Filed electronically with the Securities and Exchange
Commission on October __, 1997
File No. _________
File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
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Post-Effective Amendment No.
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.
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Kemper Global/ International Series, Inc.
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(Exact name of Registrant as Specified in Charter)
120 South LaSalle Street, Chicago, IL 60603
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
Kathryn L. Quirk
Scudder, Stevens & Clark, Inc.
345 Park Avenue, New York, NY 10154
-----------------------------------
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as practicable after the
effective date of the registration statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, the
Registrant hereby elects to register an indefinite number of shares of capital
stock, $.001 par value.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
KEMPER GLOBAL/ INTERNATIONAL SERIES, INC.
CROSS-REFERENCE SHEET
Items Required by Form N-1A
---------------------------
PART A
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<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis SUMMARY
SUMMARY OF EXPENSES
3. Condensed Financial NOT APPLICABLE
Information
4. General Description of INVESTMENT OBJECTIVES, POLICIES AND RISK
Registrant FACTORS
SUMMARY
CAPITAL STRUCTURE
5. Management of the Fund SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
5A. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Capital Stock and Other SUMMARY
Securities INVESTMENT OBJECTIVES, POLICIES AND RISK
FACTORS
DIVIDENDS, DISTRIBUTIONS AND TAXES
PURCHASE OF SHARES
7. Purchase of Securities Being PURCHASE OF SHARES
Offered SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
8. Redemption or Repurchase SUMMARY
REDEMPTION OR REPURCHASE OF SHARES
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference - Page 1
<PAGE>
KEMPER GLOBAL/ INTERNATIONAL SERIES, INC.
(continued)
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History NOT APPLICABLE
13. Investment Objectives and INVESTMENT RESTRICTIONS
Policies INVESTMENT POLICIES AND TECHNIQUES
14. Management of the Fund OFFICERS AND DIRECTORS
REMUNERATION
15. Control Persons and Principal OFFICERS AND DIRECTORS
Holders of Securities
16. Investment Advisory and Other INVESTMENT MANAGER AND UNDERWRITER
Services
17. Brokerage Allocation PORTFOLIO TRANSACTIONS
18. Capital Stock and Other INVESTMENT MANAGER AND UNDERWRITER
Securities
19. Purchase, Redemption and PURCHASE AND REDEMPTION OF SHARES
Pricing of Securities Being
Offered
20. Tax Status DIVIDENDS AND TAXES
21. Underwriters INVESTMENT MANAGER AND UNDERWRITER
22. Calculation of Performance Data PERFORMANCE
23. Financial Statements NOT APPLICABLE
</TABLE>
Cross Reference - Page 2
<PAGE>
Table of Contents
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Summary
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Summary of Expenses
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Investment Objectives, Policies and Risk
Factors
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Investment Manager and Underwriter
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Dividends, Distributions and Taxes
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Net Asset Value
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Purchase of Shares
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Redemption or Repurchase of Shares
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Special Features
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Performance
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Capital Structure
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This combined prospectus of the Kemper Global/International Funds (the "Funds"),
all series of Kemper Global/International Series, Inc. (the "Corporation"), an
open-end management investment company, contains concisely the information about
each of the Funds that a prospective investor should know before investing and
should be retained for future reference. A Statement of Additional Information,
which contains additional information about the Funds and the Corporation, dated
December 17, 1997, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. It is available upon request without
charge from the Funds at the address or telephone number on this cover or the
firm from which this prospectus was received. It is also available along with
other related materials on the SEC's Internet Web Site (http://www.sec.gov).
The Funds' shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in a
Fund's shares involves risk, including the possible loss of principal.
[KEMPER FUND LOGO]
Kemper
Global/International
Funds
PROSPECTUS DATED DECEMBER 17, 1997
KEMPER GLOBAL/INTERNATIONAL FUNDS
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes a selection of global and international mutual funds
managed by Scudder Kemper Investments, Inc. (the "Adviser")
Kemper Global Blue Chip Fund
Kemper International Growth and Income Fund
Kemper Emerging Markets Income Fund
Kemper Emerging Markets Growth Fund
Kemper Latin America Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
<PAGE>
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
222 South Riverside Plaza, Chicago, Illinois 60606, Telephone 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The five series (the "Funds") of Kemper
Global/International Series, Inc. (the "Corporation") covered in this combined
prospectus are as follows:
KEMPER GLOBAL BLUE CHIP FUND (the "Global Blue Chip Fund") seeks long-term
growth of capital through a diversified worldwide portfolio of marketable
securities, primarily equity securities, including common stocks, preferred
stocks and debt securities convertible into common stocks.
KEMPER INTERNATIONAL GROWTH AND INCOME FUND (the "International Growth and
Income Fund") seeks long-term growth of capital and current income primarily
from foreign equity securities.
KEMPER EMERGING MARKETS INCOME FUND (the "Emerging Markets Income Fund") has
dual investment objectives. The Fund's primary investment objective is to
provide investors with high current income. As a secondary objective, the Fund
seeks long-term capital appreciation.
KEMPER EMERGING MARKETS GROWTH FUND (the "Emerging Markets Growth Fund") seeks
long-term growth of capital primarily through equity investment in emerging
markets around the globe.
KEMPER LATIN AMERICA FUND (the "Latin America Fund") seeks to provide long-term
capital appreciation through investment primarily in the securities of Latin
American issuers.
Global Blue Chip Fund and International Growth and Income Fund are diversified
investment companies. Emerging Markets Income Fund, Emerging Markets Growth Fund
and Latin America Fund are non-diversified investment companies. The Funds may
purchase and sell put and call options, engage in financial futures transactions
("strategic transactions"), invest in foreign securities, and engage in related
foreign currency transactions. International Growth and Income Fund may lend
portfolio securities. Further, the Board of Directors may determine in the
future, without prior shareholder approval, that the objectives of each Fund
would be achieved more effectively by investing in a master fund in a
master/feeder fund structure. See "Investment Objectives, Policies and Risk
Factors" below.
RISK FACTORS. Each Fund's risks are determined by the nature of the securities
held and the portfolio management strategies used by the Adviser. The following
are descriptions of certain risks related to the investments and techniques that
a Fund may use from time to time. For a more complete discussion of risks
involved in an investment in the Funds, see "Special Risk Factors."
There is no assurance that the investment objective of any Fund will be achieved
and investment in each Fund includes risks that vary in kind and degree
depending upon the investment policies of that Fund. The returns and net asset
value of each Fund will fluctuate. The non-diversified status of each of
Emerging Markets Income Fund, Emerging Markets Growth Fund and Latin America
Fund involves greater risk than typical diversified mutual funds. As a
"non-diversified" investment company, each of these Funds may invest a greater
proportion of its assets in the securities of a smaller number of issuers and
therefore may be subject to greater market and credit risk than a more broadly
diversified portfolio.
Foreign investments by the Funds involve risk and opportunity considerations not
typically associated with investing in U.S. companies. The U.S. Dollar value of
a foreign security tends to decrease when the value of the U.S. Dollar rises
2
<PAGE>
against the foreign currency in which the security is denominated and tends to
increase when the value of the U.S. Dollar falls against such currency. Thus,
the U.S. Dollar value of foreign securities in a Fund's portfolio, and the
Fund's net asset value, may change in response to changes in currency exchange
rates even though the value of the foreign securities in local currency terms
may not have changed. With the exception of the International Growth and Income
Fund, each Fund may invest a portion of its assets in developing or "emerging"
markets, which involve exposure to economic structures that are generally less
diverse and mature than in the United States, and to political systems that may
be less stable. Concentration by the Latin America Fund of investments in a
single issuer creates greater risk than investment across more diversified
markets. A portion of the assets of each Fund may be invested in lower rated or
unrated high yield bonds, which entail greater risk of loss of principal and
interest than higher rated fixed-income securities. International Growth and
Income Fund may lend portfolio securities. The risks of lending portfolio
securities, as with other extentions of secured credit, consist of possible
delays in recovering additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially. There are special risks associated with options, financial futures
and foreign currency transactions and other derivatives and there is no
assurance that use of those investment techniques will be successful. See
"Investment Objectives, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. Each Fund provides investors with the option of
purchasing shares in the following ways:
Class A Shares Offered at net asset value plus a maximum sales charge
of 5.75% of the offering price. Reduced sales charges
apply to purchases of $50,000 or more. Class A shares
purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent
deferred sales charge if redeemed within one year of
purchase and a 0.50% contingent deferred sales charge if
redeemed within the second year of purchase.
Class B Shares Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales charge
that declines from 4% to zero on certain redemptions
made within six years of purchase. Class B shares
automatically convert into Class A shares (which have
lower ongoing expenses) six years after purchase.
