voided check bank checking account, call
1-800-SCUDDER
-----------------------------------------------------------------------------------
Using QuickBuy
-- o Call 1-800-SCUDDER
-----------------------------------------------------------------------------------
On the Internet
o Go to "funds and prices" at o Call 1-800-SCUDDER to ensure you have
www.scudder.com electronic services
o Print out a prospectus and a new account o Register at www.scudder.com
application
o Follow the instructions for buying
o Complete and return the application with shares with money from your bank
your check account
-----------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
--------------------------------------------------------------------------------
13
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Exchanging into another fund Selling shares
-------------------------------------------------------------------------------------
<S> <C>
$2,500 or more to open a new account Some transactions, including most for
($1,000 or more for IRAs) over $100,000, can only be ordered in
writing; if you're in doubt, see page 17
$100 or more for exchanges between
existing accounts
-------------------------------------------------------------------------------------
By phone or wire
o Call 1-800-SCUDDER for instructions o Call 1-800-SCUDDER for instructions
-------------------------------------------------------------------------------------
Using SAIL(TM)
o Call 1-800-343-2890 and follow the o Call 1-800-343-2890 and follow the
instructions instructions
-------------------------------------------------------------------------------------
By mail, express or fax (see previous page)
Your instructions should include: Your instructions should include:
o the fund, class, and account number o the fund, class and account number
you're exchanging out of from which you want to sell shares
o the dollar amount or number of shares o the dollar amount or number of shares
you want to exchange you want to sell
o the name and class of the fund you want o your name(s), signature(s) and
to exchange into address, as they appear on your
account
o your name(s), signature(s), and address,
as they appear on your account o a daytime telephone number
o a daytime telephone number
-------------------------------------------------------------------------------------
With an automatic withdrawal plan
-- o To set up regular cash payments from
a Scudder account, call 1-800-SCUDDER
-------------------------------------------------------------------------------------
Using QuickSell
-- o Call 1-800-SCUDDER
-------------------------------------------------------------------------------------
On the Internet
o Register at www.scudder.com --
o Follow the instructions for making
on-line exchanges
-------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
--------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder representative between 8 a.m. and
8 p.m. Eastern time on any fund business day by calling 1-800-SCUDDER.
--------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies
below may affect you as a shareholder. Some of this information,
such as the section on dividends and taxes, applies to all
investors, including those investing through investment providers.
If you are investing through an investment provider, check the
materials you got from them. As a general rule, you should follow
the information in those materials wherever it contradicts the
information given here. Please note that an investment provider may
charge its own fees.
In either case, keep in mind that the information in this
prospectus applies only to the fund's Class S shares. The fund does
have other share classes, which are described in separate
prospectuses and which have different fees, requirements, and
services.
In order to reduce the amount of mail you receive and to help
reduce fund expenses, we generally send a single copy of any
shareholder report and prospectus to each household. If you do not
want the mailing of these documents to be combined with those for
other members of your household, please call 1-800-SCUDDER.
Policies about transactions
The fund is open for business each day the New York Stock Exchange
is open. The fund calculates its share price every business day, as
of the close of regular trading on the Exchange (typically 4 p.m.
eastern time, but sometimes earlier, as in the case of scheduled
half-day trading or unscheduled suspensions of trading).
You can place an order to buy or sell shares at any time. Once your
order is received by Scudder Service Corporation, and they have
determined that it is a "good order," it will be processed at the
next share price calculated.
Because orders placed through investment providers must be
forwarded to Scudder Service Corporation before they can be
processed, you'll need to allow extra time. A representative of
your investment provider should be able to tell you when your order
will be processed.
15
<PAGE>
--------------------------------------------------------------------------------
[ICON] The Scudder Web site can be a valuable resource for shareholders with
Internet access. To get up-to-date information, review balances or even
place orders for exchanges, go to www.scudder.com.
--------------------------------------------------------------------------------
Automated phone information is available 24 hours a day. You can
use your automated phone services to get information on Scudder
funds generally and on accounts held directly at Scudder. If you
signed up for telephone services, you can also use this service to
make exchanges and sell shares.
Call SAIL(TM), the Scudder Automated Information Line, at
1-800-343-2890
QuickBuy and QuickSell let you set up a link between a Scudder
account and a bank account. Once this link is in place, you can
move money between the two with a phone call. You'll need to make
sure your bank has Automated Clearing House (ACH) services. To set
up QuickBuy or QuickSell on a new account, see the account
application; to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask you
for certain information, or take other steps designed to prevent
fraudulent orders. It's important to understand that as long as we
take reasonable steps to ensure that an order appears genuine, we
are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while
we don't charge a fee to receive wires, we will deduct a $5 fee
from all wires sent from us to your bank. Your bank may charge its
own fees for handling wires. The fund can only accept wires of $100
or more.
16
<PAGE>
Exchanges are a shareholder privilege, not a right: we may reject
any exchange order, particularly when there appears to be a pattern
of "market timing" or other frequent purchases and sales. We may
also reject purchase orders, for these or other reasons.
When you want to sell more than $100,000 worth of shares, you'll
usually need to place your order in writing and include a signature
guarantee. The only exception is if you want money wired to a bank
account that is already on 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.
Money from shares you sell is normally sent out within one business
day of when your order is processed (not when it is received),
although it could be delayed for up to seven days. There are also
two circumstances when it could be longer: when you are selling
shares you bought recently by check and that check hasn't cleared
yet (maximum delay: 15 days) or when unusual circumstances prompt
the SEC to allow further delays.
17
<PAGE>
--------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you can
always send us your order in writing.
--------------------------------------------------------------------------------
How the fund calculates share price
For each share class, the price at which you buy shares is the net
asset value per share, or NAV. To calculate NAV, each class of the
fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a
market price isn't available, or when we have reason to believe it
doesn't represent market realities, we may use fair value methods
approved by the fund's Board. In such a case, the fund's value for
a security is likely to be different from quoted market prices.
To the extent that the fund invests in securities that are traded
primarily in foreign markets, the value of its holdings could
change at a time when you aren't able to buy or sell fund shares.
This is because some foreign markets are open on days when the fund
doesn't price its shares.
18
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you
have been notified by the IRS that you are subject to backup
withholding, or if you fail to provide us with a correct
taxpayer ID number or certification that you are exempt from
backup withholding
o charge you $10 a year if your account balance falls below
$2,500; in either case, we will give you 60 days notice so you
can either increase your balance or close your account (these
policies don't apply to retirement accounts, to investors with
$100,000 or more in Scudder fund shares or in any case where a
fall in share price created the low balance)
o reject a new account application if you don't provide a correct
Social Security or other tax ID number; if the account has
already been opened, we may give you 30 days' notice to provide
the correct number
o change, add or withdraw various services, fees and account
policies (for example, we may change or terminate the exchange
privilege at any time)
o pay you for shares you sell by "redeeming in kind," that is, by
giving you marketable securities (which typically will involve
brokerage costs for you to liquidate) rather than cash; in most
cases, the fund won't make a redemption in kind unless your
requests over a 90-day period total more than $250,000 or 1% of
the fund's assets, whichever is less
19
<PAGE>
--------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is unique, it's always a good
idea to ask your tax professional about the tax consequences of your
investments, including any state and local tax consequences.
--------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its
shareholders virtually all of its net earnings. A fund can earn
money in two ways: by receiving interest, dividends or other income
from securities it holds, and by selling securities for more than
it paid for them. (A fund's earnings are separate from any gains or
losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its
shareholders in December, and if necessary may do so at other
times as well.
You can choose how to receive your dividends and distributions. You
can have them all automatically reinvested in fund shares or all
sent to you by check. Tell us your preference on your application.
If you don't indicate a preference, your dividends and
distributions will all be reinvested. 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 tax status of the fund earnings you receive, and your own fund
transactions, generally depends on their type:
Generally taxed at ordinary income rates
-------------------------------------------------------------------
o short-term capital gains from selling fund shares
-------------------------------------------------------------------
o taxable income dividends you receive from the fund
-------------------------------------------------------------------
o short-term capital gains distributions you receive from the fund
-------------------------------------------------------------------
Generally taxed at capital gains rates
-------------------------------------------------------------------
o long-term capital gains from selling fund shares
-------------------------------------------------------------------
o long-term capital gains distributions you receive from the fund
-------------------------------------------------------------------
20
<PAGE>
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.
21
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's
management team about recent market conditions and the effects of a
fund's strategies on its performance. For each fund, they also have
detailed performance figures, a list of everything the fund owns,
and the fund's financial statements. Shareholders get these reports
automatically. To reduce costs, we mail one copy per household. For
more copies, call 1-800-SCUDDER.
Statement of Additional Information (SAI) -- This tells you more
about each fund's features and policies, including additional risk
information. The SAI is incorporated by reference into this
document (meaning that it's legally part of this prospectus).
If you'd like to ask for copies of these documents, or if you're a
shareholder and have questions, please contact Scudder or the SEC
(see below). Materials you get from Scudder are free; those from
the SEC involve a copying fee. If you like, you can look over these
materials in person at the SEC's Public Reference Room in
Washington, DC.
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA Washington, D.C. 20549-6009
02107-2291
1-800-SCUDDER 1-202-942-8090
www.scudder.com www.sec.gov
SEC File Number 811-43
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Investment Trust
Scudder Classic Growth Fund
Class S
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2001
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus for the Fund, as amended from time to
time, a copy of which may be obtained without charge by contacting Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103, 1-800-SCUDDER.
The Annual Report to Shareholders of the Fund, dated October 31, 2000
accompanies this Statement of Additional Information. It is incorporated by
reference and is hereby deemed to be part of this Statement of Additional
Information.
This Statement of Additional Information is incorporated by reference
into the prospectus.
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Table of Contents to be added
Policies and Techniques
The Fund offers multiple classes of shares. Class S is offered in this Statement
of Additional Information. Each class has its own important features and
policies. The Fund also has three other share classes offered in a separate
prospectus and Statement of Additional Information.
General. The Fund's investment objectives are to seek long-term growth of
capital with reduced share price volatility compared to other growth mutual
funds. This diversified equity fund is designed for investors looking to grow
their investment principal over time for retirement and other long-term needs.
While current income is not a stated objective of the Fund, many of the Fund's
securities may provide regular dividends, which are also expected to grow over
time.
While the Fund is broadly diversified and conservatively managed, with attention
paid to stock valuation and risk, its share price will move up and down with
changes in the general level of financial markets. Accordingly, shareholders
should be comfortable with stock market risk and view the Fund as a long-term
investment.
Except as otherwise indicated, the Fund's investment objectives 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 objectives will be
met.
Under normal market conditions, the Fund invests primarily in a diversified
portfolio of common stocks which the Fund's investment adviser, Scudder Kemper
Investments, Inc. (the "Investment Manager"), believes offers above-average
appreciation potential yet, as a portfolio, offers the potential for less share
price volatility than other growth mutual funds.
In seeking such investments, the Investment Manager focuses its investment in
securities of high quality, medium-to-large sized U.S. companies with leading
competitive positions. Using in-depth fundamental company research along with
proprietary financial quality, stock rating and risk measures, the Investment
Manager looks for companies with strong and sustainable earnings growth, a
proven ability to add value over time, and reasonable stock market valuations.
These companies often have important business franchises, leading products,
services or technologies, or dominant marketing and distribution systems.
Classic Growth Fund's investment approach centers on identifying a group of
stocks with both attractive return potential and moderate risk. In order to
serve the Fund's dual objectives, the Fund's managers avoid "high-expectation"
stocks--stocks with tremendous performance potential but whose prices can
quickly tumble on earnings disappointments. Additionally, the portfolio managers
select stocks with higher average market capitalizations and lower average
price-earnings ratios than those held by the average growth fund. In general, a
fund comprised of stocks with lower P/E ratios will exhibit less volatility over
time. The portfolio managers will use portfolio construction techniques to
reduce overall portfolio risk. Although individual securities may experience
price volatility, the Fund will be managed for reduced share price fluctuation
in comparison to other growth funds.
The Fund allocates its investments among different industries and companies, and
adjusts its portfolio securities based on long-term investment considerations as
opposed to short-term trading. While the Fund emphasizes U.S. investments, it
can commit a portion of assets to the equity securities of foreign growth
companies that meet the criteria applicable to the Fund's domestic investments.
The Fund may invest up to 25% of the Fund's assets in listed and unlisted
foreign securities.
While the Fund invests primarily in common stocks, it can purchase other types
of equity securities including securities convertible into common stocks,
preferred stocks, rights, illiquid securities and warrants. The Fund's policy is
to remain substantially invested in these securities, which may be listed on
national securities exchanges or, less commonly, trade over-the-counter.
The Fund may purchase "investment-grade" bonds, rated Aaa, Aa, A or Baa by
Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard &
Poor's Corporation ("S&P") or, if unrated, judged to be of equivalent quality as
determined by the Investment Manager. The Fund may invest up to 20% of its net
assets in such debt securities when the Investment Manager anticipates that the
capital appreciation on debt securities is likely to
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equal or exceed the capital appreciation on common stocks over a selected time,
such as during periods of unusually high interest rates. As interest rates fall,
the prices of debt securities tend to rise. The Fund may also invest in money
market securities in anticipation of meeting redemptions or paying Fund
expenses. Also, the Fund may purchase securities of other investment companies,
enter into repurchase agreements, reverse repurchase agreements and engage in
strategic transactions.
For temporary defensive purposes, the Fund may invest without limit in high
quality money market securities, including U.S. Treasury bills, repurchase
agreements, commercial paper, certificates of deposit issued by domestic and
foreign branches of U.S. banks, bankers' acceptances, and other debt securities,
such as U.S. Government obligations and corporate debt instruments when the
Adviser deems such a position advisable in light of economic or market
conditions. It is impossible to accurately predict for how long such alternative
strategies may be utilized.
Additional Information about Investment Techniques
The following section includes disclosure about investment practices and
techniques which may be utilized by the Fund. Specific limitations and policies
regarding the use of these techniques may be found in the "Investment Objective
and Policies" section, as well as in "Investment Restrictions" below.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which the Fund may engage or a financial
instrument which the Fund may purchase are meant to describe the spectrum of
investments that Scudder Kemper Investments, Inc. (the "Investment Manager"), in
its discretion, might, but is not required to, use in managing the Fund's
portfolio assets. The Investment Manager may, in its discretion, at any time
employ such practice, technique or instrument for one or more funds but not for
all funds advised by it. Furthermore, it is possible that certain types of
financial instruments or investment techniques described herein may not be
available, permissible, economically feasible or effective for their intended
purposes in all markets. Certain practices, techniques, or instruments may not
be principal activities of the Fund but, to the extent employed, could from time
to time have a material impact on the Fund's performance.
Borrowing. The Fund will borrow only when the Investment Manager believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing. Borrowing by the Fund will involve special risk
considerations. Although the principal of the Fund's borrowings will be fixed,
the Fund's assets may change in value during the time a borrowing is
outstanding, proportionately increasing exposure to capital risk.