Class C Shares Offered at net asset value without an initial sales
charge, but subject to a Rule 12b-1 distribution fee and
a 1% contingent deferred sales charge on redemptions
made within one year of purchase. Class C shares do not
convert into any other class.
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment for each class is $1,000 and
investments thereafter must be at least $100. Shares are redeemable at net asset
value, which may be more or less than original cost, subject to any applicable
contingent deferred sales charge. See "Purchase of Shares" and "Redemption or
Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Scudder Kemper Investments, Inc. (the
"Adviser") serves as investment manager for each Fund. The Adviser is paid an
investment management fee by each Fund based upon average daily net assets of
that Fund at an effective annual rate that differs for each Fund. Zurich Kemper
Distributors, Inc. ("ZKDI"), a [wholly owned] [indirect] subsidiary of the
Adviser, is principal underwriter and administrator for each Fund. For Class B
shares and Class C shares of each Fund, ZKDI receives a Rule 12b-1 distribution
fee of ____% of average daily net assets of each such class. ZKDI also receives
the amount of any contingent deferred sales charges paid on the redemption of
shares. The expenses of each Fund and of other investment companies investing in
foreign securities, can be expected to be higher than for investment companies
investing primarily in domestic securities since the costs of operation are
higher, including custody and transaction costs for foreign securities and
investment management fees. Administrative services are provided to shareholders
under administrative services agreements with ZKDI. Each Fund pays an
administrative services fee at an annual rate of up to ___% of average daily net
assets of each of Class A, B and C shares of the Fund, which ZKDI pays to
financial services firms. See "Investment Manager and Underwriter."
DIVIDENDS. Each of Emerging Markets Growth Fund, Global Blue Chip Fund and Latin
3
<PAGE>
America Fund normally distributes annual dividends of net investment income. Any
net realized short-term and long-term capital gains for the Funds are
distributed at least annually. International Growth and Income Fund and Emerging
Markets Income Fund distribute net investment income on a semi-annual and
monthly basis, respectively. Income and capital gain dividends of a Fund are
automatically reinvested in additional shares of the Fund, without a sales
charge, unless the investor makes an election otherwise. See "Dividends,
Distributions and Taxes."
GENERAL. In the opinion of the staff of the Securities and Exchange Commission
(the "SEC"), the use of this combined prospectus may make each Fund liable for
any misstatement, inaccuracy or omission in this prospectus regardless of the
particular Fund to which it pertains.
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Class A Class B Class C
--------- ---------------------- -------------
(applicable to all Funds)(1)
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a
percentage of offering price)............. 5.75%(2) None None
Maximum Sales Charge on Reinvested Dividends None None None
Redemption Fees............................. None None None
Exchange Fee................................ None None None
Maximum Deferred Sales Charge (as a
percentage of None(3) 4% (4) 1% (5)
redemption proceeds)......................
</TABLE>
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(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares-- Initial Sales Charge Alternative--Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
"Large Order NAV Purchase Privilege" may be subject to a contingent
deferred sales charge of 1% the first year and 0.50% the second year. See
"Purchase of Shares-- Initial Sales Charge Alternative Class A Shares."
(4) The maximum Contingent Deferred Sales Charge on Class B Shares applies to
redemptions during the first year. The charge is 4% during the first year,
3% during the second and third years, 2% during the fourth and fifth years
and 1% in the sixth year.
(5) The Contingent Deferred Sales Charge on Class C Shares applies to
redemptions during the first year after purchase.
Annual Fund Operating Expenses
(estimated as a percentage of average net assets)
<TABLE>
<CAPTION>
Global International Emerging Emerging Latin
Blue Chip Growth and Markets Markets America Fund
Fund Income Fund Income Fund Growth Fund
----------- ---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Class A Shares ___% ___% ___% ___% ___%
Management Fees*.
None None None None None
12b-1 Fees.......
___% ___% ___% ___% ___%
Other Expenses... ---- ---- --- ----- ----
Total Fund ____% ____% ____% ____% ____%
Operating Expenses*........ ==== ==== ==== ===== ====
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Global International Emerging Emerging Latin
Blue Chip Growth and Markets Markets America Fund
Fund Income Fund Income Fund Growth Fund
----------- ---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Class B Shares
Management Fees*. ___% ___% ___% ___% ___%
12b-1 Fees (6)... None None None None None
Other Expenses... ___% ___% ___% ___% ___%
---- ---- --- ----- ----
Total Fund
Operating Expenses*........ ____% ____% ____% ____% ____%
==== ==== ==== ===== ====
Global International Emerging Emerging Latin
Blue Chip Growth and Markets Markets America Fund
Fund Income Fund Income Fund Growth Fund
----------- ---------------- --------------- ------------- -------------
Class C Shares
Management Fees*. ___% ___% ___% ___% ___%
12b-1 Fees (7)... None None None None None
Other Expenses... ___% ___% ___% ___% ___%
---- ---- --- ----- ----
Total Fund
Operating Expenses*........ ____% ____% ____% ____% ____%
==== ==== ==== ===== ====
</TABLE>
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* After waiver
(6) Long-term Class B shareholders of a Fund may, as a result of the Funds' Rule
12b-1 fees, pay more than the economic equivalent of the maximum initial
sales charges permitted by the National Association of Securities Dealers,
Inc., although ZKDI believes that is unlikely because of the automatic
conversion feature described under "Purchase of Shares -- Deferred Sales
Charge Alternative -- Class B Shares."
(7) As a result of the accrual of Rule 12b-1 fees, long-term Class C
shareholders of a Fund may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, Inc.
Example**
The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.
<TABLE>
<CAPTION>
Fund 1 year 3 years
----------------- ------ -------
<S> <C> <C> <C>
Class A Shares (8)
Global Blue Chip
Based on the estimated level of $__ $___
total operating expenses listed
above, you would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and
(2) redemption at the end of each
time period:
International
Growth and $__ $ __
Income
Emerging
Markets Income $__ $___
Emerging
Markets Growth $__ $ __
Latin America
$-- $ --
5
<PAGE>
Example
Fund 1 year 3 years
----------------- ------ -------
Class B Shares (9)
Global Blue Chip $__ $ __
Based on the estimated level of International
total operating expenses listed Growth and $__ $__
above, you would pay the following Income
expenses on a $1,000 investment, Emerging $__ $__
assuming (1) 5% annual return and Markets Income
(2) redemption at the end of each Emerging $__ $ __
time period: Markets Growth
Latin America $__ $ __
You would pay the following expenses Global Blue Chip $__ $ __
on the same investment, assuming International Growth
no redemption: and Income $__ $ __
Emerging
Markets Income $__ $ __
Emerging
Markets Growth $__ $ __
Latin America $__ $ __
Fund 1 year 3 years
----------------- ------ -------
Class C Shares (10)
Based on the estimated level of Global Blue Chip $__ $__
total operating expenses listed International
above, you would pay the following Growth and
expenses on a $1,000 investment, Income $__ $__
assuming (1) 5% annual return and Emerging
(2) redemption at the end of each Markets Income $__ $__
time period: Emerging
Markets Growth $__ $__
Latin America $__ $__
Global Blue Chip $__ $ __
You would pay the following expenses
on the same investment, assuming International Growth
no redemption: and Income $__ $ __
Emerging
Markets Income $__ $ __
Emerging
Markets Growth $__ $ __
Latin America $__ $ __
</TABLE>
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[**] Based on Total Fund Operating Expenses net of fee waiver (see "Annual Fund
Operating Expenses" table above).
(8) Assumes deduction of the maximum 5.75% initial sales charge at the time of
purchase and no deduction of a Contingent Deferred Sales Charge at the time
of redemption.
(9) Assumes conversion to Class A shares six years after purchase and was
calculated based upon the assumption that the shareholder was an owner of
the shares on the first day of the first year and the contingent deferred
sales charge was applied as follows: 1 year (3%) and 3 years (2%). See
"Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class B Shares" for more information regarding the calculation of the
contingent deferred sales charge.
(10) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge was not applicable for any of
the periods shown. See "Redemption or Repurchase of Shares -- Contingent
Deferred Sales Charge -- Class C Shares."
6
<PAGE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. Each
Fund commenced operations on December 17, 1997, thus "Management Fees" and
"Other Expenses" are estimates for the current fiscal year, and expenses are
shown for only the one and three year periods.