Common Stocks. Common stock is issued by companies to raise cash for business
purposes and represents a proportionate interest in the issuing companies.
Therefore, the Fund participates in the success or failure of any company in
which it holds stock. The market values of common stock can fluctuate
significantly, reflecting the business performance of the issuing company,
investor perception and general economic and financial market movements. Despite
the risk of price volatility, however, common stocks have historically offered a
greater potential for long-term gain on investment, compared to other classes of
financial assets such as bonds or cash equivalents, although there can be no
assurance that this will be true in the future.
Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest are either fixed income
or zero coupon debt securities which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. The
exchange ratio for any particular convertible security may be adjusted from time
to time due to stock splits, dividends, spin-offs, other corporate distributions
or scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not
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experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock, although typically not as much as the underlying
common stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
Of course, like all debt securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).
Depositary Receipts. The Fund may invest in sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs") and
other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary receipts provide
indirect investment in securities of foreign issuers. Prices of unsponsored
Depositary Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. ADRs are Depositary
Receipts which are bought and sold in the United States and are typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities by a foreign corporation. GDRs, IDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although they
may also be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities. Depositary Receipts, including those denominated in U.S.
dollars will be subject to foreign currency exchange rate risk. However, by
investing in U.S. dollar-denominated ADRs rather than directly in foreign
issuers' stock, the Fund avoids currency risks during the settlement period. In
general, there is a large, liquid market in the United States for most ADRs.
However, certain Depositary Receipts may not be listed on an exchange and
therefore may be illiquid securities.
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various currencies.
Fluctuations in exchange rates may also affect the earning power and asset value
of the foreign entity issuing the security.
The strength or weakness of the U.S. dollar against these currencies is
responsible for part of the Fund's investment performance. If the dollar falls
in value relative to the Japanese yen, for example, the dollar value of a
Japanese stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar
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rises in value relative to the yen, the dollar value of the Japanese stock will
fall. Many foreign currencies have experienced significant devaluation relative
to the dollar.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
options or forward or futures contracts to purchase or sell foreign currencies.
Foreign Securities. Investing in foreign securities involves certain special
considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Investment Manager will endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less governmental
supervision and regulation of securities exchanges, brokers and listed companies
in foreign countries than in the U.S. It may be more difficult for the Fund's
agents to keep currently informed about corporate actions in foreign countries
which may affect the prices of portfolio securities. Communications between the
U.S. and foreign countries may be less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Payment for securities without delivery
may be required in certain foreign markets. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect U.S. investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. The
management of the Fund seeks to mitigate the risks associated with the foregoing
considerations through continuous professional management.
Illiquid Securities and Restricted Securities. The Fund may purchase securities
that are subject to legal or contractual restrictions on resale ("restricted
securities"). Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the Securities Act of 1933, as
amended. Issuers of restricted securities may not be subject to the disclosure
and other investor protection requirements that would be applicable if their
securities were publicly traded.
Restricted securities are often illiquid, but they may also be liquid. For
example, restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid. ).
Issuers of restricted securities may not be subject to the disclosure and other
investor protection requirement that would be applicable if their securities
were publicly traded. Where a registration statement is required for the resale
of restricted securities, the Fund may be required to bear all or part of the
registration expenses. The Fund may be deemed to be an "underwriter" for
purposes of the Securities Act of 1933, as amended when selling restricted
securities to the public and, in such event, the Fund may be liable to
purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
The Fund may also purchase securities that are not subject to legal or
contractual restrictions on resale, but that are deemed illiquid. Such
securities may be illiquid, for example, because there is a limited trading
market for them.
The Fund may be unable to sell a restricted or illiquid security. In addition,
it may be more difficult to determine a market value for restricted or illiquid
securities. Moreover, if adverse market conditions were to develop during the
period between the Fund's decision to sell a restricted or illiquid security and
the point at which the Fund is
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permitted or able to sell such security, the Fund might obtain a price less
favorable than the price that prevailed when it decided to sell.
This investment practice, therefore, could have the effect of increasing the
level of illiquidity of the Fund.
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 Manager. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging), except that the Fund may engage in reverse repurchase
agreements and dollar rolls for any purpose.
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act"). The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, the Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs). Index-based
investments may not replicate exactly the performance of their specified index
because of transaction costs and because of the temporary unavailability of
certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the
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same weighting, as the component stocks of the Nasdaq-100 Index and seeks to
closely track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Investment-Grade Bonds. The Fund may purchase "investment-grade" bonds, which
are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Investment
Manager. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. To the extent that the Fund invests in
higher-grade securities, the Fund will not be able to avail itself of
opportunities for higher income which may be available at lower grades.
Investment of Uninvested Cash Balances. The Fund may have cash balances that
have not been invested in portfolio securities ("Uninvested Cash"). Uninvested
Cash may result from a variety of sources, including dividends or interest
received from portfolio securities, unsettled securities transactions, reserves
held for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions and
dividend payments, and new cash received from investors. Uninvested Cash may be
invested directly in money market instruments or other short-term debt
obligations. Pursuant to an Exemptive Order issued by the SEC, the Fund may use
Uninvested Cash to purchase shares of affiliated funds including money market
funds, short-term bond funds and Scudder Cash Management Investment Trust, or
one or more future entities for which Scudder Kemper Investments acts as trustee
or investment advisor that operate as cash management investment vehicles and
that are excluded from the definition of investment company pursuant to section
3(c)(1) or 3(c)(7) of the 1940 Act (collectively, the "Central Funds") in excess
of the limitations of Section 12(d)(1) of the Investment Company Act. Investment
by the Fund in shares of the Central Funds will be in accordance with the Fund's
investment policies and restrictions as set forth in its registration statement.
Certain of the Central Funds comply with rule 2a-7 under the Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance the Fund's ability to
manage Uninvested Cash.
The Fund will invest Uninvested Cash in Central Funds only to the extent that
the Fund's aggregate investment in the Central Funds does not exceed 25% of its
total assets in shares of the Central Funds. Purchase and sales of shares of
Central Funds are made at net asset value.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions, and are required to be secured
continuously by collateral in cash or liquid assets, maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. The Fund has the right to call a loan and obtain the
securities loaned on five days' notice or, in connection with securities trading
on foreign markets, within such longer period of time which coincides with the
normal settlement period for purchases and sales of such securities in such
foreign markets. During the existence of a loan, the Fund continues to receive
the equivalent of any distributions paid by the issuer on the securities loaned
and also receives compensation based on investment of the collateral. The risks
in lending securities, as with other extensions of secured credit, consist of a
possible delay in recovery and a loss of rights in the collateral should the
borrower of the securities fail financially. Loans may be made only to firms
deemed by the Investment Manager to be of good standing and will not be made
unless, in the judgment of the Investment Manager, the consideration to be
earned from such loans would justify the risk.
Repurchase Agreements. The Fund may invest in repurchase agreements pursuant to
its investment guidelines. In a repurchase agreement, the Fund acquires
ownership of a security and simultaneously commits to resell that security to
the seller, typically a bank or broker/dealer.
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A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and, as described in more detail below, the value of such securities is
kept at least equal to the repurchase price on a daily basis. The repurchase
price may be higher than the purchase price, the difference being income to the
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to the Fund together with the repurchase price upon repurchase.
In either case, the income to the Fund is unrelated to the interest rate on the
Obligation itself. Obligations will be held by the custodian or in the Federal
Reserve Book Entry System.
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It is not clear whether a court would consider the Obligation purchased
by the Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt Obligation purchased for the Fund, the
Investment Manager seeks to reduce the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. However, if the
market value (including interest) of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including interest), the Fund
will direct the seller of the Obligation to deliver additional securities so
that the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase such securities at an agreed time and
price. The Fund maintains a segregated account in connection with outstanding
reverse repurchase agreements. The Fund will enter into reverse repurchase
agreements only when the Investment Manager believes that the interest income to
be earned from the investment of the proceeds of the transaction will be greater
than the interest expense of the transaction. Such transactions may increase
fluctuations in the market value of Fund assets and its yield.
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 Manager'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 Manager'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
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inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
of appreciation the Fund can realize on its investments or cause the Fund to
hold a security it might otherwise sell. The use of currency transactions can
result in the Fund incurring losses as a result of a number of factors including
the imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than 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.
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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 Manager 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 Manager. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by the Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject to
the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts other
than futures on individual corporate debt and individual equity securities. The
Fund will not sell put options if, as a result, more than 50% of the Fund's
total assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to
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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 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 Manager.
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.
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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 Manager considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Manager believes
that the value of schillings will decline against the U.S. dollar, the Manager
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Manager, 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 Manager'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
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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 Manager 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
Manager. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency will
generally require the Fund to hold an amount of that currency or liquid assets
denominated in that currency equal to the Fund's obligations or to segregate
cash or liquid assets equal to the amount of the Fund's obligation.
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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.
Warrants. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Investment Restrictions
The following restrictions may not be changed with respect to a Fund without the
approval of a majority of the outstanding voting securities of such Fund which,
under the 1940 Act and the rules thereunder and as used in this Statement of
Additional Information, means the lesser of (i) 67% of the shares of such Fund
present at a meeting if the holders of more than 50% of the outstanding shares
of such Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of such Fund.
The Fund has elected to be classified as a diversified series of an open end
management investment company. In addition, as a matter of fundamental policy,
the Fund will not:
(1) borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
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(2) issue senior securities, except as permitted under the Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) purchase physical commodities or contracts relating to
physical commodities;
(4) concentrate its investments in a particular industry, as that
term is used in Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from
time to time;
(5) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(6) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities; and
(7) make loans except as permitted under the Act, as amended, and
as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
The Fund has adopted the following non-fundamental restrictions, which may be
changed by the Board without shareholder approval. 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 securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
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If a percentage restriction is adhered to at the time of investment, a later
increase or decrease beyond the specified limit resulting from a change in
values or net assets will not be considered a violation.
Net Asset Value
The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The net asset value of shares of the Fund is computed as of the
close of regular trading on the New York Stock Exchange (the "Exchange") on each
day the Exchange is open for trading (the "Value Time"). The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday,
respectively. Net asset value per share is determined separately for each class
of shares by dividing the value of the total assets of the Fund attributable to
the share of that class, less all liabilities, by the total number of shares
outstanding.
An exchange-traded equity security is valued at its most recent sale price on
the exchange it is traded as of the Value Time. Lacking any sales, the security
is valued at the calculated mean between the most recent bid quotation and the
most recent asked quotation (the "Calculated Mean") on such exchange as of the
Value Time. Lacking a Calculated Mean the security is valued at the most recent
bid quotation on such exchange as of the Value Time. An equity security which is
traded on the National Association of Securities Dealers Automated Quotation
("Nasdaq") system will be valued at its most recent sale price on such system as
of the Value Time. Lacking any sales, the security is valued at the most recent
bid quotation as of the Value Time. The value of an equity security not quoted
on the Nasdaq System, but traded in another over-the-counter market, is its most
recent sale price if there are any sales of such security on such market as of
the Value Time. Lacking any sales, the security is valued at the Calculated Mean
quotation for such security as of the Value Time. Lacking a Calculated Mean
quotation the security is valued at the most recent bid quotation as of the
Value Time.
Debt securities, other than money market instruments, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide market maker. If it is not possible to value a particular debt
security pursuant to the above methods, the Investment Manager of the particular
fund may calculate the price of that debt security, subject to limitations
established by the Board.
An exchange traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Valuation Committee, the value of a portfolio asset as
determined in accordance with these procedures does not represent the fair
market value of the portfolio asset, the value of the portfolio asset is taken
to be an amount which, in the opinion of the Valuation Committee, represents
fair market value on the basis of all available information. The value of other
portfolio holdings owned by the Fund is determined in a manner which, in the
discretion of the Valuation Committee most fairly reflects fair market value of
the property on the valuation date.
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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.
PURCHASES
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
The name Scudder Classic Growth Fund as used herein and in the
prospectus also means Classic Growth Fund, which is a series of the Trust. All
shares of Classic Growth Fund outstanding on April 15, 1998, were redesignated
as Scudder Shares of Classic Growth Fund. Investors in Classic Growth Fund as of
April 15, 1998 can continue to purchase Scudder Shares. Scudder Shares are not
available to new investors with the following exceptions:
(1) Existing shareholders of any fund or class of a fund in the Scudder
Family of Funds as of April 15, 1998, and their immediate family
members residing at the same address, may purchase Scudder Shares.
(2) Shareholders who owned shares of Classic Growth Fund through any
broker-dealer or service agent omnibus account as of April 15, 1998,
may continue to purchase Scudder Shares. Existing shareholders of any
fund in the Scudder Family of Funds through certain broker-dealers or
service agent omnibus accounts as of April 15, 1998, may purchase
Scudder Shares when made available from that broker-dealer or service
agent. Call the broker-dealer or service agent for more information.
(3) Retirement, employee stock, bonus, pension or profit sharing plans
offering the Scudder Family of Funds as of April 15, 1998, may add new
participants and accounts. Scudder Shares are also available to
prospective plan sponsors, as well as to existing plans which had not
previously offered Classic Growth Fund as an investment option.
(4) An employee who owns Scudder Shares through a retirement, employee
stock, bonus, pension or profit sharing plan as of April 15, 1998,
may, at a later date, open a new individual account to purchase
Scudder Shares.
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(5) Any employee who owns Scudder Shares through a retirement, employee
stock, bonus, pension or profit sharing plan may complete a direct
rollover to an IRA holding Scudder Shares.
(6) Scudder Shares are available to the Scudder Kemper Investments, Inc.
retirement plans.
(7) Officers, Fund Trustees and Directors, and full-time employees of
Scudder Kemper Investments, Inc. and its subsidiaries, and their
family members, may purchase Scudder Shares.
(8) Scudder Shares are available to any accounts managed by Scudder Kemper
Investments, Inc., any advisory products offered by Scudder Kemper
Investments, Inc. or Scudder Investor Services, Inc., and to the
portfolios of Scudder Pathway Series.
(9) Registered investment advisors ("RIAs") and certified financial
planners ("CFPs") with clients invested in the Scudder Family of Funds
as of April 15, 1998, may purchase additional Scudder Shares or open
new individual client or omnibus accounts purchasing Scudder Shares.
RIAs and CFPs who do not have clients invested in the Funds as of
April 15, 1998, may enter into a written agreement with Scudder
Investor Services in order to purchase Scudder Shares. Call Scudder
Financial Intermediary Services at 1-800-854-8525 for more
information.
(10) Broker-dealers, RIAs and CFPs who have clients participating in
comprehensive fee programs may enter into an agreement with Scudder
Investor Services in order to purchase Scudder Shares. Call Scudder
Financial Intermediary Services at 1-800-854-8525 for more
information.
(11) Institutional alliances trading through NSCC/FundServ may purchase
Scudder Shares. Call Scudder Financial Intermediary Services at
1-800-854-8525 for more information.
(12) Partnership shareholders invested Classic Growth Fund as of April 15,
1998 through an account registered in the name of a partnership may
open new accounts to purchase Scudder Shares, whether or not they are
listed on the account registration. Corporate shareholders invested in
Classic Growth Fund as of April 15, 1998, may open new accounts using
the same registration, or if the corporation is reorganized, the new
companies may purchase Scudder Shares.
Scudder Investor Services may, at its discretion, require appropriate
documentation that an investor is indeed eligible to purchase Scudder Shares.
For more information, please call Scudder Investor Relations at 1-800-225-2470.
Minimum Balances
Shareholders should maintain a share balance worth at least $2,500 for Class S.
For fiduciary accounts such as IRAs, and custodial accounts such as Uniform
Gifts to Minors Act, and Uniform Transfers to Minors Act accounts, the minimum
balance is $1,000 for Class S. These amounts may be changed by each Fund's
Board. A shareholder may open an account with at least $1,000 ($500 for
fiduciary/custodial accounts), if an automatic investment plan (AIP) of
$100/month is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
All Scudder Funds reserve the right, following 60 days' written notice to
applicable shareholders, to:
o For Class S assess an annual $10 per fund charge (with the fee to be paid to
the Fund) for any non-fiduciary/non-custodial account without an automatic
investment plan (AIP) in place and a balance of less than $2,500 for Class S;
and
o redeem all shares in Fund accounts below $1,000 where a reduction in value
has occurred due to a redemption, exchange or transfer out of the account. The
Fund will mail the proceeds of the redeemed account to the shareholder.
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Reductions in value that result solely from market activity will not trigger an
involuntary redemption. Shareholders with a combined household account balance
in any of the Scudder Funds of $100,000 or more, as well as group retirement and
certain other accounts will not be subject to a fee or automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or UTMA)
with balances below $100 are subject to automatic redemption following 60 days'
written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not greater
than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the prospectus. Contact the Distributor at
1-800-SCUDDER for additional information. A confirmation of the purchase will be
mailed out promptly following receipt of a request to buy. Federal regulations
require that payment be received within three business days. If payment is not
received within that time, the order is subject to cancellation. In the event of
such cancellation or cancellation at the purchaser's request, the purchaser will
be responsible for any loss incurred by the Fund or the principal underwriter by
reason of such cancellation. If the purchaser is a shareholder, the Trust shall
have the authority, as agent of the shareholder, to redeem shares in the account
in order to reimburse the Fund or the principal underwriter for the loss
incurred. Net losses on such transactions which are not recovered from the
purchaser will be absorbed by the principal underwriter. Any net profit on the
liquidation of unpaid shares will accrue to the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and who have elected to participate in
the QuickBuy program, may purchase shares of a Fund by telephone. Through this
service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time. Proceeds
in the amount of your purchase will be transferred from your bank checking
account two or three business days following your call. For requests received by
the close of regular trading on the Exchange, shares will be purchased at the
net asset value per share calculated at the close of trading on the day of your
call. QuickBuy requests received after the close of regular trading on the
Exchange will begin their processing and be purchased at the net asset value
calculated the following business day. If you purchase shares by QuickBuy and
redeem them within seven days of the purchase, the Fund may hold the redemption
proceeds for a period of up to seven business days. If you purchase shares and
there are insufficient funds in your bank account the purchase will be canceled
and you will be subject to any losses or fees incurred in the transaction.
QuickBuy transactions are not available for most retirement plan accounts.
However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have completed and
returned to the Transfer Agent the application, including the designation of a
bank account from which the purchase payment will be debited. New investors
wishing to establish QuickBuy may so indicate on the application. Existing
shareholders who wish to add QuickBuy to their account may do so by completing a
QuickBuy Enrollment Form. After sending in an enrollment form, shareholders
should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls, testing a
caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Checks
A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.
If shares of a Fund are purchased by a check which proves to be uncollectible,
the Trust reserves the right to cancel the purchase immediately and the
purchaser may be responsible for any loss incurred by the Trust or the principal
underwriter by reason of such cancellation. If the purchaser is a shareholder,
the Trust will have the authority, as
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agent of the shareholder, to redeem shares in the account in order to reimburse
the applicable Fund or the principal underwriter for the loss incurred.
Investors whose orders have been canceled may be prohibited from, or restricted
in, placing future orders in any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular trading on
the Exchange on a selected day, your bank must forward federal funds by wire
transfer and provide the required account information so as to be available to
the Fund prior to the close of regular trading on the Exchange (normally 4 p.m.
eastern time).
The bank sending an investor's federal funds by bank wire may charge for the
service. Presently, the Distributor pays a fee for receipt by State Street Bank
and Trust Company (the "Custodian") of "wired funds," but the right to charge
investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may be open.
These holidays include Columbus Day (the 2nd Monday in October) and Veterans Day
(November 11). Investors are not able to purchase shares by wiring federal funds
on such holidays because the Custodian is not open to receive such federal funds
on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value next
computed after receipt of a purchase request in good order. Net asset value
normally will be computed for each class as of the close of regular trading on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will be executed at the next
business day's net asset value. If the order has been placed by a member of the
NASD, other than the Distributor, it is the responsibility of that member
broker, rather than the Fund, to forward the purchase order to Scudder Service
Corporation (the "Transfer Agent") by the close of regular trading on the
Exchange.
Share Certificates
Due to the desire of the Trust's management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund. Share
certificates now in a shareholder's possession may be sent to the Transfer Agent
for cancellation and credit to such shareholder's account. Shareholders who
prefer may hold the certificates in their possession until they wish to exchange
or redeem such shares.
Other Information
The Fund has authorized certain members of the NASD other than the Distributor
to accept purchase and redemption orders for its shares. Those brokers may also
designate other parties to accept purchase and redemption orders on 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 at a class' net asset value next computed after acceptance
by such brokers or their authorized designees. Further, if purchases or
redemptions of the Fund's shares are arranged and settlement is made at an
investor's election through any other authorized NASD member, that member may,
at its discretion, charge a fee for that service. The Board of Trustees and the
Distributor, also the Fund's principal underwriter, each has the right to limit
the amount of purchases by, and to refuse to sell to, any person. The Trustees
and the Distributor may suspend or terminate the offering of Fund shares at any
time for any reason.
The Tax Identification Number section of the application must be completed when
opening an account. Applications and purchase orders without a correct certified
tax identification number and certain other certified information (e.g. from
exempt organizations, certification of exempt status) will be returned to the
investor. The Fund reserves the right, following 30 days' notice, to redeem all
shares in accounts without a correct certified Social Security or tax
identification number. A shareholder may avoid involuntary redemption by
providing the Fund with a tax identification number during the 30-day notice
period.
The Trust may issue shares at net asset value in connection with any merger or
consolidation with, or acquisition of the assets of, any investment company or
personal holding company, subject to the requirements of the 1940 Act.
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EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and purchase into
another Scudder fund. The purchase side of the exchange may be either an
additional investment into an existing account or may involve opening a new
account in another fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges into a new fund account must be for a minimum of $2,500 for Class S.
When an exchange represents an additional investment into an existing account,
the account receiving the exchange proceeds must have identical registration,
tax identification number, address, and account options/features as the account
of origin. Exchanges into an existing account must be for $100 or more for Class
S. If the account receiving the exchange proceeds is to be different in any
respect, the exchange request must be in writing and must contain an original
signature guarantee.
Exchange orders received before the close of regular trading on the Exchange on
any business day ordinarily will be executed at the respective net asset values
determined on that day. Exchange orders received after the close of regular
trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges automatically
executed on a predetermined schedule from one Scudder fund to an existing
account in another Scudder fund, at current net asset value, through Scudder's
Automatic Exchange Program. Exchanges must be for a minimum of $50. Shareholders
may add this free feature over the telephone or in writing. Automatic exchanges
will continue until the shareholder requests by telephone or in writing to have
the feature removed, or until the originating account is depleted. The Trust and
the Transfer Agent each reserves the right to suspend or terminate the privilege
of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above (except
for exchanges from funds which impose a redemption fee on shares held less than
a year). An exchange into another Scudder fund is a redemption of shares, and
therefore may result in tax consequences (gain or loss) to the shareholder and
the proceeds of such exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange by
telephone, automatically without having to elect it. Each Scudder Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. A Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Funds
and the Transfer Agent each reserves the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed under
"THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange, shareholders
should obtain from the Distributor a prospectus of the Scudder fund into which
the exchange is being contemplated. The exchange privilege may not be available
for certain Scudder funds or classes thereof. For more information, please call
1-800-SCUDDER. Scudder retirement plans may have different exchange
requirements. Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having to elect
it, to redeem by telephone up to $100,000 and have the proceeds mailed to their
address of record. Shareholders may request to have the proceeds mailed or wired
to their pre-designated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a predesignated
bank account must complete the appropriate section on the application.
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(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder Pension and
Profit-Sharing, Scudder 401(k) and Scudder 403(b) Planholders) who wish to
establish telephone redemption to a predesignated bank account or who want to
change the bank account previously designated to receive redemption proceeds
should either return a Telephone Redemption Option Form (available upon request)
or send a letter identifying the account and specifying the exact information to
be changed. The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original signature
guarantee are required for each person in whose name the account is registered.
If a request for redemption to a shareholder's bank account is made by telephone
or fax, payment will be by Federal Reserve bank wire to the bank account
designated on the application, unless a request is made that the redemption
check be mailed to the designated bank account. There will be a $5 charge for
all wire redemptions.
Note: Investors designating a savings bank to receive their telephone redemption
proceeds are advised that if the savings bank is not a participant in the
Federal Reserve System, redemption proceeds must be wired through a commercial
bank which is a correspondent of the savings bank. As this may delay receipt by
the shareholder's account, it is suggested that investors wishing to use a
savings bank discuss wire procedures with their bank and submit any special wire
transfer information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to the
designated bank.
The Fund employs procedures, including recording telephone calls, testing a
caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption requests by telephone (technically a repurchase by agreement between
the Fund and the shareholder) of shares purchased by check will not be accepted
until the purchase check has cleared which may take up to seven business days.
Telepone redemption is not available with respect to shares represented by share
certificates or shares held in certain retirement accounts.
Redemption by QuickSell
Shareholders whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and who have elected to participate in
the QuickSell program may sell shares of the Fund by telephone. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4:00 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange will begin their processing and be redeemed at the net asset value
calculated the following business day. QuickSell transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have completed
and returned to the Transfer Agent the application, including the designation of
a bank account to which redemption proceeds will be credited. New investors
wishing to establish QuickSell may so indicate on the application. Existing
shareholders who wish to add QuickSell to their account may do so by completing
a QuickSell Enrollment Form. After sending in an enrollment form, shareholders
should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls, testing a
caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be
genuine.
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Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assigment form with signature(s) guaranteed.
In order to ensure proper authorization before redeeming shares, the Transfer
Agent may request documents such as, but not limited to, stock powers, trust
instruments, certificates of death, appointments as executor, certificates of
corporate authority and waivers of tax (required in some states when settling
estates).
It is suggested that shareholders holding certificated shares or shares
registered in other than individual names contact the Transfer Agent prior to
redemptions to ensure that all necessary documents accompany the request. When
shares are held in the name of a corporation, trust, fiduciary agent, attorney
or partnership, the Transfer Agent requires, in addition to the stock power,
certified evidence of authority to sign. These procedures are for the protection
of shareholders and should be followed to ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within seven business days after receipt by the
Transfer Agent of a request for redemption that complies with the above
requirements. Delays of more than seven days of payment for shares tendered for
repurchase or redemption may result but only until the purchase check has
cleared.
The requirements for IRA redemptions are different from those for regular
accounts. For more information call 1-800-225-SCUDDER.
Redemption-in-Kind
The Trust reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund at the beginning of the
period
Other Information
Clients, officers or employees of the Investment Manager or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct redemption requests to the
Trust through Scudder Investor Services, Inc. at Two International Place,
Boston, Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the request. A written
request in good order as described above and any certificates with a proper
original signature guarantee(s) should be sent with a copy of the invoice to
Scudder Service Corporation, Confirmed Processing Department, Two International
Place, Boston, Massachusetts 02110-4103. Failure to deliver shares or required
documents (see above) by the settlement date may result in cancellation of the
trade and the shareholder will be responsible for any loss incurred by the Fund
or the principal underwriter by reason of such cancellation. The Trust shall
have the authority, as agent of the shareholder, to redeem shares in the account
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions, which are not recovered from the shareholder, will
be absorbed by the principal underwriter. Any net gains so resulting will accrue
to the Fund. For this group, repurchases will be carried out at the net asset
value next computed after such repurchase requests have been received. The
arrangements described in this paragraph for repurchasing shares are
discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account after the record date of a
dividend, the shareholder will receive in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Fund does not
impose a redemption or repurchase charge, although a wire charge may be
applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts should contact
the employer, trustee or custodian of the Plan for the requirements.
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The determination of net asset value may be suspended and a shareholder's right
to redeem shares and to receive payments may be suspended at times during which
a) the Exchange is closed, other than customary weekend and holiday closings,
(b) trading on the Exchange is restricted, (c) an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund fairly to determine
the value of its net assets, or (d) the SEC, by order, permits the suspension of
the right of redemption or a postponement of the payment or redemption, provided
that applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
Features and Services
Class S
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of mutual fund
fee structures, and of how Scudder distinguishes its Scudder Family of Funds
from the vast majority of mutual funds available today. The primary distinction
is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for the sale
and distribution of fund shares. There are three types of loads: front-end
loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act
A front-end load is a sales charge, which can be as high as 8.50% of the amount
invested. A back-end load is a contingent deferred sales charge, which can be as
high as 8.50% of either the amount invested or redeemed. The maximum front-end
or back-end load varies, and depends upon whether or not a fund also charges a
12b-1 fee and/or a service fee or offers investors various sales-related
services such as dividend reinvestment. The maximum charge for a 12b-1 fee is
0.75% of a fund's average annual net assets, and the maximum charge for a
service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can charge a
small 12b-1 fee and/or service fee against fund assets. Under the National
Association of Securities Dealers Conduct Rules, a mutual fund can call itself a
"no-load" fund only if the 12b-1 fee and/or service fee does not exceed 0.25% of
a fund's average annual net assets.
Because funds and classes in the Scudder Family of Funds do not pay any
asset-based sales charges or service fees, Scudder uses the phrase no-load to
distinguish Scudder funds and classes from other load mutual funds. Scudder
pioneered the no-load concept when it created the nation's first no-load fund in
1928, and later developed the nation's first family of no-load mutual funds.