Each Example assumes a 5% annual rate of return pursuant to requirements of the
SEC and assumes reinvestment of all dividends and distributions. This
hypothetical rate of return is not intended to be representative of past or
future performance of any Fund. The Examples should not be considered to be a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objectives and
policies. Each Fund's returns and net asset value will fluctuate, and there is
no assurance that any Fund will meet its objective. Except as otherwise
indicated, a Fund's investment objectives and policies are not fundamental and
may be changed without a vote of shareholders. If there is a change in a Fund's
investment objectives, shareholders should consider whether a Fund remains an
appropriate investment in light of their then current financial position and
needs.
GLOBAL BLUE CHIP FUND. Global Blue Chip Fund seeks long-term growth of capital
through a diversified worldwide portfolio of marketable securities, primarily
equity securities, including common stocks, preferred stocks and debt securities
convertible into common stocks. The Fund invests in equity securities of
companies which are incorporated in the U.S. and in foreign countries. The Fund
will invest primarily in developed markets, with a maximum of 15 % of the
portfolio's total assets invested in emerging markets. It also may invest in the
debt securities of U.S. and foreign issuers. Income is an incidental
consideration.
In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known companies. Companies of this general type are often
referred to as "Blue Chip" companies. "Blue Chip" companies are generally
identified by their substantial capitalization, established financial history,
ready 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, on average, than companies lacking
these characteristics, such as smaller, less seasoned companies. In addition,
the large market of publicly held shares for such companies and the generally
higher trading volume in those shares results in a relatively high degree of
liquidity for such investments.
The Fund invests in companies that the Adviser believes will benefit from global
economic trends, promising technologies or products and specific country
opportunities resulting from changing geopolitical, currency or economic
relationships. The Fund's global framework allows it to take advantage of
investment opportunities created by the growing integration of economies around
the world. The Fund offers investors access to opportunities wherever they
arise, without being constrained by location of a company's headquarters or the
trading market for its shares.
It is expected that investments will be spread broadly around the world with an
emphasis on developed economies and capital markets. The Fund will be invested
usually in securities of issuers located in at least three countries, one of
which may be the U.S. The Fund may be invested 100% in non-U.S. issues, and for
temporary defensive purposes may be invested 100% in U.S. issues, although under
normal circumstances it is expected that both foreign and U.S. investments will
be represented in the Fund's portfolio. It is expected that investments will
include securities of companies of varying sizes as measured by assets, sales,
income or market capitalization.
The Fund generally invests in equity securities of established companies listed
on U.S. or foreign securities exchanges, but also may invest in securities
traded over-the-counter. It also may invest in debt securities convertible into
common stock, and convertible and non-convertible preferred stock, and
fixed-income securities of governments, government agencies, supranational
agencies and companies when the Adviser believes the potential for appreciation
will equal or exceed that available from investments in equity securities. These
debt and fixed-income securities will be predominantly investment-grade
securities, that is, those rated Aaa, Aa, A or Baa by Moody's Investor Services,
7
<PAGE>
Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P")
or those of equivalent quality as determined by the Adviser. The Fund may not
invest more than 5% of its total assets in debt securities rated Baa or below by
Moody's, or BBB or below by S&P or deemed by the Adviser to be of comparable
quality (see "Special risk factors").
The Fund may invest in zero coupon securities which pay no cash income and are
issued at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity.
Fixed-income securities also may be held without limit for temporary defensive
purposes when the Adviser believes market conditions so warrant and for
temporary investment. It is impossible to accurately predict for how long such
alternative strategies may be utilized. Similarly, the Fund may invest in cash
equivalents (including domestic and foreign money market instruments, such as
bankers' acceptances, certificates of deposit, commercial paper, short-term
government and corporate obligations and repurchase agreements) for temporary
defensive purposes and for liquidity. The Fund may invest in closed-end
investment companies holding foreign securities. To the extent the Fund invests
in such closed-end investment companies, shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. In addition,
the Fund may engage in strategic transactions (see "Special risk factors").
The Fund is designed for long-term investors who can accept international
investment risk in pursuit of additional opportunities that foreign securities
may provide. Since the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in the U.S. markets. The Fund's share price will reflect the
movements of both the different stock and bond markets in which it is invested
and the currencies in which the investments are denominated; the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
the Fund's investment performance. As with any long-term investment, the value
of shares when sold may be higher or lower than when purchased. Because of the
Fund's global investment policies and the investment considerations discussed
above, investment in shares of the Fund should not be considered a complete
investment program.
INTERNATIONAL GROWTH AND INCOME FUND. International Growth and Income Fund seeks
long-term growth of capital and current income primarily from foreign equity
securities. The Fund invests generally in common stocks of established companies
listed on foreign exchanges, which offer prospects for growth of earnings while
paying relatively high current dividends. The Fund can also invest in other
types of equity securities, including preferred stocks and securities
convertible into common stock. The Fund does not invest in emerging markets, but
instead focuses its investments on the 21 developed foreign countries included
in the Morgan Stanley Capital International (MSCI) World ex-US Index (the
"MSCI").
In the opinion of the Adviser, foreign capital markets provide investors with
opportunities to participate in the economic growth taking place outside the
U.S., which should translate into positive stock market performance over the
long term. In addition, the Adviser believes that international investing offers
the benefits of diversification, which can lower the overall price volatility of
an investor's portfolio. The Fund's income-oriented strategy, which can help
cushion returns in volatile periods, and its concentration in developed markets
may make it appropriate for investors seeking lower share price volatility than
many other international equity funds.
While the Fund offers the potential for price appreciation and dividend income,
it also involves various types of risk. The Fund is designed as a long term
investment to be part of an overall diversified portfolio, not as a complete
investment program. The Fund's net asset value (price) can fluctuate with
changes in world stock market levels, political developments, movements in
currencies, investment flows and other factors. (See "Special risk factors").
In pursuing its dual objective, at least 80% of the Fund's net assets will
normally be invested in the equity securities of established non-U.S. companies.
The Fund generally invests in equity securities of established companies listed
on foreign securities exchanges, but also may invest in securities traded
over-the-counter. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.
8
<PAGE>
The Fund intends to diversify investments among several developed foreign
markets and normally to invest in securities of at least three different
countries. The Fund will invest exclusively in securities of issuers in the
developed foreign countries included in the MSCI.
Under normal conditions, the Fund may also invest up to 20% of its net assets in
debt securities convertible into common stock and fixed-income securities of
governments, government agencies, supranational agencies and private issuers
when the Adviser believes the potential for appreciation and income will equal
or exceed that available from investments in equity securities. These securities
will predominantly be "investment grade" securities, which are those rated Aaa,
Aa, A, or Baa by Moody's or AAA, AA, A or BBB by S&P or if unrated, judged by
the Adviser to be of equivalent quality. The Fund may also invest up to 5% of
its total assets in debt securities which are rated below investment grade (see
"Risk factors").
The Fund may also hold up to 20% of its net assets in U.S. and foreign fixed
income securities for temporary defensive purposes when the Adviser believes
market conditions so warrant. Similarly, the Fund may invest up to 20% of its
net assets in cash or cash equivalents including domestic and foreign money
market instruments, short-term government and corporate obligations and
repurchase agreements under normal circumstances and without limit for temporary
defensive purposes and to maintain liquidity. It is impossible to accurately
predict for how long such alternative strategies may be utilized. In addition,
the Fund may engage in strategic transactions, which may include derivatives
(see "Special risk factors").
The Adviser applies a disciplined, multi-part investment approach for selecting
stocks for the Fund. The first stage of this process involves analyzing the pool
of foreign dividend-paying securities, primarily from the world's more mature
markets, and targeting stocks that have high relative yields compared to the
average for their markets. In the Adviser's opinion, this group of
higher-yielding stocks offers the potential for returns that is greater than or
equal to the average market return, with price volatility that is lower than the
overall market volatility. The Adviser believes that these potentially favorable
risk and return characteristics exist because the higher dividends offered by
these stocks act as a "cushion" when markets are volatile and because the stocks
with higher yields tend to have more attractive valuations (e.g., lower
price-to-earning ratios and lower price-to-book ratios).
The second stage of portfolio construction involves a fundamental analysis of
each company's financial strength, profitability, projected earnings,
competitive positioning, and ability of management. During this step, the
Adviser's research team identifies what it believes are the most promising
stocks for the Fund's portfolio.
The third stage of the investment process involves diversifying the portfolio
among different industry sectors. The key element of this stage is evaluating
how the stocks in different sectors react to economic factors such as interest
rates, inflation, Gross Domestic Product, and consumer spending, and then
attaining a proper balance of stocks in these sectors based on the Adviser's
economic forecast.
The fourth and final stage of this ongoing process is diversifying the portfolio
among different countries. The Adviser will seek to have broad country
representation, favoring those countries that it believes have sound economic
conditions and open markets. The Fund's strategy is to manage risk and create
opportunity at each of its four stages in the investment process, starting with
the focus on stocks with high relative yields.