Internet access
World Wide Web Site -- The address for the Class S shareholder site is
www.scudderdirect.com. These sites offer guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The sites also enable users to
access or view fund prospectuses and profiles with links between summary
information in Fund Summaries and details in the Prospectus. Users can fill out
new account forms on-line, order free software, and request literature on funds.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder Electronic
Account Services) -- are accessible only by current Scudder Fund shareholders
who have set up a Personal Page on Scudder's Web site. Using a secure Web
browser, shareholders sign on to their account with their Social Security number
and their SAIL password. As an additional security measure, users can change
their current password or disable access to their portfolio through the World
Wide Web.
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An Account Activity option reveals a financial history of transactions for an
account, with trade dates, type and amount of transaction, share price and
number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest any
dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment may be given to the Transfer Agent in writing at least five days prior
to a dividend record date. Shareholders may change their dividend option by
calling 1-800-225-5163 for Class S or by sending written instructions to the
Transfer Agent. Please include your account number with your written request.
Reinvestment is usually made at the closing net asset value of the class
determined on the business day following the record date. Investors may leave
standing instructions with the Transfer Agent designating their option for
either reinvestment or cash distribution of any income dividends or capital
gains distributions. If no election is made, dividends and distributions will be
invested in additional class shares of a Fund.
Investors may also have dividends and distributions automatically deposited to
their predesignated bank account through Scudder's Direct Distributions Program.
Shareholders who elect to participate in the Direct Distributions Program, and
whose predesignated checking account of record is with a member bank of the
Automated Clearing House Network (ACH) can have income and capital gain
distributions automatically deposited to their personal bank account usually
within three business days after the Fund pays its distribution. A Direct
Distributions request form can be obtained by calling 1-800-225-5163 for Class
S. Confirmation Statements will be mailed to shareholders as notification that
distributions have been deposited.
Investors choosing to participate in the Automatic Withdrawal Plan must reinvest
any dividends or capital gains. For most retirement plan accounts, the
reinvestment of dividends and capital gains is also required.
Reports to Shareholders
Shareholders are sent unaudited semiannual financial statements and annual
financial statements audited by independent accountants, including a list of
investments held and statements of assets and liabilities, operations, changes
in net assets and financial highlights.
Transaction Summaries
Annual summaries of all transactions are available to shareholders. The
summaries may be obtained by calling 1-800-225-SCUDDER for Class S shares.
The Scudder Family of Funds
The Scudder Family of Funds is America's first family of mutual funds and the
nation's oldest family of no-load mutual funds; a list of Scudder's funds
follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
TAX FREE
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
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Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 500 Index Fund
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Small Company Stock Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International Growth and IncomeFund
Scudder International Fund***
Scudder Global Discovery Fund**
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
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Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Health Care Fund
Scudder Technology Fund
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
The net asset values of most Scudder funds can be found daily in the "Mutual
Funds" section of The Wall Street Journal under "Scudder Funds," and in other
leading newspapers throughout the country. Investors will notice the net asset
value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890 for Class S shares.
Certain Scudder funds or classes thereof may not be available for purchase or
exchange. For more information, please call 1-800-SCUDDER.
Retirement Plans
Detailed information on any Scudder investment plan, including the applicable
charges, minimum investment requirements and disclosures made pursuant to
Internal Revenue Service (the "IRS") requirements, may be obtained by contacting
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103 or by calling toll free, 1-800-225-2470. The discussions of the plans
below describe only certain aspects of the federal income tax treatment of the
plan. The state tax treatment may be different and may vary from state to state.
It is advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of Scudder Funds may also be a permitted investment under profit sharing
and pension plans and IRAs other than those offered by the Fund's distributor
depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares may be purchased as the investment medium under a plan in the form of a
Scudder Profit-Sharing Plan (including a version of the Plan which includes a
cash-or-deferred feature) or a Scudder Money Purchase Pension Plan (jointly
referred to as the Scudder Retirement Plans) adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietorships and partnerships), or other qualifying organization. Each of
these forms was approved by the IRS as a prototype. The IRS's approval of an
employer's plan under Section 401(a) of the Internal Revenue Code will be
greatly facilitated if it is in such approved form. Under certain circumstances,
the IRS will assume that a plan, adopted in this form, after special notice to
any employees, meets the requirements of Section 401(a) of the Internal Revenue
Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares may be purchased as the investment medium under a plan in the form of a
Scudder 401(k) Plan adopted by a corporation, a self-employed individual or a
group of self-employed individuals (including sole proprietors and
partnerships), or other qualifying organization. This plan has been approved as
a prototype by the IRS.
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Scudder IRA: Individual Retirement Account
Shares may be purchased as the underlying investment for an Individual
Retirement Account which meets the requirements of Section 408(a) of the
Internal Revenue Code.
A single individual who is not an active participant in an employer-maintained
retirement plan, such as a pension or profit sharing plan, a governmental plan,
a simplified employee pension plan, a simple retirement account, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. If an individual is an active participant, the deductibility of his or
her IRA contributions in 2000 is phased out if the individual has gross income
between $32,000 and $42,000 and is single, if the individual has gross income
between $52,000 and $62,000 and is married filing jointly, or if the individual
has gross income between $0 and $10,000 and is married filing separately; the
phase-out ranges for individuals who are single or married filing jointly are
subject to annual adjustment through 2005 and 2007, respectively. If an
individual is married filing jointly and the individual's spouse is an active
participant but the individual is not, the deductibility of his or her IRA
contributions is phased out if their combined gross income is between $150,000
and $160,000. Whenever the adjusted gross income limitation prohibits an
individual from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions. There are
special rules for determining how withdrawals are to be taxed if an IRA contains
both deductible and nondeductible amounts. In general, a proportionate amount of
each withdrawal will be deemed to be made from nondeductible contributions;
amounts treated as a return of nondeductible contributions will not be taxable.
An eligible individual may contribute as much as $2,000 of qualified income
(earned income or, under certain circumstances, alimony) to an IRA each year (up
to $2,000 per individual for married couples, even if only one spouse has earned
income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a Roth
Individual Retirement Account which meets the requirements of Section 408A of
the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000 per year
to a Roth IRA. The maximum contribution amount diminishes and gradually falls to
zero for single filers with adjusted gross incomes ranging from $95,000 to
$110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a Roth IRA
as long as the total contribution to all IRAs does not exceed $2,000. No tax
deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are reinvested
and compounded tax-free. Such tax-free compounding can lead to substantial
retirement savings. No distributions are required to be taken prior to the death
of the original account holder. If a Roth IRA has been established for a minimum
of five years, distributions can be taken tax-free after reaching age 59 1/2,
for a first-time home purchase ($10,000 maximum, one-time use) or upon death or
disability. All other distributions of earnings from a Roth IRA are taxable and
subject to a 10% tax penalty unless an exception applies. Exceptions to the 10%
penalty include: disability, certain medical expenses, the purchase of health
insurance for an unemployed individual and qualified higher education expenses.
An individual with an income of $100,000 or less (who is not married filing
separately) can roll his or her existing IRA into a Roth IRA. However, the
individual must pay taxes on the taxable amount in his or her traditional IRA.
Individuals who complete the rollover in 1998 will be allowed to spread the tax
payments over a four-year period. After 1998, all taxes on such a rollover will
have to be paid in the tax year in which the rollover is made.
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Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment for tax
sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal Plan to
receive monthly, quarterly or periodic redemptions from his or her account for
any designated amount of $50 or more. Shareholders may designate which day they
want the automatic withdrawal to be processed. The check amounts may be based on
the redemption of a fixed dollar amount, fixed share amount, percent of account
value or declining balance. The Plan provides for income dividends and capital
gains distributions, if any, to be reinvested in additional shares. Shares are
then liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s) as described in the Fund's prospectus. Any
such requests must be received by the Fund's transfer agent ten days prior to
the date of the first automatic withdrawal. An Automatic Withdrawal Plan may be
terminated at any time by the shareholder, the Trust or its agent on written
notice, and will be terminated when all shares of the Fund under the Plan have
been liquidated or upon receipt by the Trust of notice of death of the
shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163 for Class S.
Cash Management System -- Group Sub-Accounting Plan
for Trust Accounts, Nominees and Corporations
To minimize record-keeping by fiduciaries and corporations, arrangements have
been made with the Transfer Agent to offer a convenient group sub-accounting and
dividend payment system to bank trust departments and others. Debt obligations
of banks which utilize the Cash Management System are not given any preference
in the acquisition of investments for a Fund or Portfolio.
In its discretion, a Fund may accept minimum initial investments of less than
$2,500 (per Portfolio) as part of a continuous group purchase plan by
fiduciaries and others (e.g., brokers, bank trust departments, employee benefit
plans) provided that the average single account in any one Fund or Portfolio in
the group purchase plan will be $2,500 or more. A Fund may also wire all
redemption proceeds where the group maintains a single designated bank account.
Shareholders who withdraw from the group purchase plan through which they were
permitted to initiate accounts under $2,500 will be subject to the minimum
account restrictions described under "EXCHANGES AND REDEMPTIONS--Other
Information."
Automatic Investment Plan
Shareholders may arrange to make periodic investments in Class S shares through
automatic deductions from checking accounts by completing the appropriate form
and providing the necessary documentation to establish this service. The minimum
investment is $50 for Class S shares.
The Automatic Investment Plan involves an investment strategy called dollar cost
averaging. Dollar cost averaging is a method of investing whereby a specific
dollar amount is invested at regular intervals. By investing the same dollar
amount each period, when shares are priced low the investor will purchase more
shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
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Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for minors.
The minimum initial investment is $1,000 unless the donor agrees to continue to
make regular share purchases for the account through Scudder's Automatic
Investment Plan (AIP). In this case, the minimum initial investment is $500.
The Trust reserves the right, after notice has been given to the shareholder and
custodian, to redeem and close a shareholder's account in the event that regular
investments to the account cease before the $1,000 minimum is reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund intends to follow the practice of distributing substantially all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment, after paying the
related federal taxes for which shareholders may then be able to claim a credit
against their federal tax liability. If the Fund does not distribute the amount
of capital gain and/or ordinary income required to be distributed by an excise
tax provision of the Code, the Fund may be subject to that excise tax. In
certain circumstances, the Fund may determine that it is in the interest of
shareholders to distribute less than the required amount. (See "TAXES.")
The Fund intends to distribute its investment company taxable income and any net
realized capital gains in November or December to avoid federal excise tax,
although an additional distribution may be made if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared.
According to preference, shareholders may receive distributions in cash or have
them reinvested in additional shares of the Fund.
If an investment is in the form of a retirement plan, all dividends and capital
gains distributions must be reinvested into the shareholder's account.
If a shareholder has elected to reinvest any dividends and/or other
distributions, such distributions will be made in shares of that Fund and
confirmations will be mailed to each shareholder. If a shareholder has chosen to
receive cash, a check will be sent. Distributions of investment company taxable
income and net realized capital gains are taxable (see "TAXES"), whether made in
shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
Performance Information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be computed separately for each class.
Average Annual Total Return
Average annual total return is the average annual compound rate of return for
the periods of one year, five years and ten years (or such shorter periods as
may be applicable dating from the commencement of the Fund's operations), all
ended on the last day of a recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
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reinvested in Fund shares. Average annual total return is calculated by
computing the average annual compound rates of return of a hypothetical
investment over such periods, according to the following formula (average annual
total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = Average Annual Total Return
P = a hypothetical initial investment of $1,000
^n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Returns for the Period Ended October 31, 2000
1 Year Life of Fund
Scudder Classic Growth Fund
Class S ____% ____%
[(1)INSERT FOOTNOTES AS NEEDED]
As described above, average annual total return is based on historical earnings
and is not intended to indicate future performance. Average annual total return
for the Fund or class will vary based on changes in market conditions and the
level of the Fund's and class' expenses.
In connection with communicating its average annual total return to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment over such periods, according to the
following formula (cumulative total return is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Returns for the Period Ended October 31, 2000
1 Year Life of
Fund
Scudder Classic Growth Fund Class S ____% ____%
(1)INSERT FOOTNOTES AS NEEDED
Total Return
Total return is the rate of return on an investment for a specified period of
time calculated in the same manner as cumulative total return.
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From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of the Fund apart from capital appreciation will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Fund's and classes' performance data.
Quotations of a Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of that Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of that Fund's expenses.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, members of the Board
and officers of the Fund, its Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The Fund may be advertised as an investment choice in Scudder's college planning
program.
Marketing and other Fund literature may include a description of the potential
risks and rewards associated with an investment in the Fund. The description may
include a "risk/return spectrum" which compares the Fund to other Scudder funds
or broad categories of funds, such as money market, bond or equity funds, in
terms of potential risks and returns. Money market funds are designed to
maintain a constant $1.00 share price and have a fluctuating yield. Share price,
yield and total return of a bond fund will fluctuate. The share price and return
of an equity fund also will fluctuate. The description may also compare the Fund
to bank products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S. government and
offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risks/returns associated with an investment in bond or equity funds depend upon
many factors. For bond funds these factors include, but are not limited to, a
fund's overall investment objective, the average portfolio maturity, credit
quality of the securities held, and interest rate movements. For equity funds,
factors include a fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns associated with an investment in international bond or equity
funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and
33
<PAGE>
offer the potential for less return than growth funds. In addition,
international equity funds usually are considered more risky than domestic
equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning the Fund,
including reprints of, or selections from, editorials or articles about the
Fund.
Fund Organization
The Fund is a series of Investment Trust, a Massachusetts business trust
established under a Declaration of Trust dated September 20, 1984, as amended.
The name of the Trust was changed from Scudder Investment Trust to its present
name on May 28, 1998. The name of the Fund was changed, effective April 16,
1998, from Scudder Classic Growth Fund to Classic Growth Fund. The Trust's
authorized capital consists of an unlimited number of shares of beneficial
interest, par value $0.01 per share. The Trust's shares are currently divided
into fiveseries, Scudder Growth and Income Fund, Scudder Large Company Growth
Fund, Classic Growth Fund, Scudder S&P 500 Index Fund, , Scudder Dividend &
Growth Fund,. The Fund's shares are currently divided into four classes: Class
A, Class B, Class C, and Class S shares.
The Trustees have the authority to issue additional series of shares and to
designate the relative rights and preferences as between the different series.
Each share of the Fund has equal rights with each other share of the Fund as to
voting, dividends and liquidation. All shares issued and outstanding will be
fully paid and nonassessable by the Trust, and redeemable as described in this
Statement of Additional Information and in the Shares' prospectus.
The assets of the Trust received for the issue or sale of the shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
The Fund's activities are supervised by the Trust's Board of Trustees. The Trust
has adopted a plan pursuant to Rule 18f-3 (the "Plan") under the 1940 Act to
permit the Trust to establish a multiple class distribution system.
Under the Plan, shares of each class represent an equal pro rata interest in the
Fund and, generally, shall have identical voting, dividend, liquidation, and
other rights, preferences, powers, restrictions, limitations, qualifications and
terms and conditions, except that: (1) each class shall have a different
designation; (2) each class of shares shall bear its own "class expenses;" (3)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relates to its administrative services, shareholder services
or distribution arrangements; (4) each class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class; (5) each class may have separate
and distinct exchange privileges; (6) each class may have different conversion
features, and (7) each class may have separate account size requirements.
Expenses currently designated as "Class Expenses" by the Trust's Board of
Trustees under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.
Each share of each class of the Fund shall be entitled to one vote (or fraction
thereof in respect of a fractional share) on matters that such shares (or class
of shares) shall be entitled to vote. Shareholders of the Fund shall vote
together on any matter, except to the extent otherwise required by the 1940 Act,
or when the Board of Trustees has determined that the matter affects only the
interest of shareholders of one or more classes of the Fund, in which case
34
<PAGE>
only the shareholders of such class or classes of the Fund shall be entitled to
vote thereon. Any matter shall be deemed to have been effectively acted upon
with respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940
Act, or any successor rule, and in the Trust's Declaration of Trust. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Fund and all additional portfolios
(e.g., election of directors), means the vote of the lesser of (i) 67% of the
Fund's shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Fund's outstanding shares. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with matters affecting
a single Fund or any other single portfolio (e.g., annual approval of investment
management contracts), means the vote of the lesser of (i) 67% of the shares of
the portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Declaration of Trust provides that obligations of the Fund are not binding
upon the Trustees individually but only upon the property of the Fund, that the
Trustees and officers will not be liable for errors of judgment or mistakes of
fact or law and that the Fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Fund, except if it is
determined in the manner provided in the Declaration of Trust that they have not
acted in good faith in the reasonable belief that their actions were in the best
interests of the Fund. Nothing in the Declaration of Trust, however, protects or
indemnifies a Trustee or officer against any liability to which that person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of that
person's office.
Master/feeder structure
The Board has the discretion to retain the current distribution arrangement for
the Fund while investing in a master fund in a master/feeder structure fund as
described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Investment manager
Scudder Kemper Investments, Inc. (the "Investment Manager"), 345 Park Avenue,
New York, NY, an investment counsel firm, acts as investment adviser to the
Fund. This organization, the predecessor of which is Scudder, Stevens & Clark,
Inc., is one of the most experienced investment counsel firms in the U. S. It
was established as a partnership in 1919 and pioneered the practice of providing
investment counsel to individual clients on a fee basis. In 1928 it introduced
the first no-load mutual fund to the public. In 1953 the Investment Manager
introduced Scudder International Fund, Inc., the first mutual fund available in
the U.S. investing internationally in securities of issuers in several foreign
countries. The predecessor firm reorganized from a partnership to a corporation
on June 28, 1985. On December 31, 1997, Zurich Insurance Company ("Zurich")
acquired a majority interest in the Investment Manager, and Zurich Kemper
Investments, Inc., a Zurich subsidiary, became part of the Investment Manager.
The Investment Manager's name changed to Scudder Kemper Investments, Inc. On
September 7, 1998, the businesses of Zurich (including Zurich's 70% interest in
Scudder Kemper) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services Group. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services Group, with the balance initially
35
<PAGE>
owned by former B.A.T shareholders. On October 17, 2000, the dual-headed holding
company structure of Zurich Financial Services Group, comprised of Allied Zurich
p.l.c. in the United Kingdom and Zurich Allied in Switzerland, was unified into
a single Swiss holding company, Zurich Financial Services.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
The principal source of the Investment Manager's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over [XX] open and
closed-end mutual funds.
The Investment Manager maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Investment Manager receives
published reports and statistical compilations from issuers and other sources,
as well as analyses from brokers and dealers who may execute portfolio
transactions for the Investment Manager's clients. However, the Investment
Manager regards this information and material as an adjunct to its own research
activities. The Investment Manager's international investment management team
travels the world, researching hundreds of companies. In selecting the
securities in which the Fund may invest, the conclusions and investment
decisions of the Investment Manager with respect to the Funds are based
primarily on the analyses of its own research department.
Certain investments may be appropriate for a fund and also for other clients
advised by the Investment Manager. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Investment Manager to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by a fund. Purchase and sale orders for a fund may be combined
with those of other clients of the Investment Manager in the interest of
achieving the most favorable net results to that fund.
In certain cases, the investments for the fund are managed by the same
individuals who manage one or more other mutual funds advised by the Investment
Manager, that have similar names, objectives and investment styles. You should
be aware that the Fund is likely to differ from these other mutual funds in
size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the Fund can be expected to vary from those of these other mutual
funds.
TO BE UPDATED: The present investment management (the "Agreement") was approved
by the Trustees on August 10, 1998, became effective September 7, 1998, and was
approved at a shareholder meeting held on December 15, 1998. The Agreement will
continue in effect until September 30, 2000 and from year to year thereafter
only if its continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreement or interested persons of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval, and either by a vote of the Trust's Trustees or of a
majority of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically terminate in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing investment
management for the Fund's portfolio consistent with the Fund's investment
objectives, policies and restrictions and determines which securities shall be
purchased for the portfolio of the Fund, which portfolio securities shall be
held or sold by the Fund, and what portion of the Fund's assets will be held
uninvested, subject always to the provisions of the Trust's Declaration of Trust
and By-Laws, the 1940 Act and the Internal Revenue Code of 1986 and to the
Fund's investment objectives, policies and restrictions, and subject, further,
to such policies and instructions as the Trustees may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or
36
<PAGE>
appropriate to carry out the decisions of its Trustees and the appropriate
committees of the Trustees regarding the conduct of the business of the Fund.
The Adviser also renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Trustees.
The Adviser pays the compensation and expenses of all Trustees, officers and
executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York or Boston, Massachusetts) of the Trust
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers of the Trust, subject to their individual consent to serve
and to any limitations imposed by law, and provides the Fund's office space and
facilities.
For these services, the Fund will pay the Adviser an annual fee equal to 0.70%
of the Fund's average daily net assets, payable monthly, provided the Fund will
make such interim payments as may be requested by the Adviser not to exceed 75%
of the amount of the fee then accrued on the books of the Fund and unpaid. The
Adviser had agreed until April 15, 1998 to maintain the total annualized
expenses of the Fund at no more than 1.25% of the average daily net assets of
the Fund. Effective April 16, 1998, the Adviser agreed to waive 0.25% of its
management fee until December 31, 1999. Effective February 1, 2000, The Adviser
has agreed to waive 0.25% of its management fee until January 31, 2001. For the
fiscal period September 9, 1996 (commencement of operations) to August 31, 1997,
the Adviser did not impose any portion of its management fee amounting to
$164,645. For the fiscal year ended August 31, 1998 the Adviser waived a portion
of its management fee amounting to $281,142, and the fee imposed amounted to
$371,001 of which $54,498 was unpaid. The Adviser has agreed to continue to
waive 0.25% of its management fee until December 31, 1999. For the year ended
August 31, 1999, the Adviser did not impose a portion of its management fee
amounting to $466,794, and the fee imposed amounted to $840,228. For the two
months ended October 31, 1999 the Adviser waived a portion of its management fee
amounting to $96,046, and the fee imposed amounted to $172,882 of which $86,750
was unpaid at October 31, 1999.
Under the Agreement, the Fund is responsible for all of its other expenses
including organizational costs; fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; payment
for portfolio pricing services to a pricing agent, if any; legal, auditing and
accounting expenses; the calculation of Net Asset Value, taxes and governmental
fees; the fees and expenses of the transfer agent; the cost of preparing stock
certificates and any other expenses including clerical expenses of issuance,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Trustees, officers
and employees of the Trust who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to shareholders; and the fees and
disbursements of custodians. The Trust may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. The Fund is also responsible for its expenses incurred in connection
with litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto.
The Agreement identifies the Adviser as the exclusive licensee of the rights to
use and sublicense the names "Scudder," "Scudder Kemper Investments, Inc." and
"Scudder Stevens and Clark, Inc." (together, the "Scudder Marks"). Under this
license, the Trust, with respect to the Fund, has the non-exclusive right to use
and sublicense the Scudder name and marks as part of its name, and to use the
Scudder Marks in the Trust's investment products and services.
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<PAGE>
In reviewing the terms of the Agreement and in discussions with the Adviser
concerning such Agreement, Trustees who are not "interested persons" of the
Trust have been represented by independent counsel Ropes & Gray at the Fund's
expense.
The Agreement provides that the Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Any person, even though also employed by Adviser, who may be or become an
employee of and paid by the Fund shall be deemed, when acting within the scope
of his or her employment by the Fund, to be acting in such employment solely for
the Fund and not as an agent of Adviser.
Officers and employees of the Adviser from time to time may engage in
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Trustees of the Trust may have dealings with the Fund as
principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.
The Agreement will continue in effect from year to year provided such
continuance is approved annually (i) by the holders of a majority of the
respective Fund's outstanding voting securities or by the Trust's Board of
Trustees and (ii)by a majority of the Trustees of the Trust who are not parties
to the Agreement or "interested persons" (as defined in the 1940 Act) of any
such party. The Agreement may be terminated on 60 days' written notice by either
party and will terminate automatically if assigned.
The term Scudder Investments is the designation given to the services provided
by Scudder Kemper Investments, Inc. and its affiliates to the Scudder Family of
Funds.
The Manager may serve as adviser to other funds with investment objectives and
policies similar to those of the Funds that may have different distribution
arrangements or expenses, which may affect performance.
Code of Ethics
The Fund, the Investment Manager and principal underwriter have each adopted
codes of ethics under rule 17j-1 of the Investment Company Act. Board members,
officers of the Fund and employees of the Investment Manager and principal
underwriter are permitted to make personal securities transactions, including
transactions in securities that may be purchased or held by the Fund, subject to
requirements and restrictions set forth in the applicable Code of Ethics. The
Investment Manager's Code of Ethics contains provisions and requirements
designed to identify and address certain conflicts of interest between personal
investment activities and the interests of the Fund. Among other things, the
Investment Manager's Code of Ethics prohibits certain types of transactions
absent prior approval, imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and quarterly reporting of securities transactions.
Additional restrictions apply to portfolio managers, traders, research analysts
and others involved in the investment advisory process. Exceptions to these and
other provisions of the Investment Manager's Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Investment Manager and AMA Solutions, Inc.,
a subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Investment Manager has agreed, subject to applicable state regulations, to
pay AMA Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Investment Manager with respect to assets invested by AMA
members in Scudder funds in connection with the AMA InvestmentLinkSM Program.
The Investment Manager will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal
38
<PAGE>
securities laws. Any person who participates in the AMA InvestmentLink(SM)
Program will be a customer of the Investment Manager (or of a subsidiary
thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM is a
service mark of AMA Solutions, Inc.
Administrative Fee
The Fund's Board has approved the adoption of a new administrative services
agreement (an "Administrative Agreement"). Under the Fund's Administrative
Agreement, each share class of the Fund will pay a fixed fee rate (the
"Administrative Fee") to the Fund's Investment Manager. In return, the
Investment Manager will provide or pay others to provide substantially all
services that a fund normally requires for its operations, such as transfer
agency fees, shareholder servicing fees, custodian fees, and fund accounting
fees, but not including expenses such as taxes, brokerage, interest,
extraordinary expenses and fees and expenses of Board members not affiliated
with the Investment Manager (including fees and expenses of their independent
counsel). The Fund would continue to pay the fees required by its investment
management agreement with Scudder Kemper. Such an administrative fee would
enable investors to determine with greater certainty the expense level that the
Fund will experience, and, for the term of the administrative agreement, would
transfer substantially all of the risk of increased cost to the Investment
Manager. The Administration Fee became effective on [DATE].
Various third-party service providers (the "Service Providers"), some of which
are affiliated with the Investment Manager, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for the
Fund and maintains its accounting records. Scudder Service Corporation, also a
subsidiary of Scudder Kemper, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Fund. Scudder Trust Company, an
affiliate of Scudder Kemper, provides subaccounting and recordkeeping services
for shareholders in certain retirement and employee benefit plans. As custodian,
[Brown Brothers Harriman] holds the portfolio securities of the Funds, pursuant
to a custodian agreement. [PricewaterhouseCoopers LLP] audits the financial
statements of the Fund and provides other audit, tax, and related services. The
Administration Agreement has an initial term of three years, subject to earlier
termination by the Fund's Board. The fee payable by the Fund to the Investment
Manager pursuant to the Agreement is reduced by the amount of any credit
received from the Fund's custodian for cash balances. Certain expenses of the
Fund will not be born by the Investment Manager under the Administration
Agreement, such as taxes, brokerage, interest and extraordinary expense; and the
fees and expenses of the Independent Board Members (including the fees and
expenses of their independent counsel). In addition, Dechert acts as general
counsel to the Fund. In addition to the fees paid under the investment
management agreements with Scudder Kemper, the Fund pay the fees and expenses
associated with these service arrangements, as well as each Fund's insurance,
registration, printing, postage and other costs.
Under the Administration Agreements, Scudder Kemper will pay the Service
Providers for the provision of their services to the Fund and will pay other
fund expenses, including insurance, registration, printing and postage fees. In
return, the Fund will pay Scudder Kemper an Administrative Fee.
Trustees and Officers
The officers and trustees of the Trust, their ages, their principal occupations
and their affiliations, if any, with the Adviser, and Kemper Distributors, Inc.,
are as follows:
<TABLE>
<CAPTION>
---------------------------------- ----------------------- --------------------------------------- -------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
<S> <C> <C> <C>
Henry P. Becton, Jr. (56) Trustee President, WGBH Educational Foundation --
WGBH
125 Western Avenue
Allston, MA 02134
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Linda C. Coughlin (48)+* Trustee, Chairperson Managing Director of Scudder Kemper Director and Vice
and President Investments, Inc. Chairman
---------------------------------- ----------------------- --------------------------------------- -------------------------
39
<PAGE>
---------------------------------- ----------------------- --------------------------------------- -------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Dawn-Marie Driscoll (53) Trustee Executive Fellow, Center for Business --
4909 SW 9th Place Ethics, Bentley College; President,
Cape Coral, FL 33914 Driscoll Associates (consulting firm)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Edgar R. Fiedler (70) Trustee Senior Fellow and Economic Counselor, --
50023 Brogden The Conference Board,
Chapel Hill, NC Inc.(not-for-profit business research
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Keith R. Fox (45) Trustee Private Equity Investor, General --
10 East 53rd Street Partner, Exeter Group of Funds
New York, NY 10022
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan E. Spero (55) Trustee President, Doris Duke Charitable --
Doris Duke Charitable Foundation Foundation; Department of State -
650 Fifth Avenue Undersecretary of State for Economic,
New York, NY 10128 Business and Agricultural Affairs
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean Gleason Stromberg (56) Trustee Consultant; Director, Financial --
3816 Military Road, NW Institutions Issues, U.S. General
Washington, D.C. Accounting Office (1996-1997);
Partner, Fulbright & Jaworski Law
Firm (1978-1996)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean C. Tempel (56) Trustee Managing Director, First Light --
One Boston Place 23rd Floor Capital, LLC (venture capital firm)
Boston, MA 02108
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Steven Zaleznick (45)* Trustee President and CEO, AARP Services, Inc. --
601 E Street
Washington, D.C. 20004
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Thomas V. Bruns (43)# Vice President Managing Director of Scudder Kemper President
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
William F. Glavin (41)# Vice President Managing Director of Scudder Kemper Managing Director
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
James E. Masur (40)+ Vice President Senior Vice President of Scudder __
Kemper Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
40
<PAGE>
---------------------------------- ----------------------- --------------------------------------- -------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Kathryn L. Quirk (47)+ Vice President and Managing Director of Scudder Kemper Director, Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Secretary
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Howard S. Schneider (43)# Vice President Managing Director of Scudder Kemper __
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John R. Hebble (42)+ Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Brenda Lyons (37)+ Assistant Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
--------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Caroline Pearson (38)+ Assistant Secretary Senior Vice President of Scudder --
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John Millette (37)+ Vice President and Vice President of Scudder Kemper --
Secretary Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
ADDITIONAL OFFICERS
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
William F. Gadsden (45)++ Vice President Managing Director of Scudder Kemper __
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Valerie F. Malter (42)++ Vice President Managing Director of Scudder Kemper __
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Kathleen T. Millard (39)++ Vice President Managing Director of Scudder Kemper __
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
James M. Eysenbach (38)@ Vice President Managing Director, Scudder Kemper __
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
</TABLE>
41
<PAGE>
42
<PAGE>
* Ms. Coughlin and Mr. Zaleznick are considered by the Fund and its counsel
to be persons who are "interested persons" of the Adviser or of the Trust,
within the meaning of the 1940 Act,.