EMERGING MARKETS INCOME FUND. Emerging Markets Income Fund has dual investment
objectives. The Fund's primary investment objective is to provide investors with
high current income. As a secondary objective, the Fund seeks long-term capital
appreciation. In pursuing these goals, the Fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets. Many developing regions of the world have undertaken sweeping political
and economic changes that favor increased business activity and demand for
capital. In the opinion of the Adviser, these changes present attractive
investment opportunities, both in terms of income and appreciation potential,
for long-term investors.
The Fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. It is designed as a long-term investment and not for
short-term trading purposes, and should not be considered a complete investment
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program. While designed to provide a high level of current income, the Fund may
not be appropriate for all income investors. The Fund should not be viewed as a
substitute for a money market or short-term bond fund. The Fund invests in lower
quality securities of emerging market issuers, some of which have in the past
defaulted on certain of their financial obligations. Investments in emerging
markets can be volatile. The Fund's share price and yield can fluctuate daily in
response to political events, changes in the perceived creditworthiness of other
nations, fluctuations in interest rates and, to a limited extent, movements in
foreign currencies. Please refer to "Special risk factors" for further
information.
In seeking high current income and, secondarily, long-term capital appreciation,
the Fund invests, under normal market conditions, at least 65% of its total
assets in debt securities issued by governments, government-related entities and
corporations in emerging markets, or the return on which is derived primarily
from emerging markets. The Fund considers "emerging markets" to include any
country that is defined as an emerging or developing economy by any one of the
following: the International Bank for Reconstruction and Development (i.e., the
World Bank), the International Finance Corporation or the United Nations or its
authorities.
The Fund takes a global approach to portfolio management. The Adviser currently
weights its investments toward countries in Latin America, which has offered the
largest and most liquid debt markets of the emerging nations around the globe in
the past few years. However, the Adviser may pursue investment opportunities in
Asia, Africa, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The Fund deems an issuer to be located in an emerging market
if:
o the issuer is organized under the laws of an emerging market country;
o the issuer's principal securities trading market is in an emerging market; or
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is derived
from (directly or indirectly from subsidiaries) assets or activities located
in emerging markets.
Although the Fund may invest in a wide variety of high-yielding debt
obligations, under normal conditions it must invest at least 50% of its total
assets in sovereign debt securities issued or guaranteed by governments,
government-related entities and central banks based in emerging markets
(including participations in and assignments of portions of loans between
governments and financial institutions); government owned, controlled or
sponsored entities located in emerging markets; entities organized and operated
for the purpose of restructuring investment characteristics of instruments
issued by government or government-related entities in emerging markets; and
debt obligations issued by supranational organizations such as the Asian
Development Bank and the Inter-American Development Bank, among others.
The Fund may also consider for purchase debt securities issued by commercial
banks and companies in emerging markets. The Fund may invest in both fixed- and
floating-rate issues. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments and trust interests. The
Fund may invest regularly in "Brady Bonds," which are debt securities issued
under the framework of the Brady Plan as a mechanism for debtor countries to
restructure their outstanding bank loans. Most "Brady Bonds" have their
principal collateralized by zero coupon U.S. Treasury bonds.
In an attempt to eliminate currency risk, the Fund invests exclusively in U.S.
dollar-denominated debt securities, or "hard currency" denominated debt
securities, or those that are fully hedged back into by the U.S.
dollar.
The Fund is not restricted by limits on weighted average portfolio maturity or
the maturity of an individual issue. Debt securities in which the Fund may
invest may have stated maturities from overnight to 30 years or longer. The
weighted average maturity of the Fund's portfolio is actively managed and will
vary from period to period based upon the Adviser's assessment of economic and
market conditions, taking into account the Fund's investment objectives.
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In addition to maturity, the Fund's investments are actively managed in terms of
geography and industry allocation. In managing the Fund's portfolio, the Adviser
takes into account such factors as the credit quality of issuers, changes in and
levels of interest rates, projected economic growth rates, capital flows, debt
levels, trends in inflation, and government initiatives.
While the Fund is not "diversified" for purposes of the 1940 Act it intends to
invest in a minimum of three countries at any one time and will not commit more
than 40% of its total assets to issuers in a single country.
By focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade,
or unrated but equivalent to those rated below investment-grade by
internationally recognized rating agencies such as S&P or Moody's. Debt
securities rated below BBB by S&P or below Baa by Moody's are considered to be
below investment-grade. These types of high yield/high risk debt obligations
(commonly referred to as "junk bonds") are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and often more
volatility in price than securities in higher rating categories, such as
investment-grade U.S. bonds. On occasion, the Fund may invest up to 5% of its
net assets in non-performing securities whose quality is comparable to
securities rated as low as D by S&P or C by Moody's. A large portion of the
Fund's bond holdings may trade at substantial discounts from face value. Please
refer to "Special risk factors--High yield/high risk securities" for more
information.
The Fund may invest up to 35% of its total assets in securities other than debt
obligations issued in emerging markets. These holdings include debt securities
and money market instruments issued by corporations and governments based in
developed markets, including up to 20% of total assets in U.S. fixed-income
instruments.
However, for temporary, defensive or emergency purposes, the Fund may invest
without limit in U.S. debt securities, including short-term money market
securities. It is impossible to accurately predict for how long such alternative
strategies will be utilized. In addition, the Fund may engage in strategic
transactions.
The Fund may also acquire shares of closed-end investment companies that invest
primarily in emerging market debt securities. To the extent the Fund invests in
such closed-end investment companies, shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. See "Special
risk factors" for more information about these investment techniques.
The Fund is authorized to borrow money from banks and other entities in an
amount equal to up to 20% of the Fund's total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing, and
may use the proceeds of the borrowings for investment purposes. Borrowings
create leverage, which is a speculative characteristic. Although the Fund
intends to borrow frequently, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing and the likely investment returns on the securities
purchased with the borrowed moneys. The extent to which the Fund will borrow
will depend upon the availability of credit. No assurance can be given that the
Fund will be able to borrow on terms acceptable to the Fund and the Adviser.
EMERGING MARKETS GROWTH FUND. Emerging Markets Growth Fund seeks long-term
growth of capital primarily through equity investment in emerging markets around
the globe.
The Fund will invest in the Asia-Pacific region, Latin America, less developed
nations in Europe, the Middle East and Africa, focusing investments in countries
and regions where there appear to be the best value and appreciation potential,
subject to considerations of portfolio diversification and liquidity. In the
opinion of the Adviser, many emerging nations around the globe are likely to
continue to experience economic growth rates well in excess of those found in
the U.S., Japan and other developed markets. In the opinion of the Adviser, this
economic growth should translate into strong stock market performance over the
long term.
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While the Fund offers the potential for substantial price appreciation over
time, it also involves above-average investment risk. The Fund is designed as a
long-term investment and not for short-term trading purposes. It should not be
considered a complete investment program. The Fund's net asset value (price) can
fluctuate significantly with changes in stock market levels, political
developments, movements in currencies, investment flows and other factors.
At least 65% of the Fund's total assets will be invested in the equity
securities of emerging market issuers. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the International Bank for Reconstruction and Development (i.e., the
World Bank), the International Finance Corporation or the United Nations or its
authorities. The Fund intends to allocate its investments among at least three
countries at all times, and does not expect to concentrate in any particular
industry. There is no limitation, however, on the amount the Fund can invest in
a specific country or region of the world.
The Fund deems an issuer to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market country;
o the issuer's principal securities trading market is in an emerging market; or
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is derived
(directly or indirectly through subsidiaries) from assets or activities
located in emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid or restricted securities.
The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments, and trust interests.
Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of issuers in the U.S. and other developed markets. In
evaluating the appropriateness of such investments for the Fund, the Adviser
takes into account the issuer's involvement in the emerging markets and the
potential impact of that involvement on business results. The Fund may also
purchase securities on a when-issued or forward delivery basis, and may engage
in various strategic transactions, including derivatives. In addition, to
maintain liquidity, the Fund may borrow from banks in an amount not exceeding
the value of one-third of the Fund's total assets. The Fund does not expect to
borrow for investment purposes.
For temporary defensive purposes, the Fund may hold, without limit, debt
instruments as well as cash and cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements. It is impossible to accurately predict for how long such
alternative strategies will be utilized. The Fund may also invest in closed-end
investment companies investing primarily in the emerging markets. To the extent
the Fund invests in such closed-end investment companies, shareholders will
incur certain duplicate fees and expenses. Such closed-end investment company
investments will generally only be made when market access or liquidity
restricts direct investment in the market.
More information about the investments and policies of the Fund is provided
under "Special risk factors."
The Adviser takes a top-down approach to evaluating investments for the Fund,
using extensive fundamental and field research. The process begins with a study
of the economic fundamentals of each country and region as well as an
examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
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themes allows the Adviser to identify the industries and companies most likely
to benefit from the political, social and economic changes taking place in a
given region of the world.
Within a market, the Adviser looks for individual companies with exceptional
business prospects, which may be due to market dominance, unique franchises,
high growth potential, or innovative services, products or technologies. The
Adviser seeks to identify companies with favorable potential for appreciation
through growing earnings or greater market recognition over time. While these
companies may be among the largest in their local markets, they may be small by
the standards of U.S. stock market capitalization.
LATIN AMERICA FUND. Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin American
issuers.
The Fund seeks to benefit from economic and political trends emerging throughout
Latin America. These trends are supported by governmental initiatives designed
to promote freer trade and market-oriented economies. The Adviser believes that
efforts by Latin American countries to, among other things, reduce government
spending and deficits, control inflation, lower trade barriers, stabilize
currency exchange rates, increase foreign and domestic investment and privatize
state-owned companies, will help support attractive investment returns over
time.
The Fund involves above-average investment risk. It is designed as a long-term
investment and not for short-term trading purposes, and should not be considered
a complete investment program.
In seeking its objective to provide long-term capital appreciation, the Fund
normally invests at least 65% of its total assets in Latin American equity
securities. For purposes of this prospectus, Latin America is defined as Mexico,
Central America, South America and the islands of the Caribbean. The Fund
defines securities of Latin American issuers as follows:
o Securities of companies organized under the laws of a Latin American country
or for which the principal securities trading market is in Latin America;
o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;
o Securities of companies, wherever organized, when at least 50% of an issuer's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in Latin America; or
o Securities of Latin American issuers, as defined above, in the form of
depositary shares.
Although the Fund may participate in markets throughout Latin America, under
present conditions the Fund expects to focus its investments in Argentina,
Brazil, Chile, Colombia, Mexico and Peru. In the opinion of the Adviser, these
five countries offer the most developed capital markets in Latin America. The
Fund may invest in other countries in Latin America when the Adviser deems it
appropriate. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry.
The Fund's equity investments include common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
restricted securities and may also be purchased through rights. Securities may
be listed on securities exchanges, traded over-the-counter, or have no organized
market.
The Fund may invest in debt securities when management anticipates that the
potential for capital appreciation is likely to equal or exceed that of equity
securities. Capital appreciation in debt securities may arise from a favorable
change in relative foreign exchange rates, in relative interest rate levels, or
in the creditworthiness of issuers. Receipt of income from such debt securities
is incidental to the Fund's objective of long-term capital appreciation. Most
debt securities in which the Fund invests are not rated. When debt securities
are rated, it is expected that such ratings will generally be below investment
grade; that is, rated below Baa by Moody's or below BBB by S&P. For more
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information about the debt securities in which the Fund may invest, including
risks, please see "Additional information about policies and investments."
The Fund may invest up to 35% of its total assets in the equity securities of
U.S. and other non-Latin American issuers. In this regard, the Fund will focus
on larger, multinational corporations, which generally will comprise as much as
15% of the Fund's total assets. In evaluating non-Latin American investments,
the Adviser generally seeks investments where an issuer's Latin American
business activities and the impact of developments in Latin America may have a
positive and significant effect on the issuer's business results.
In selecting companies for investment, the Fund typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or the dividend history of
companies.
The allocation between equity and debt, and among countries in Latin America,
varies based on a number of factors, including: expected rates of economic and
corporate profit growth; past performance and current and comparative valuations
in Latin American capital markets; the level and anticipated direction of
interest rates; changes or anticipated changes in Latin American government
policy; and the condition of the balance of payments and changes in the terms of
trade. The Fund, in seeking undervalued markets or individual securities, also
considers the effects of past economic crises or ongoing financial and political
uncertainties.
To provide for redemptions, or in anticipation of investment in Latin American
securities, the Fund may hold cash or cash equivalents (in U.S. dollars or
foreign currencies) and other short-term securities, including money market
securities denominated in U.S. dollars or foreign currencies. In addition, to
provide for redemptions or distributions, the Fund may borrow from banks in an
amount not exceeding the value of one-third of the Fund's total assets. The Fund
does not expect to borrow for investment purposes. The Fund may assume a
defensive position when, due to political or other factors, the Adviser
determines that opportunities for capital appreciation in Latin American markets
would be significantly limited over an extended period or that investing in
those markets poses undue risk to investors. The Fund may, for temporary
defensive purposes, invest up to 100% of its assets in cash and money market
instruments or invest all or a portion of its assets in securities of U.S. or
other non-Latin American issuers 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. The
Fund may also invest in closed-end investment companies investing primarily in
Latin America. In addition, the Fund may invest in loan participations and
assignments, when-issued securities, convertible securities and repurchase
agreements and may engage in strategic transactions. See "Special risk factors"
for more information about these investment techniques.
MASTER/FEEDER STRUCTURE. The Board of Directors may determine that the
objectives of a Fund would be achieved more efficiently, while retaining its
current distribution arrangement, by investing in a master fund in a
master/feeder fund structure as described below, and in that case cause the Fund
to do so without prior approval by shareholders.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests 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 in the master fund in an effort to achieve possible economies of
scale and efficiencies in portfolio management, while preserving separate
identities, management or distribution channels at the feeder fund level. 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 the
realization of taxable gain or loss, or by contributing its assets to the master
fund and avoiding transaction costs and the realization of taxable gain or loss.
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SPECIAL RISK FACTORS. A Fund's risks are determined by the nature of the
securities held and the portfolio management strategies used by the Adviser. The
following are descriptions of certain risks related to the investments and
techniques that a Fund may use from time to time.
NON-DIVERSIFIED INVESTMENT COMPANY. Emerging Markets Income Fund, Emerging
Markets Growth Fund and Latin America Fund are each classified as a
non-diversified investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), which means that each Fund is not limited by the 1940
Act in the percentage of its assets that it may invest in the obligations of a
single issuer. As a "non-diversified" investment company, a Fund may be subject
to greater market and credit risk than a more broadly diversified portfolio. The
investment of a large percentage of a Fund's assets in the securities of a small
number of issuers may cause a Fund's share price to fluctuate more than that of
a diversified investment company.
FOREIGN SECURITIES. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs,
different accounting standards, thinner trading markets and the likely impact of
foreign taxes on the yield from debt securities. They may also entail certain
other risks, such as the possibility of one or more of the following: imposition
of dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; expropriation, nationalization, military coups or other
adverse political or economic developments; less government supervision and
regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Further, it may be more
difficult for a Fund's agents to keep currently informed about corporate actions
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., increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Certain markets may require payment for
securities before delivery. A Fund's ability and decisions to purchase and sell
portfolio securities may be affected by laws or regulations relating to the
convertibility of currencies and repatriation of assets. Some countries restrict
the extent to which foreigners may invest in their securities markets.
With the exception of the Emerging Markets Income Fund, each Fund has foreign
currency exposure. Accordingly, changes in the value of these currencies against
the U.S. dollar will result in corresponding changes in the U.S.
dollar value of a Fund's assets denominated in those currencies.
Some foreign countries also may have managed currencies, which are not free
floating against the U.S. dollar. In addition, there is risk that certain
foreign countries may restrict the free conversion of their currencies into
other currencies. Further, it generally will not be possible to reduce a Fund's
foreign currency risk through hedging. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on a Fund's net asset value.
INVESTING IN EMERGING MARKETS. Each Fund, with the exception of International
Growth and Income Fund, may invest in securities of issuers in emerging markets.
Most emerging securities markets may have substantially less volume and are
subject to less government supervision than U.S. securities markets. Securities
of many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. In addition, there is less regulation
of securities exchanges, securities dealers, and listed and unlisted companies
in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of a Fund is
uninvested and no cash is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause a Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
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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. A 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, a Fund will be exposed
to the direct or indirect consequences of political, social and economic changes
in one or more emerging markets. While a 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 a Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
a Fund's shares for any period during which an emergency exists, as determined
by the Securities and Exchange Commission (the "SEC"). Accordingly if a Fund
believes that appropriate circumstances exist, it will promptly apply to the SEC
for a determination that an emergency is present. During the period commencing
from a Fund's identification of such condition until the date of the SEC action,
the Fund's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Board of Directors.
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 a Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less governmental supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect a 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.
Income from securities held by a Fund could be reduced by a withholding
tax on the source or other taxes imposed by the emerging market countries in
which the Fund makes its investments. A Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to a Fund or
to entities in which a Fund has invested. The Adviser will consider the cost of
any taxes in determining whether to acquire any particular investments, but can
provide no assurance that the taxes will not be subject to change.
Many emerging markets have experienced substantial, and, in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
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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, governmental actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in a Fund's
portfolio. Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments have occurred
frequently over the history of certain emerging markets and could adversely
affect a 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 an emerging market receives 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 on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
HIGH YIELD/HIGH RISK SECURITIES. Each Fund may invest in debt securities with
varying degrees of credit quality. High quality bonds (rated AAA or AA by S&P or
Aaa or Aa by Moody's) characteristically have a strong capacity to pay interest
and repay principal. Medium investment-grade bonds (rated A or BBB by S&P or A
or Baa by Moody's) are defined as having adequate capacity to pay interest and
repay principal. In addition, certain medium investment-grade bonds are
considered to have speculative characteristics. Each Fund may invest in debt
securities which are rated below investment-grade (hereinafter referred to as
"lower rated securities") or which are unrated, but deemed equivalent to those
rated below investment-grade by the Adviser. These are commonly referred to as
"junk bonds." The lower the ratings of such debt securities, the greater their
risks render them like equity securities. These debt instruments generally offer
a higher current yield than that available from higher grade issues, but
typically involve greater risk. Lower rated and unrated securities are
especially subject to adverse changes in general economic conditions, to changes
in the financial condition of their issuers, and to price fluctuation in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, issuers of these instruments may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of these securities especially in a market
characterized by only a small amount of trading. Perceived credit quality in
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this market can change suddenly and unexpectedly, and may not fully reflect the
actual risk posed by a particular lower rated or unrated security. Global Blue
Chip Fund and International Growth and Income Fund will each invest no more than
5% of their total assets in debt securities rated BBB or Baa or below or in
unrated securities. Global Blue Chip Fund may invest in securities which are
rated as low as C by Moody's or D by S&P at the time of purchase. International
Growth and Income Fund may invest in securities which are rated D by S&P or, if
unrated, are of equivalent quality. Such securities may be in default with
respect to payment of principal or interest. Emerging Markets Income Fund
invests predominantly in debt securities that are rated below investment-grade,
or unrated but equivalent to those rated below investment-grade by
internationally recognized rating agencies such as S&P or Moody's. Emerging
Markets Growth Fund may invest in debt securities with varying degrees of credit
quality. The Fund may invest in securities whose quality is comparable to
securities rated as low as D by S&P or C by Moody's. Latin America Fund will
invest no more than 10% of its net assets in securities rated B or lower by
Moody's or S&P, and may invest in securities rated C by Moody's or D by S&P.
For a more complete description of the risks of high yield/high risk securities,
please refer to the Funds' Statement of Additional Information.
COMMON STOCKS. Global Blue Chip Fund, International Growth and Income Fund,
Emerging Markets Growth Fund and Latin America Fund may invest in common stocks.
Common stock is issued by companies to raise cash for business purposes and
represents a proportionate interest in the issuing companies. Therefore, a Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stock also offers the greatest potential for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents.
ZERO COUPON SECURITIES. Each Fund may invest in zero coupon securities, which
pay no cash income and are sold at substantial discounts from their maturity
value. When held to maturity, their entire income, which consists of accretion
of discount, comes from the difference between the issue price and their
maturity value. Zero coupon securities are subject to greater market value
fluctuations from changing interest rates than debt obligations of comparable
maturities that make current cash distributions of interest.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities which may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which International Growth and Income Fund and Latin
America Fund may invest include 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. Emerging Markets Income Fund and
Emerging Markets Growth Fund may invest in bonds, notes, debentures and
preferred stocks which may be converted or exchanged at a stated or determinable
exchange ratio into underlying shares of common stock. Prior to their
conversion, convertible securities may have characteristics similar to both
nonconvertible debt securities and equity securities. While convertible
securities generally offer lower yields than nonconvertible debt securities of
similar quality, their prices may reflect changes in the value of the underlying
common stock. Convertible securities generally entail less credit risk than the
issuer's common stock. Emerging Markets Income Fund may be required to permit
the issuer of a convertible security to redeem the security, convert it into the
underlying common stock or sell it to a third party. Thus, the Fund may not be
able to control whether the issuer of a convertible security chooses to convert
that security. If the issuer chooses to do so, this action could have an adverse
effect on this Fund's ability to achieve its investment objectives.
WHEN-ISSUED SECURITIES. Emerging Markets Income Fund, Emerging Markets Growth
Fund and Latin America Fund may purchase securities on a when-issued or forward
delivery basis, for payment and delivery at a later date. The price and yield
are generally fixed on the date of commitment to purchase. During the period
between purchase and settlement, no interest accrues to a Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price.
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INVESTING IN LATIN AMERICA. With the exception of International Growth and
Income Fund, the Funds may invest in securities of issuers in Latin America. The
Adviser believes that investment opportunities may result from recent trends in
Latin America, encouraging greater market orientation and less governmental
intervention in economic affairs. Investors, however, should be aware that the
Latin American economies have experienced considerable difficulties in the past
decade. Although there have been significant improvements in recent years, the
Latin American economies continue to experience challenging problems, including
high inflation rates and high interest rates relative to the U.S. The emergence
of the Latin American economies and securities markets will require continued
economic and fiscal discipline which has been lacking at times in the past, as
well as stable political and social conditions. Recovery may also be influenced
by international economic conditions, particularly those in the U.S., and by
world prices for oil and other commodities. There is no assurance that recent
economic initiatives will be successful.
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar, and
major adjustments have been made in certain of these currencies periodically. In
addition, although there is a trend toward less government involvement in
commerce, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government still owns or controls many companies,
including some of the largest in the country. Accordingly, government actions in
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and a Fund, as
well as the value of securities in the Fund's portfolio.
Most Latin American countries 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 negative
effects on the economies and securities markets of certain Latin American
countries.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Some of these countries have in the past
defaulted on their sovereign debt. Holders of sovereign debt (including a Fund)
may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
The limited size of many Latin American securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of securities.
The portion of Latin America Fund's assets invested directly in Chile may be
less than the portions invested in other countries in Latin America because, at
present, capital invested in Chile normally cannot be repatriated for as long as
five years. As such, direct investments in Chile will be limited by a Fund's
nonfundamental policy of not investing a percentage in securities which are not
readily marketable.
REPURCHASE AGREEMENTS. As a means of earning income for periods as short as
overnight, each Fund may enter into repurchase agreements with selected banks
and broker/dealers. Under a repurchase agreement, a Fund acquires securities,
subject to the seller's agreement to repurchase them at a specified time and
price. If the seller under a repurchase agreement becomes insolvent, the Fund's
right to dispose of the securities may be restricted, or the value of the
securities may decline before a Fund is able to dispose of them. In the event of
the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the securities before repurchase of the securities under a repurchase
agreement, a Fund may encounter delay and incur costs, including a decline in
the value of the securities, before being able to sell the securities. Emerging
Markets Income Fund may enter into repurchase commitments with any party deemed
creditworthy by the Adviser, including foreign banks and broker/dealers, if the
transaction is entered into for investment purposes and the counterparty's
creditworthiness is at least equal to that of issuers of securities which the
Fund may purchase. Some repurchase commitment transactions may not provide
Emerging Markets Income Fund with collateral marked-to-market during the term of
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the commitment. Emerging Markets Growth Fund may also enter into repurchase
commitments for investment purposes for periods of 30 days or more. Such
commitments involve investment risk similar to that of debt securities.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. Each Fund
maintains a segregated account, as described under "When-Issued Securities" in
connection with outstanding reverse repurchase agreements. Reverse repurchase
agreements are deemed to be borrowings subject to each Fund's investment
restrictions applicable to that activity. A Fund will enter into reverse
repurchase agreements only when the Adviser 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. Each Fund does not intend to
invest more than ___% of its net assets in reverse repurchase agreements.
INDEXED SECURITIES. Emerging Markets Income Fund may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
These securities may be positively or negatively indexed, so that appreciation
of the reference instrument may produce an increase or a decrease in the
interest rate or value of the security at maturity. Thus, in addition to the
credit risk of the security's issuer, the Fund will bear the market risk of the
reference instrument.
BORROWING. Emerging Markets Income Fund and Latin America Fund are authorized to
borrow money for purposes of liquidity and to provide for redemptions and
distributions. Each Fund will borrow only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing. Borrowing by each Fund will involve special risk
considerations. Although the principal of each Fund's borrowings will be fixed,
a Fund's assets may change in value during the time a borrowing is outstanding,
thus increasing exposure to capital risk. Latin America Fund does not expect to
borrow for investment purposes, to increase return or leverage the portfolio.
In addition, Emerging Markets Income Fund anticipates borrowing
opportunistically up to 20% of its total assets (including the amount borrowed)
for investment purposes. The borrowings would constitute leverage, which is a
speculative characteristic. Leveraging will magnify declines as well as
increases in the net asset value of the common stock and in the yield of the
Fund's portfolio. If the income earned on the assets obtained with borrowed
funds exceeds the interest and other expenses paid on the borrowing, the Fund's
net income will be greater than if borrowings were not used. Conversely,
however, if the income on the assets is insufficient to cover the cost of
borrowing, the Fund's net income will be less than if borrowings were not used.
BRADY BONDS. Each Fund, with the exception of International Growth and Income
Fund, may invest in Brady Bonds, which are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the
Dominican Republic, Ecuador, Mexico, Morocco, Nigeria, the Philippines, Poland
and Uruguay.
Brady Bonds have been issued only recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the dollar) and are actively traded
in over-the-counter secondary markets. Dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds.
Brady Bonds are often viewed as having three or four valuation components: the
collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity, (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
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respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Emerging Markets Income Fund, Emerging
Markets Growth Fund and Latin America Fund may invest in fixed- and
floating-rate loans arranged through private negotiations between an issuer of
emerging market debt instruments and one or more financial institutions
("lenders"). Generally, a Fund's investments in loans are expected to take the
form of loan participations and assignments of portions of loans from third
parties.
When investing in a participation, a Fund will typically have the right to
receive payments only from the lender to the extent the lender receives payments
from the borrower, and not from the borrower itself. Likewise, a Fund typically
will be able to enforce its rights only through the lender, and not directly
against the borrower. As a result, the Fund will assume the credit risk of both
the borrower and the lender that is selling the participation.
When a Fund purchases assignments from lenders, it will acquire direct rights
against the borrower, but these rights and a Fund's obligations may differ from,
and be more limited than those held by the assigning lender.
Loan participations and assignments may be illiquid. Please refer to "Special
risk factors--Illiquid and restricted securities" for more information.
SECURITIES LENDING. International Growth and Income Fund may lend portfolio
securities to registered broker/dealers or other financial institutions as a
means of increasing its income. These loans may not exceed 33 1/3% of the Fund's
total assets taken at market value. Loans of portfolio securities will be
secured continuously by collateral consisting of cash, U.S. Government
securities, or liquid high grade debt obligations that are maintained at all
times in an amount at least equal to the current market value of the loaned
securities. The Fund will earn any interest or dividends paid on the loaned
securities and may share with the borrower some of the income received on the
collateral for the loan, or will be paid a premium for the loan. The risks of
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to registered broker/dealers or
other financial institutions deemed by the Adviser to be of good standing and
will not be made unless, in the judgment of the Adviser, the consideration to be
earned from such loans would justify the risk.
ILLIQUID AND RESTRICTED SECURITIES. Each Fund may invest a portion of its assets
in securities for which there is not an active trading market, or which have
resale restrictions. Such securities may have been acquired through private
placements (transactions in which the securities acquired have not been
registered with the SEC). These illiquid securities generally offer a higher
return than more readily marketable securities, but carry the risk that each
Fund may not be able to dispose of them at an advantageous time or price. Some
restricted securities purchased by each Fund, however, may be considered liquid
despite resale restrictions. The absence of a trading market can make it
difficult to ascertain a market value for illiquid securities. Disposing of
illiquid securities may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Fund to sell them promptly at an
acceptable price. Upon approval from a Fund's Board of Directors, the Adviser
may determine which Rule 144A securities will be considered liquid.
STRATEGIC TRANSACTIONS AND DERIVATIVES. Each Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
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In the course of pursuing these investment strategies, a Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all of the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect a 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 a Fund's portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities.
Some Strategic Transactions may also be used to enhance potential gain although
no more than 5% of a 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 a Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. A Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes and not for speculative purposes. Strategic
Transactions, including derivative contracts, have risks associated with them
including possible default by the other party to the transaction, illiquidity
and, to the extent the Adviser's view as to certain market movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. Use of put and call options may
result in losses to a Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
of appreciation a Fund can realize on its investments or cause a Fund to hold a
security it might otherwise sell. The use of currency transactions can result in
a Fund's incurring losses as a result of a number of factors including the
imposition of exchange controls, suspension of settlements or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of a Fund creates the possibility that losses on
the hedging instrument may be greater than gains in the value of a Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, a Fund might not be able to close out a transaction
without incurring substantial losses, if at all. Although the use of futures
contracts 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. The Strategic Transactions
that a Fund may use and some of their risks are described more fully in the
Funds' Statement of Additional Information.
ADDITIONAL INVESTMENT INFORMATION. It is anticipated that, under normal
circumstances, the portfolio turnover rate for Global Blue Chip Fund,
International Growth and Income Fund, Emerging Markets Growth Fund and Latin
America Fund will not exceed 75%. Emerging Markets Income Fund may have a
portfolio turnover rate that exceeds 100%. Higher portfolio turnover involves
correspondingly greater brokerage commissions or other transaction costs. Higher
portfolio turnover (100% or more) may result in the realization of greater net
short-term or long-term capital gains. See "Dividends and Taxes" in the
Statement of Additional Information.
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Each Fund has adopted certain fundamental policies which are described in the
Statement of Additional Information and cannot be changed without a vote of
shareholders and which are designed to reduce each Fund's investment risk.
Global Blue Chip Fund and International Growth and Income Fund have also adopted
fundamental policies which are designed to maintain the portfolio's diversity.
Policies of each Fund that are not incorporated into any of the fundamental
investment restrictions referred to above may be changed by the Board of
Directors of the Fund without shareholder approval.
As a matter of fundamental policy, the Funds may not borrow money except as
permitted under the 1940 Act and may not make loans except through the lending
of portfolio securities, the purchase of debt instruments or interests in
indebtedness or through repurchase agreements.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Funds' Statement of Additional
Information.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. The Funds retain the investment management firm of Scudder
Kemper Investments, Inc., (the "Adviser"), a Delaware corporation, to manage
each Fund's daily investment and business affairs subject to the policies
established by the Funds' Board of Directors. The Directors have overall
responsibility for the management of the Funds under Maryland law.
Under the Investment Management Agreement with the Adviser, dated
_______________, each Fund is responsible for all of its expenses, including
fees and expenses incurred in connection with membership in investment company
organizations; fees and expenses of a Fund's accounting agent; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Directors, officers and employees of the Corporation who are not affiliated with
the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians.
The Adviser receives an investment management fee from each Fund for these
services. The fee is payable monthly, provided that a 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. All of a
Fund's expenses are paid out of gross investment income.
The Adviser is located at 345 Park Avenue, New York, New York.
Zurich Insurance Company ("Zurich") has entered into a definitive agreement with
Scudder, Stevens & Clark, Inc. ("Scudder") pursuant to which Zurich will acquire
approximately 70% of Scudder. Upon completion of the transaction, Scudder will
change its name to Scudder Kemper Investments, Inc. ("Scudder Kemper"), and
Zurich Kemper Investments, Inc. ("ZKI") will be operated either as a subsidiary
of Scudder Kemper or as a part of Scudder Kemper. Consummation of the
transaction is subject to a number of contingencies. Because the transaction
would constitute an assignment of the Funds' investment management agreements
with ZKI and, where applicable, Rule 12b-1 agreements under the Investment
Company Act of 1940, it is anticipated that ZKI would seek approval of new
agreements by the Funds' boards and shareholders. If the contingencies are
timely met, the transaction is expected to close in the fourth quarter of 1997.
Zurich will own 69.5% of Scudder Kemper and senior employees of Scudder Kemper
will hold the remaining 30.5%. Scudder Kemper will be headquartered in New York
City and the chief executive officer of Scudder Kemper will be Edmond D.
Villani, Scudder's president and chief executive officer. Mr. Villani will also
join Zurich's Corporate Executive Board. A transition team comprised of
representatives from ZKI, Zurich, and Scudder has been formed to make
recommendations regarding combining the operations of Scudder and ZKI.
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A TEAM APPROACH TO INVESTING
Each Fund is managed by a team of investment professionals who each play an
important role in the Fund's management process. Team members work together to
develop investment strategies and select securities for each Fund's portfolio.
They are supported by the Adviser's large staff of economists, research
analysts, traders, and other investment specialists who work in the Adviser's
offices across the United States and abroad. The Adviser believes its team
approach benefits Fund investors by bringing together many disciplines and
leveraging its extensive resources.