** Unless otherwise stated, all of the Trustee and officers have been
associated with their respective companies for more than five years, but
not necessarily in the same capacity.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
The Trustees and officers of the Fund also serve in similar capacities with
other Scudder Funds.
As of _______________, all Trustees and officers of the Fund as a group owned
beneficially (as that term is defined is section 13(d) of the Securities
Exchange Act of 1934) less than 1% of the Fund.
[ADDITIONAL SHAREOWNERS - WILL REPEAT AS NECESSARY AT THE CLASS LEVEL FOR EACH
FUND.]
To the best of the Fund's knowledge, as of ______________, no [other] person
owned beneficially more than 5% of each class of the Fund's outstanding shares
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of the Fund's
business. A majority of the Board's members are not affiliated with the
Investment Manager. These "Independent Trustees" have primary responsibility for
assuring that the Fund is managed in the best interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Fund's independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent Trustees,
which nominates Independent Trustees and considers other related matters, and
the Audit Committee, which selects the Fund's independent public accountants and
reviews accounting policies and controls. In addition, Independent Trustees from
time to time have established and served on task forces and subcommittees
focusing on particular matters such as investment, accounting and shareholder
service issues.
Compensation of Officers and Board Members
The Independent Board members receive from the Fund of Investment Trust an
annual trustee's fee, a fee for attendance at each board meeting, and a fee for
attendance at committee meetings, as well as reimbursement of expenses incurred
for travel to and from Board Meetings. No additional compensation is paid to any
Independent Trustee for travel time to meetings, attendance at directors'
educational seminars or conferences, service on industry
43
<PAGE>
or association committees, participation as speakers at directors' conferences
or service on special trustee task forces or subcommittees. Independent Trustees
do not receive any employee benefits such as pension or retirement benefits or
health insurance. The Independent Trustees have in the past and may in the
future waive a portion of their compensation.
Each Independent Director receives compensation for his or her services, which
includes an annual retainer and an attendance fee for each meeting attended. The
Independent Director who serves as lead director receives additional
compensation for his or her service. No additional compensation is paid to any
Independent Director for travel time to meetings, attendance at director's
educational seminars or conferences, service on industry or association
committees, participation as speakers at directors' conferences or service on
special director task forces or subcommittees. Independent Directors do not
receive any employee benefits such as pension or retirement benefits or health
insurance. Notwithstanding the schedule of fees, the Independent Directors have
in the past and may in the future waive a portion of their compensation.
The Independent Board members also serve in the same capacity for other funds
managed by the Adviser. These funds differ broadly in type and complexity and in
some cases have substantially different Trustee fee schedules. The following
table shows the aggregate compensation received by each Independent Trustee
during 2000 from the Trust and from all of the Scudder funds as a group.
<TABLE>
<CAPTION>
Investment Trust All Scudder Funds
---------------- -----------------
Paid by Paid by Paid by Paid by
Name the Trust the Adviser(1) the Funds the Adviser(1)
---- --------- -------------- --------- --------------
<S> <C> <C> <C> <C>
[Name], $XX,XXX $XX,XXX $XXX,XXX $XXX,XXX ([XX] funds)
Trustee
</TABLE>
Members of the Board of Trustees who are employees of the Adviser or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by the Fund.
Distributor
The Trust has an underwriting agreement with Scudder Investor Services, Inc., a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
corporation. The Trust's underwriting agreement dated ______________ [will
remain in effect until __________] and from year to year thereafter only if its
continuance is approved annually by a majority of the members of the Board who
are not parties to such agreement or interested persons of any such party and
either by vote of a majority of the Board or a majority of the outstanding
voting securities of the Fund. The underwriting agreement was last approved by
the Board on ____________.
Under the underwriting agreement, the Fund is responsible for: the payment of
all fees and expenses in connection with the preparation and filing with the SEC
of its registration statement and prospectus and any amendments and supplements
thereto; the registration and qualification of shares for sale in the various
states, including registering the Fund as a broker or dealer in various states,
as required; the fees and expenses of preparing, printing and mailing
prospectuses annually to existing shareholders (see below for expenses relating
to prospectuses paid by the Distributor); notices, proxy statements, reports or
other communications to shareholders of the Fund; the cost of printing and
mailing confirmations of purchases of shares and any prospectuses accompanying
such confirmations; any issuance taxes and/or any initial transfer taxes; a
portion of shareholder toll-free telephone charges and expenses of shareholder
service representatives; the cost of wiring funds for share purchases and
redemptions (unless paid by the shareholder who initiates the transaction); the
cost of printing and postage of business reply envelopes; and a portion of the
cost of computer terminals used by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or reports
prepared for its use in connection with the offering of the Fund's shares to the
public and preparing, printing and mailing any other literature or advertising
in connection with the offering of shares of the Fund to the public. The
Distributor will pay all fees and expenses in connection with its qualification
and registration as a broker or dealer under federal and state laws, a portion
of the cost of toll-free telephone service and expenses of shareholder service
representatives, a portion of the cost of computer terminals, and expenses of
any activity which is primarily intended to result in the sale of shares issued
by the Fund, unless a Rule 12b-1 Plan is in effect which provides that the Fund
shall bear some or all of such expenses.
44
<PAGE>
Share classes which have a Rule 12b-1 Plan also pay those fees and expenses
permitted to be paid or assumed by the Fund pursuant to the 12b-1 Plan.
Note: Although the Class S shares do not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Classes would also pay
those fees and expenses permitted to be paid or assumed by the Funds pursuant to
a 12b-1 Plan, if any, were adopted by a Fund, notwithstanding any other
provision to the contrary in the underwriting agreement.
As agent, the Distributor currently offers shares of the Fund on a continuous
basis to investors in all states in which shares of the Fund may from time to
time be registered or where permitted by applicable law. The underwriting
agreement provides that the Distributor accepts orders for shares at net asset
value as no sales commission or load is charged to the investor. The Distributor
has made no firm commitment to acquire shares of the Fund.
Taxes
All Scudder Funds have elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. A regulated investment company qualifying under
Subchapter M of the Code is required to distribute to its shareholders at least
90 percent of its investment company taxable income (including net short-term
capital gain) and generally is not subject to federal income tax to the extent
that it distributes annually its investment company taxable income and net
realized capital gains in the manner required under the Code.
If for any taxable year the Fund does not qualify for 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 an event, dividend
distributions would be taxable to shareholders to the extent of the Fund's
earnings and profits, and would be eligible for the dividends received deduction
in the case of corporate shareholders.
The Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for the calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.
Investment company taxable income generally is made up of dividends, interest
and net short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.: Presently, the Fund has
no capital loss carryforwards.]
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by the Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim a proportionate share of federal income taxes paid by the Fund on
such gains as a credit against the shareholder's federal income tax liability,
and will be entitled to increase the adjusted tax basis of the shareholder's
Fund shares by the difference between such reported gains and the shareholder's
tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Dividends from domestic corporations are expected to comprise a substantial part
of the Fund's gross income. If any such dividends constitute a portion of the
Fund's gross income, a portion of the income distributions of the Fund may be
eligible for the 70% deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of
45
<PAGE>
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholders, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000 or, if
less, the amount of the individual's earned income for any taxable year only if
(i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Dividend and interest income received by the Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Equity options (including covered call options written on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any stock in
the Fund's portfolio similar to the stocks on which the index is based. If the
Fund writes an option, no gain is recognized upon its receipt of a premium. If
the option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If a call option is exercised, the character of the gain
or loss depends on the holding period of the underlying stock.
Positions of the Fund which consist of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes 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,
46
<PAGE>
adjustments in the holding periods of stocks or securities and conversion of
short-term capital losses into long-term capital losses. An exception to these
straddle rules exists for certain "qualified covered call options" on stock
written by the Fund.
Many futures and forward contracts entered into by the Fund and listed nonequity
options written or purchased by the Fund (including options on debt securities,
options on futures contracts, options on securities indices and options on
currencies), will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position generally will be treated as 60% long-term and 40%
short-term, 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, certain futures and options and
similar financial instruments entered into or acquired by the Fund will be
treated as ordinary income or loss.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, offsetting notional principal contract, futures
or forward contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though it
had closed the short sale. Future regulations regulatories may apply similar
treatment to other transactions with respect to property that becomes
substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain foreign investment companies, the Fund
may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark-to-market losses and any loss from an actual disposition of shares would be
reported as ordinary loss to the extent of any net mark-to-market gains included
in income in prior years. The effect of the election would be to treat excess
distributions and gain on dispositions as ordinary income which is not subject
to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
47
<PAGE>
The Fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Investment Manager.
The primary objective of the Investment Manager 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 Investment Manager seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Investment Manager 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 Investment Manager 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 Investment Manager's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Investment Manager is authorized when placing portfolio transactions for the
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research, market or statistical information. The Investment
Manager will not 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.
48
<PAGE>
To the maximum extent feasible, it is expected that the Investment Manager will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Investment
Manager; the Distributor will place orders on behalf of the Fund with issuers,
underwriters or other brokers and dealers. The Distributor will not receive any
commission, fee or other remuneration from the Fund for this service.
Although certain research, market and statistical services from broker/dealers
may be useful to the Fund and to the Investment Manager, it is the opinion of
the Investment Manager that such information only supplements the Investment
Manager's own research effort since the information must still be analyzed,
weighed, and reviewed by the Investment Manager's staff. Such information may be
useful to the Investment Manager in providing services to clients other than the
Fund, and not all such information is used by the Investment Manager in
connection with the Fund. Conversely, such information provided to the
Investment Manager by broker/dealers through whom other clients of the
Investment Manager effect securities transactions may be useful to the
Investment Manager in providing services to the Fund.
The Board reviews, 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.
TO INSERT: INDIVIDUAL DISCLOSURE REGARDING BROKERAGE COMMISSIONs PAID IN THE
LAST THREE YEARS.]
Portfolio Turnover
Portfolio turnover rate is defined by the SEC as the ratio of the lesser of
sales or purchases to the monthly average value of such securities owned during
the year, excluding all securities whose remaining maturities at the time of
acquisition were one year or less.
Higher levels of activity by the Fund result in higher transaction costs and may
also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for the Fund whenever necessary, in
management's opinion, to meet a Fund's objective.
Portfolio turnover rates for the three most recent fiscal periods are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal
Year/Period Year/Period Year/Period Year/Period
Ended Ended Ended Ended
Fund 10/31/2000____: 10/31/1999_: 8/31/1999: 8/31/1988_____:
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Classic Growth Fund
-----------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION
Experts
The Financial highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of PricewaterhouseCoopers LLP, One Post Office Square, Boston,
Massachusetts 02109, independent accountants, and given on the authority of that
firm as experts in accounting and auditing. PricewaterhouseCoopers LLPis
responsible for performing semi-annual and annual audits of the financial
statements and financial highlights of the Fund in accordance with generally
accepted auditing standards, and the preparation of federal tax returns.
49
<PAGE>
Shareholder Indemnification
The Trust is an organization of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with a Fund's property or the
acts, obligations or affairs of a Fund. The Declaration of Trust also provides
for indemnification out of a Fund's property of any shareholder of a Fund held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder of a Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable to
meet its obligations.
Other Information
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Investment Manager in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of Scudder Classic Growth Fund, Class S is 460965-10-6________.
Scudder Classic Growth Fund has a fiscal year end of October 31.
Dechert acts as general counsel for the Fund.
The Trust employs State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 as custodian for the Fund.
[READ PRIOR SAI FOR ADDITIONAL INFORMATION, SUCH AS CHANGE TO FYE]
Scudder Service Corporation
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291, Boston,
Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee for each account maintained by the
participant. Pursuant to a services agreement with SSC, Kemper Service Company
may perform, from time to time, certain transaction and shareholder servicing
functions.
Payments to Service Corporation for the [three] most recent fiscal periods are
as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Fund Fiscal Fiscal Fiscal Fiscal
Year/Period Year/Period Year/Period Year/Period
Ended Ended Ended Ended
10/31/2000____: 10/31/1999_: 8/31/1999: 8/31/1988_____:
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Classic Growth Fund
-----------------------------------------------------------------------------------------------------------------
</TABLE>
[ADD FOOTNOTES FOR AMOUNTS UNPAID.]
Scudder Trust Company
Annual service fees are paid by the Fund to Scudder Trust Company, Two
International Place, Boston, Massachusetts, 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts. The Fund pays Scudder Trust
Company an annual fee of [$17.55] per shareholder account.
Payments to Scudder Trust Company for the three most recent fiscal
periods are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Fund Fiscal Fiscal Fiscal Fiscal
50
<PAGE>
Year/Period Year/Period Year/Period Year/Period
Ended Ended Ended Ended
10/31/2000____: 10/31/1999_: 8/31/1999: 8/31/1988_____:
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Classic Growth Fund
-----------------------------------------------------------------------------------------------------------------
</TABLE>
[ADD FOOTNOTES FOR AMOUNTS UNPAID.]
Scudder Fund Accounting Corporation
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Investment Manager, computes net
asset values for the Fund. The Fund pays Scudder Fund Accounting Corporation an
annual fee equal to [0.065% of the first $150 million of average daily net
assets, 0.04% of such assets in excess of $150 million and 0.02% of such assets
in excess of $1 billion], plus holding and transaction charges for this service.
Payments to Scudder Fund Accounting Corporation for the [three] most recent
fiscal periods are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Fund Fiscal Fiscal Fiscal Fiscal
Year/Period Year/Period Year/Period Year/Period
Ended Ended Ended Ended
10/31/2000____: 10/31/1999_: 8/31/1999: 8/31/1988_____:
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Classic Growth Fund
-----------------------------------------------------------------------------------------------------------------
</TABLE>
[ADD FOOTNOTES FOR AMOUNTS UNPAID.]
The Fund, or the Investment Manager (including any affiliate of the Investment
Manager), or both, may pay unaffiliated third parties for providing
recordkeeping and other administrative services with respect to accounts of
participants in retirement plans or other beneficial owners of Fund shares whose
interests are held in an omnibus account.
The Fund's prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement which the Fund has filed
with the SEC under the Securities Act of 1933 and reference is hereby made to
the Registration Statement for further information with respect to the Fund and
the securities offered hereby. This Registration Statement and its amendments
are available for inspection by the public at the SEC in Washington, D.C.
In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call
1-800-SCUDDER (Class S).
FINANCIAL STATEMENTS
The financial statements appearing in the Fund's Annual Report to Shareholders
are incorporated herein by reference. The Fund's Annual Report accompanies this
Statement of Additional Information.
51
<PAGE>
APPENDIX--RATINGS OF INVESTMENTS
Standard & Poor's Corporation Bond Ratings
AAA. Debt rated AAA had the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC and C. Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears. Moody's Investors Service, Inc., Bond Ratings
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch Long-Term Debt Ratings
52
<PAGE>
AAA
Highest credit quality. `AAA' ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA
Very high credit quality. `AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A
High credit quality. `A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB
Good credit quality. `BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
BB
Speculative. `BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B
Highly speculative. `B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C
High default risk. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favorable business or economic
developments. A `CC' rating indicates that default of some kind appears
probable. `C' ratings signal imminent default.
DDD, DD, D
Default. The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. 'DDD' obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. 'DD' indicates
potential recoveries in the range of 50%-90%, and 'D' the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated 'DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities rated 'D' have a
poor prospect for repaying all obligations.
Fitch Short-Term Debt Ratings
F1
Highest credit quality. Indicates the Best capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.
F2
Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3
Fair credit quality. The capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
53
<PAGE>
B
Speculative. Minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
C
High default risk. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
D
Default. Denotes actual or imminent payment default.
COMMERCIAL PAPER RATINGS
Commercial paper rated by Standard & Poor's Ratings Services ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-1 or A-2.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors
considered by it in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated Prime-1 or 2.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term obligations are
"MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the case of
an issue having a variable rate demand feature). Notes rated "MIG 1" or "VMIG 1"
are judged to be of the "best quality". Notes rated "MIG 2" or "VMIG 2" are of
"high quality," with margins or protection "ample although not as large as in
the preceding group". Notes rated "MIG 3" or "VMIG 3" are of "favorable
quality," with all security elements accounted for but lacking the strength of
the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest". Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+". The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.
Fitch: The highest ratings for state and municipal short-term obligations are
"F-1+," "F-1," and "F-2".
54
<PAGE>
<PAGE>
PART C. OTHER INFORMATION
INVESTMENT TRUST
<TABLE>
<CAPTION>
Item 23 Exhibits.
------- ---------
<S> <C> <C> <C>
(a) (1) Amended and Restated Declaration of Trust dated November 3, 1987.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(2) Certificate of Amendment of Declaration of Trust dated November 13,
1990.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(3) Certificate of Amendment of Declaration of Trust dated February 12,
1991.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(4) Certificate of Amendment of Declaration of Trust dated May 28, 1998.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(5) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Growth and Income
Fund and Scudder Quality Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(6) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Classic Growth
Fund.
(Incorporated by reference to Post-Effective Amendment No. 76 to the
Registration Statement.)
(7) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Growth and Income
Fund, Scudder Large Company Growth Fund, Scudder Classic Growth
Fund, and Scudder S&P 500 Index Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(8) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Real Estate
Investment Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
<PAGE>
(9) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Dividend + Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(10) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Tax Managed
Growth Fund and Scudder Tax Managed Small Company Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(11) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Kemper A, B & C Shares, and Scudder S
Shares, with respect to Classic Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 94 to the
Registration Statement.)
(12) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class R Shares, with respect to Scudder
Growth and Income Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(13) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class R Shares, with respect to Scudder
Large Company Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(14) Redesignation of Series, Scudder Classic Growth Fund to Classic
Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 94 to the
Registration Statement.)
(15) Redesignation of Series, Scudder Quality Growth Fund to Scudder
Large Company Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(16) Redesignation of Series, Scudder Dividend + Growth Fund to Scudder
Dividend & Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(17) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class S and Class AARP, with respect to
Scudder Dividend and Growth Fund. (Incorporated by reference to
Post-Effective Amendment No. 117 to the Registration Statement, as
filed on May 12, 2000.)
(18) Amended and Restated Establishment and Designation of Classes of
Shares of Beneficial Interest, $0.01 par value, Class R, Class S and
Class AARP with respect to Scudder Growth and Income Fund.
(Incorporated by reference to Post-Effective Amendment No. 117 to
the Registration Statement, as filed on May 12, 2000.)
Part C - Page 2
<PAGE>
(19) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class S and Class AARP, with respect to
Scudder S&P 500 Index Fund. (Incorporated by reference to
Post-Effective Amendment No. 117 to the Registration Statement, as
filed on May 12, 2000.)
(20) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class S and Class AARP, with respect to
Scudder Small Company Stock Fund. (Incorporated by reference to
Post-Effective Amendment No. 117 to the Registration Statement, as
filed on May 12, 2000.)
(21) Establishment and Designation of Classes of Shares of Beneficial
Interest, $0.01 par value, Class S and Class AARP, with respect to
Scudder Capital Growth Fund. (Incorporated by reference to
Post-Effective Amendment No. 117 to the Registration Statement, as
filed on May 12, 2000.)
(22) Amended and Restated Establishment and Designation of Classes of
Shares of Beneficial Interest, $.01 Par Value, Class R, Class S and
Class AARP, with respect to Scudder Large Company Growth Fund.
(Incorporated by reference to Post-Effective Amendment No. 118 to
the Registration Statement, as filed on July 14, 2000.)
(23) Amended and Restated Establishment and Designation of Series of
Shares of Beneficial Interest, $.01 Par Value, Class S and Class
AARP, with respect to Scudder Capital Growth Fund and Scudder Small
Company Stock Fund. (Incorporated by reference to Post-Effective
Amendment No. 118 to the Registration Statement, as filed on July
14, 2000.)
(24) Establishment and Designation of Classes of Shares of Beneficial
Interest, $.01 Par Value, Class S and Class AARP, with respect to
Scudder Capital Growth Fund. (Incorporated by reference to
Post-Effective Amendment No. 118 to the Registration Statement, as
filed on July 14, 2000.)
(25) Establishment and Designation of Classes of Shares of Beneficial
Interest, $.01 par Value, Class S and Class AARP, with respect to
Scudder Small Company Stock Fund. (Incorporated by reference to
Post-Effective Amendment No. 118 to the Registration Statement, as
filed on July 14, 2000.)
(b) Amendment to By-Laws of the Registrant dated November 12, 1991.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(1) Amendment to By-Laws of the Registrant, dated February 7, 2000.
(Incorporated by reference to Post-Effective Amendment No. 120 to
the Registration Statement.)
(c) Inapplicable.
Part C - Page 3
<PAGE>
(d) (1) Investment Management Agreement between the Registrant (on behalf of
Scudder Growth and Income Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(2) Investment Management Agreement between the Registrant (on behalf of
Scudder Large Company Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(3) Investment Management Agreement between the Registrant (on behalf of
Classic Growth Fund) and Scudder Kemper Investments, Inc. dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(4) Investment Management Agreement between the Registrant (on behalf of
Scudder Real Estate Investment Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(5) Investment Management Agreement between the Registrant (on behalf of
Scudder S&P 500 Index Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(6) Investment Management Agreement between the Registrant (on behalf of
Scudder Dividend & Growth Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(7) Investment Management Agreement between the Registrant (on behalf of
Scudder Tax Managed Growth Fund) and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(8) Investment Management Agreement between the Registrant (on behalf of
Scudder Tax Managed Small Company Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(9) Investment Advisory Agreement between the Registrant (on behalf of
Scudder S&P 500 Index Fund) and Bankers Trust Company dated
September 9, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
Part C - Page 4
<PAGE>
(10) Investment Management Agreement between the Registrant (on behalf of
Scudder Capital Growth Fund) and Scudder Kemper Investments, Inc.,
dated July 17, 2000. (Incorporated by reference to Post-Effective
Amendment No. 120 to the Registration Statement.)
(11) Investment Management Agreement between the Registrant (on behalf of
Scudder Small Company Stock Fund) and Scudder Kemper Investments,
Inc., dated July 17, 2000. (Incorporated by reference to
Post-Effective Amendment No. 120 to the Registration Statement.)
(12) Investment Management Agreement between the Registrant (on behalf of
Scudder Growth and Income Fund) and Scudder Kemper Investments,
Inc., dated August 14, 2000, is incorporated by reference to
Post-Effective Amendment No. 121 to the Registration Statement.
(e) (1) Underwriting Agreement and Distribution Services Agreement between
the Registrant on behalf of Classic Growth Fund and Kemper
Distributors, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(2) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(3) Amendment No. 1 dated August 31, 1999 to the Underwriting and
Distribution Services Agreement between the Registrant, on behalf of
Classic Growth Fund, and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(4) Amendment dated November 2, 1999 to the Underwriting and
Distribution Services Agreement between the Registrant, on behalf of
Classic Growth Fund, and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(5) Underwriting Agreement between the Registrant and Scudder Investor
Services dated May 8, 2000. (Incorporated by reference to
Post-Effective Amendment No. 118 to the Registration Statement, as
filed on July 14, 2000.)
(f) Inapplicable.
(g) (1) Custodian Agreement between the Registrant (on behalf of Scudder
Growth and Income Fund) and State Street Bank and Trust Company
("State Street Bank") dated December 31, 1984.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
Part C - Page 5
<PAGE>
(2) Amendment dated April 1, 1985 to the Custodian Agreement between the
Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(3) Amendment dated August 8, 1987 to the Custodian Agreement between
the Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(4) Amendment dated August 9, 1988 to the Custodian Agreement between
the Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(5) Amendment dated July 29, 1991 to the Custodian Agreement between the
Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(6) Amendment dated February 8, 1999 to the Custodian Agreement between
the Registrant and State Street Bank.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(7) Custodian fee schedule for Scudder S&P 500 Index Fund.
(Incorporated by reference to Post-Effective Amendment No. 84 to the
Registration Statement.)
(8) Subcustodian Agreement with fee schedule between State Street Bank
and The Bank of New York, London office, dated December 31, 1978.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(9) Subcustodian Agreement between State Street Bank and The Chase
Manhattan Bank, N.A. dated September 1, 1986.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(10) Custodian fee schedule for Scudder Quality Growth Fund and Scudder
Growth and Income Fund.
(Incorporated by reference to Post-Effective Amendment No. 72 to the
Registration Statement.)
(11) Custodian fee schedule for Scudder Classic Growth Fund dated August
1, 1994.
(Incorporated by reference to Post-Effective Amendment No. 77 to the
Registration Statement.)
(h) (1) Transfer Agency and Service Agreement with fee schedule between the
Registrant and Scudder Service Corporation dated October 2, 1989.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
Part C - Page 6
<PAGE>
(1)(a) Revised fee schedule dated October 6, 1995.
(Incorporated by reference to Post-Effective Amendment No. 76 to the
Registration Statement.)
(1)(b) Form of revised fee schedule dated October 1, 1996.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(2) Transfer Agency Fee Schedule between the Registrant, on behalf of
Scudder Classic Growth Fund, and Kemper Service Company dated
January 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(3) Agency Agreement between the Registrant on behalf of Classic Growth
Fund and Kemper Service Company dated April 1998. (Incorporated by
reference to Post-Effective Amendment No. 100 to the Registration
Statement.)
(4) Agency Agreement between the Registrant on behalf of Scudder Growth
and Income Fund Class R shares and Scudder Large Company Growth Fund
Class R shares, and Kemper Service Company dated May 3, 1999.
(Incorporated by reference to Post-Effective Amendment No. 106 to
the Registration Statement.)
(5) COMPASS Service Agreement and fee schedule between the Registrant
and Scudder Trust Company dated January 1, 1990.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
(6) COMPASS and TRAK 2000 Service Agreement between Scudder Trust
Company and the Registrant dated October 1, 1995.
(Incorporated by reference to Post-Effective Amendment No. 74 to the
Registration Statement.)
(6)(a) Fee Schedule for Services Provided Under Compass and TRAK 2000
Service Agreement between Scudder Trust Company and the Registrant
dated October 1, 1996.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(7) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Quality Growth Fund and Scudder Fund Accounting
Corporation dated November 1, 1994.
(Incorporated by reference to Post-Effective Amendment No. 72 to the
Registration Statement.)
(8) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Growth and Income Fund and Scudder Fund Accounting
Corporation dated October 17, 1994.
(Incorporated by reference to Post-Effective Amendment No. 73 to the
Registration Statement.)
Part C - Page 7
<PAGE>
(9) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Classic Growth Fund, and Scudder Fund Accounting
Corporation dated September 9, 1996.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(10) Amendment No. 1 dated August 31, 1999 to the Fund Accounting
Services Agreement between the Registrant, on behalf of Classic
Growth Fund, and Scudder Fund Accounting Corporation.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(11) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Tax Managed Small Company and Scudder Fund Accounting
Corporation dated July 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(12) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Tax Managed Growth Fund and Scudder Fund Accounting
Corporation dated July 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(13) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Dividend & Growth Fund and Scudder Fund Accounting
Corporation dated June 1, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(14) Scudder Accounting Fee Schedule between the Registrant, on behalf of
Scudder Large Company Growth Fund - Class R Shares, and Scudder Fund
Accounting Corporation dated September 14, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(15) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Real Estate Investment Fund and Scudder Fund Accounting
Corporation dated March 2, 1998.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(16) Investment Accounting Agreement between the Registrant, on behalf of
Scudder S&P 500 Index Fund and Scudder Fund Accounting Corporation
dated August 28, 1997.
(Incorporated by reference to Post-Effective Amendment No. 99 to the
Registration Statement.)
(17) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990.
(Incorporated by reference to Post-Effective Amendment No. 78 to the
Registration Statement.)
Part C - Page 8
<PAGE>
(18) Service Agreement between Copeland Associates, Inc. and Scudder
Service Corporation (on behalf of Scudder Quality Growth Fund and
Scudder Growth and Income Fund) dated June 8, 1995.
(Incorporated by reference to Post-Effective Amendment No. 74 to the
Registration Statement.)
(19) Administrative Services Agreement between the Registrant on behalf
of Classic Growth Fund, and Kemper Distributors, Inc., dated April
1998.