(PORTFOLIO MANAGEMENT TEAMS TO BE ADDED)
The Funds each pay the Adviser an investment management fee, payable monthly, at
the annual rates shown below.
(THE FOLLOWING TO BE UPDATED)
Average Daily Net Assets
------------------------
$0 - $250 million..........
$250 million - $1 billion..
$1 billion - $2.5 billion..
$2.5 billion - $5 billion..
$5 billion - $7.5 billion..
$7.5 billion - $10 billion.
$10 billion - $12.5 billion
Over $12.5 billion.........
The expenses of the Fund, and of other investment companies investing in foreign
securities can be expected to be higher than for investment companies investing
primarily in domestic securities since the costs of operation are higher,
including custody and transaction costs for foreign securities and investment
management fees.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Zurich Kemper Distributors,
Inc. ("ZKDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, a [wholly
owned] subsidiary of [the Adviser], is the principal underwriter and distributor
of each Fund's shares and acts as agent of each Fund in the sale of its shares.
ZKDI bears all of its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. ZKDI provides
for the preparation of advertising or sales literature and bears the cost of
printing and mailing prospectuses to persons other than shareholders. ZKDI bears
the cost of qualifying and maintaining the qualification of Fund shares for sale
under the securities laws of the various states and each Fund bears the expense
of registering its shares with the SEC. ZKDI may enter into related selling
group agreements with various broker-dealers, including affiliates of ZKDI, that
provide distribution services to investors. ZKDI also may provide some of the
distribution services.
CLASS A SHARES. ZKDI 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," ZKDI retains the sales charge upon the purchase of shares and pays out
a portion of this sales charge or allows concessions or discounts to firms for
the sale of each Fund's Class A shares.
CLASS B SHARES. For its services under the Class B distribution plan, ZKDI
receives a fee from each Fund, payable monthly, at the annual rate of ___% of
average daily net assets of each Fund attributable to its Class B shares. This
fee is accrued daily as an expense of Class B shares. ZKDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class B Shares." ZKDI currently
compensates firms for sales of Class B shares at a commission rate of 3.75%.
CLASS C SHARES. For its services under the Class C distribution plan, ZKDI
receives a fee from each Fund, payable monthly, at the annual rate of ___% of
average daily net assets of each Fund attributable to its Class C shares. This
fee is accrued daily as an expense of Class C shares. ZKDI currently advances to
24
<PAGE>
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, ZKDI 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 ZKDI or a Fund.
ZKDI also receives any contingent deferred sales charges. See "Redemption or
Repurchase of Shares--Contingent Deferred Sales Charges--Class C Shares".
RULE 12B-1 PLANS. Since each distribution plan provides for fees payable as an
expense of each of the Class B shares and the Class C shares that are used by
ZKDI to pay for distribution services for those classes, each agreement is
approved and reviewed separately for the Class B shares and the Class C shares
in accordance with Rule 12b-1 under the 1940 Act, which regulates the manner in
which an investment company may, directly or indirectly, bear the expenses of
distributing its shares.
If a Rule 12b-1 Plan (the "Plan") for a class is terminated in accordance with
its terms, the obligation of a Fund to make payments to ZKDI pursuant to such
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for a Fund to pay any
expenses incurred by ZKDI 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 ZKDI for its expenses incurred.
ADMINISTRATIVE SERVICES. ZKDI also provides information and administrative
services for shareholders of each Fund pursuant to administrative services
agreements ("administrative agreements"). ZKDI may enter into related
arrangements with various financial services firms, such as broker-dealer firms
or banks ("firms"), that provide services and facilities for their customers or
clients who are shareholders of the Funds. Such administrative services and
assistance may include, but are not limited to, establishing and maintaining
shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding each Fund and its special
features, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. ZKDI bears all of its
expenses of providing services pursuant to the administrative agreement,
including the payment of any service fees. For services under the administrative
agreements, each Fund pays ZKDI a fee, payable monthly, at the annual rate of up
to ___% of average daily net assets of each of Class A, B and C shares of such
Fund. ZKDI then pays each firm a service fee at an annual rate of up to ___% of
net assets of each of Class A, B and C shares maintained and serviced by the
firm. Firms to which service fees may be paid include affiliates of ZKDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the Fund accounts maintained and serviced by the firm
commencing in the month following the month of purchase and the fee continues
until terminated by ZKDI or the Fund. The fees are calculated monthly and paid
quarterly.
CLASS B AND CLASS C SHARES. ZKDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of Class B and Class
C shares. For periods after the first year, ZKDI currently intends to pay firms
a service fee at a rate of up to 0.25% (calculated monthly and paid quarterly)
of the net assets attributable to each of Class B and Class C shares maintained
and serviced by the firm during such period. After the first year, a firm
becomes eligible for the quarterly service fee and the fee continues until
terminated by ZKDI or the Fund.
ZKDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for each Fund. Currently, the
administrative services fee payable to ZKDI is based only upon Fund assets in
accounts for which there is a firm listed on a Fund's records and it is intended
that ZKDI will pay all of the administrative services fee that it receives from
each Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of each Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which there is a firm of record. In addition, ZKDI may, from time
to time, from its own resources pay certain firms additional amounts for ongoing
administrative services and assistance provided to their customers and clients
who are shareholders of the Funds.
25
<PAGE>
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. ____________________,
as custodian, and ________________________________________________, as
sub-custodian, have custody of all securities and cash of each Fund maintained
in the United States. _______________________________________, as custodian, has
custody of all securities and cash of each Fund held outside the United States.
____ also is the Funds' transfer agent and dividend-paying agent. Pursuant to a
services agreement with ___________, Zurich Kemper Service Company, an affiliate
of [the Adviser], serves as "Shareholder Service Agent" of the Funds and, as
such, performs all of ____'s duties as transfer agent and dividend-paying agent.
For a description of transfer agent and shareholder service agent fees payable
to ____ and the Shareholder Service Agent, see "Investment Manager and
Underwriter" in the Statement of Additional Information.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes
net asset value for each Fund. Each Fund pays Scudder Fund Accounting
Corporation an annual fee equal to _______%.
PORTFOLIO TRANSACTIONS. The Adviser places all orders for purchases and sales of
a Fund's securities. Subject to seeking best execution of orders, it may
consider sales of shares of a Fund and other funds managed by the Adviser or its
affiliates as a factor in selecting broker-dealers. See "Portfolio Transactions"
in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS. Each of Emerging Markets Growth Fund, Global
Blue Chip Fund and Latin America Fund normally distributes annual dividends of
net investment income, and any net realized short-term and long-term capital
gains at least annually. Global Fund intends to distribute any dividends from
net investment income and any net realized capital gains after utilization of
capital loss carryforwards, if any, in November or December to prevent
application of federal excise tax. International Growth and Income Fund intends
to distribute dividends from its net investment income semiannually in June and
December. Emerging Markets Income Fund intends to distribute dividends from its
net investment income monthly. Both International Growth and Income and Emerging
Markets Income Fund intend to distribute net realized capital gains after
utilization of capital loss carryforwards, if any, in November or December.
Emerging Markets Growth Fund and Latin America Fund each intend to distribute
any dividends from net investment income and any net realized capital gains
after utilization of capital loss carryforwards, if any, in December.
Shareholders may be able to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the Fund to
foreign countries. Additional distributions may be made at a later date, if
necessary.
Dividends paid by a Fund with respect 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 amount for each
class.
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested in shares of the same class of another Kemper Fund at the net asset
26
<PAGE>
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain 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 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.
TAXES. Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, generally will not be liable for
federal income taxes to the extent its earnings are distributed. To so qualify,
the Fund must satisfy certain income, asset diversification and distribution
requirements annually. Dividends derived from net investment income and net
short-term capital gains are taxable to shareholders as ordinary income and
properly designated net long-term capital gain dividends are taxable to
shareholders as long-term capital gain regardless of how long the shares have
been held and whether received in cash or shares. Dividends declared in October,
November or December to shareholders of record as of a date in one of those
months and paid during the following January are treated as paid on December 31
of the calendar year declared. A portion of the dividends paid by the Funds may
qualify for the dividends received deduction available to corporate
shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. Thus, investors should
consider the tax implications of buying shares just prior to a dividend. The
price of shares purchased a that time includes the amount of the forthcoming
dividend, which nevertheless will be taxable to them.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss if held by the shareholder as a capital
asset, and may qualify for reduced tax rates applicable to certain capital
gains, depending upon the shareholder's holding period for the shares. Further
information relating to tax consequences is contained in the Statement of
Additional Information. Shareholders of a Fund may be subject to state, local
and foreign taxes on