(Incorporated by reference to Post-Effective Amendment No. 100 to
the Registration Statement.)
(19)(a) Amendment No. 1 to the Administrative Services Agreement between the
Registrant on behalf of Classic Growth Fund, and Kemper
Distributors, Inc., dated August 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 109 to
the Registration Statement.)
(20) Administrative Services Agreement between the Registrant on behalf
of Scudder Growth and Income Fund, and Scudder Investor Services,
Inc., dated May 3, 1999.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(21) Administrative Services Agreement between the Registrant on behalf
of Scudder Large Company Growth Fund, and Scudder Investor Services,
Inc., dated May 3, 1999.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(22) Administrative Services Agreement between the Registrant
(on behalf of Scudder Capital Growth Fund, Scudder Dividend and
Growth Fund, Scudder Growth and Income Fund, Scudder Large Company
Growth Fund, Scudder S&P 500 Index Fund, Scudder Small Company Stock
Fund and Scudder Kemper Investments, Inc.), dated July 17, 2000, is
incorporated by reference to Post-Effective Amendment No. 121 to the
Registration Statement.
(23) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Capital Growth Fund and Scudder Fund Accounting
Corporation, dated July 17, 2000, is incorporated by reference to
Post-Effective Amendment No. 121 to the Registration Statement.
(24) Fund Accounting Services Agreement between the Registrant, on behalf
of Scudder Small Company Stock Fund and Scudder Fund Accounting
Corporation, dated July 17, 2000, is incorporated by reference to
Post-Effective Amendment No. 121 to the Registration Statement.
(i) Opinion and Consent of Legal Counsel is to be filed by amendment.
(j) Consent of Independent Accountants is to be filed by amendment.
(k) Inapplicable.
Part C - Page 9
<PAGE>
(l) Inapplicable
(m) (1) 12b-1 Plan between the Registrant, on behalf of Scudder Growth and
Income Fund (Class R shares) and Scudder Large Company Growth Fund
(Class R shares), and Scudder Investor Services, Inc. (Incorporated
by reference to Post-Effective Amendment No. 105 to the Registration
Statement, as filed on May 28, 1999.)
(n) (1) Mutual Funds Multi-Distribution System Plan, Rule 18f-3 Plan.
(Incorporated by reference to Post-Effective Amendment No. 94 to the
Registration Statement.)
(2) Plan with respect to Scudder Growth and Income Fund pursuant to Rule
18f-3.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(3) Plan with respect to Scudder Large Company Growth Fund pursuant to
Rule 18f-3.
(Incorporated by reference to Post-Effective Amendment No. 105 to
the Registration Statement, as filed on May 28, 1999.)
(4) Plan with respect to Scudder Dividend and Growth Fund pursuant to
Rule 18f-3. (Incorporated by reference to Post-Effective Amendment
No. 118 to the Registration Statement, as filed on July 14, 2000.)
(5) Plan with respect to Scudder Capital Growth Fund pursuant to Rule
18f-3. (Incorporated by reference to Post-Effective Amendment No.
118 to the Registration Statement, as filed on July 14, 2000.)
(6) Plan with respect to Scudder Growth and Income Fund pursuant to Rule
18f-3. (Incorporated by reference to Post-Effective Amendment No.
118 to the Registration Statement, as filed on July 14, 2000.)
(7) Plan with respect to Scudder S&P 500 Index Fund pursuant to Rule
18f-3. (Incorporated by reference to Post-Effective Amendment No.
118 to the Registration Statement, as filed on July 14, 2000.)
(8) Plan with respect to Scudder Small Company Stock Fund pursuant to
Rule 18f-3. (Incorporated by reference to Post-Effective Amendment
No. 118 to the Registration Statement, as filed on July 14, 2000.)
(9) Amended and Restated Plan with respect to Scudder Dividend and
Growth Fund pursuant to Rule 18f-3. (Incorporated by reference to
Post-Effective Amendment No. 118 to the Registration Statement, as
filed on July 14, 2000.)
(10) Amended and Restated Plan with respect to Scudder Capital Growth
Fund pursuant to Rule 18f-3. (Incorporated by reference to
Post-Effective Amendment No. 118 to the Registration Statement, as
filed on July 14, 2000.)
Part C - Page 10
<PAGE>
(11) Amended and Restated Plan with respect to Scudder Growth and Income
Fund pursuant to Rule 18f-3. (Incorporated by reference to
Post-Effective Amendment No. 118 to the Registration Statement, as
filed on July 14, 2000.)
(12) Amended and Restated Plan with respect to Scudder S&P 500 Index Fund
pursuant to Rule 18f-3. (Incorporated by reference to Post-Effective
Amendment No. 118 to the Registration Statement, as filed on July
14, 2000.)
(13) Amended and Restated Plan with respect to Scudder Small Company
Stock Fund pursuant to Rule 18f-3. (Incorporated by reference to
Post-Effective Amendment No. 118 to the Registration Statement, as
filed on July 14, 2000.)
(14) Amended and Restated Plan with respect to Scudder Large Company
Growth Fund pursuant to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 121 to the Registration Statement.
(p) (1) Scudder Kemper Investments, Inc., Scudder Investor Services, Inc.
and Kemper Distributors, Inc. Code of Ethics.
(Incorporated by reference to Post-Effective Amendment No. 114 to
the Registration Statement, as filed on April 12, 2000.)
(2) Bankers Trust Company Code of Ethics.
(Incorporated by reference to Post-Effective Amendment No. 114 to
the Registration Statement, as filed on April 12, 2000.)
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
-------- --------------------------------------------------------
None
Item 25. Indemnification.
-------- ----------------
As permitted by Sections 17(h) and 17(i) of the Investment
Company Act of 1940, as amended (the "1940 Act"), pursuant to
Article IV of the Registrant's By-Laws (filed as Exhibit No. 2
to the Registration Statement), officers, directors, employees
and representatives of the Funds may be indemnified against
certain liabilities in connection with the Funds, and pursuant
to Section 12 of the Underwriting Agreement dated May 6, 1998
(filed as Exhibit No. 6(c) to the Registration Statement),
Scudder Investor Services, Inc. (formerly "Scudder Fund
Distributors, Inc."), as principal underwriter of the
Registrant, may be indemnified against certain liabilities
that it may incur. Said Article IV of the By-Laws and Section
12 of the Underwriting Agreement are hereby incorporated by
reference in their entirety.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be
permitted to directors, officers and controlling persons of
the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or
controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant
by such director, officer or controlling person or the
principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has
Part C - Page 11
<PAGE>
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 26. Business or Other Connections of Investment Adviser
-------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer, Scudder Kemper Investments, Inc.**
Director, Kemper Service Company
Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director and Treasurer, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Director and Chairman, Scudder Threadneedle International Ltd.
Director, Scudder Kemper Holdings (UK) Ltd. oo
Director and President, Scudder Realty Holdings Corporation *
Director, Scudder, Stevens & Clark Overseas Corporation o
Director and Treasurer, Zurich Investment Management, Inc. xx
Director and Treasurer, Zurich Kemper Investments, Inc.
Lynn S. Birdsong Director, Vice President and Chief Investment Officer, Scudder Kemper Investments, Inc.**
Director and Chairman, Scudder Investments (Luxembourg) S.A.#
Director, Scudder Investments (U.K.) Ltd. oo
Director and Chairman of the Board, Scudder Investments Asia, Ltd. ooo
Director and Chairman, Scudder Investments Japan, Inc. +
Senior Vice President, Scudder Investor Services, Inc.
Director and Chairman, Scudder Trust (Cayman) Ltd. @@@
Director, Scudder, Stevens & Clark Australia x
Director and Vice President, Zurich Investment Management, Inc. xx
Director and President, Scudder, Stevens & Clark Corporation **
Director and President, Scudder , Stevens & Clark Overseas Corporation o
Director, Scudder Threadneedle International Ltd.
Director, Korea Bond Fund Management Co., Ltd. @@
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company xxx
Nicholas Bratt Director, Scudder Kemper Investments, Inc.**
Vice President, Scudder, Stevens & Clark Corporation **
Vice President, Scudder, Stevens & Clark Overseas Corporation o
Part C - Page 12
<PAGE>
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, Chairman of the Board, Zurich Holding Company of America xxx
Director, ZKI Holding Corporation xx
Harold D. Kahn Chief Financial Officer, Scudder Kemper Investments, Inc.**
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper Investments, Inc.**
Director, Vice President, Chief Legal Officer and Secretary, Kemper Distributors, Inc.
Director and Secretary, Kemper Service Company
Director, Senior Vice President, Chief Legal Officer & Assistant Clerk, Scudder Investor
Services, Inc.
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director and Secretary, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc. ###
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. @
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation o
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President, Chief Legal Officer and Secretary, Scudder Financial Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd. @@
Director, Scudder Threadneedle International Ltd.
Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd.
Director, Scudder Investments Japan, Inc. +
Director and Secretary, Scudder Kemper Holdings (UK) Ltd. oo
Director and Secretary, Zurich Investment Management, Inc. xx
Part C - Page 13
<PAGE>
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc. ###
President and Director, Scudder, Stevens & Clark Overseas Corporation o
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc. @
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
Director, Scudder Threadneedle International Ltd.
Director, Scudder Investments Japan, Inc. +
Director, Scudder Kemper Holdings (UK) Ltd. oo
President and Director, Zurich Investment Management, Inc. xx
Director and Deputy Chairman, Scudder Investment Holdings Ltd.
</TABLE>
<TABLE>
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
* Two International Place, Boston, MA
----------------------------------------------------------------------------------------------------------
@ 333 South Hope Street, Los Angeles, CA
----------------------------------------------------------------------------------------------------------
** 345 Park Avenue, New York, NY
----------------------------------------------------------------------------------------------------------
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
----------------------------------------------------------------------------------------------------------
*** Toronto, Ontario, Canada
----------------------------------------------------------------------------------------------------------
@@@ Grand Cayman, Cayman Islands, British West Indies
----------------------------------------------------------------------------------------------------------
o 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
----------------------------------------------------------------------------------------------------------
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
----------------------------------------------------------------------------------------------------------
xx 222 S. Riverside, Chicago, IL
----------------------------------------------------------------------------------------------------------
xxx Zurich Towers, 1400 American Ln., Schaumburg, IL
----------------------------------------------------------------------------------------------------------
@@ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
----------------------------------------------------------------------------------------------------------
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
----------------------------------------------------------------------------------------------------------
oo One South Place, 5th Floor, London EC2M 2ZS England
----------------------------------------------------------------------------------------------------------
ooo One Exchange Square, 29th Floor, Hong Kong
----------------------------------------------------------------------------------------------------------
+ Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon, Minato-ku, Tokyo 105-0001
----------------------------------------------------------------------------------------------------------
x Level 3, Five Blue Street, North Sydney, NSW 2060
----------------------------------------------------------------------------------------------------------
</TABLE>
Item 27. Principal Underwriters.
-------- ----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
(1) (2)
(3)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154-0010
-----------------------------------------------------------------------------------------------------------
Part C - Page 14
<PAGE>
-----------------------------------------------------------------------------------------------------------
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Ann P. Burbank Vice President None
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Mark S. Casady President, Director and Assistant None
Two International Place Treasurer
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Linda C. Coughlin Director and Senior Vice President Trustee and President
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154-0010
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
William F. Glavin Vice President None
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Robert J. Guerin Vice President None
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
James J. McGovern Chief Financial Officer and Treasurer None
345 Park Avenue
New York, NY 10154-0010
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Kimberly S. Nassar Vice President None
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Gloria S. Nelund Vice President None
345 Park Avenue
New York, NY 10154-0010
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Kevin G. Poole Vice President None
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
Part C - Page 15
<PAGE>
-----------------------------------------------------------------------------------------------------------
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Kathryn L. Quirk Director, Senior Vice President, Chief Vice President and
345 Park Avenue Legal Officer and Assistant Clerk Assistant Secretary
New York, NY 10154-0010
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Howard S. Schneider Vice President None
Two International Place
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110-4103
-----------------------------------------------------------------------------------------------------------
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions And Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
(d)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(e)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C> <C>
Thomas V. Bruns President None
Linda C. Coughlin Director and Vice Chairman None
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Treasurer None
Linda J. Wondrack Vice President and Chief Compliance Officer Vice President
Paula Gaccione Vice President None
Part C - Page 16
<PAGE>
Michael E. Harrington Managing Director None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and Secretary
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director and Chairman President
Terrence S. McBride Vice President None
Robert Froelich Managing Director None
C. Perry Moore Senior Vice President and Managing Director None
Lorie O'Malley Managing Director None
William F. Glavin Managing Director None
Gary N. Kocher Managing Director None
Susan K. Crenshaw Vice President None
Johnston A. Norris Managing Director and Senior Vice President None
John H. Robison, Jr. Managing Director and Senior Vice President None
Robert J. Guerin Vice President None
Kimberly S. Nassar Vice President None
</TABLE>
(f) Not applicable
Item 28. Location of Accounts and Records.
-------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
-------- --------------------
Inapplicable.
Item 30. Undertakings.
-------- -------------
Inapplicable.
Part C - Page 17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant pursuant to Rule 485(a) under the
Securities Act of 1933 has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on the
27th day of November 2000.
INVESTMENT TRUST
By: /s/ Linda C. Coughlin
-----------------------------
Linda C. Coughlin, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Linda C. Coughlin
--------------------------------------
Linda C. Coughlin Trustee and President (Chief November 27, 2000
Executive Officer)
/s/ Henry P. Becton, Jr.
--------------------------------------
Henry P. Becton, Jr.* Trustee November 27, 2000
/s/Dawn-Marie Driscoll
--------------------------------------
Dawn-Marie Driscoll* Trustee November 27, 2000
/s/ Edgar R. Fiedler
--------------------------------------
Edgar R. Fiedler * Trustee November 27, 2000
/s/ Keith R. Fox
--------------------------------------
Keith R. Fox* Trustee November 27, 2000
/s/ Joan E. Spero
--------------------------------------
Joan E. Spero* Trustee November 27, 2000
/s/ Jean Gleason Stromberg
--------------------------------------
Jean Gleason Stromberg * Trustee November 27, 2000
/s/ Jean C. Tempel
--------------------------------------
Jean C. Tempel* Trustee November 27, 2000
/s/ Steven Zaleznick
--------------------------------------
Steven Zaleznick* Trustee November 27, 2000
/s/ John R. Hebble
--------------------------------------
John R. Hebble Treasurer (Chief Financial Officer) November 27, 2000
</TABLE>
By: /s/ John Millette
--------------------------
John Millette, Secretary*
*Attorney-in-fact pursuant to the powers of attorney contained in and
incorporated by reference to Post-Effective Amendment No. 118 to the
Registration Statement, as filed on July 14, 2000.
<PAGE>
<PAGE>
File No. 2-13628
File No. 811-43
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 123
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 74
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
INVESTMENT TRUST
<PAGE>
INVESTMENT TRUST
EXHIBIT INDEX
None
2
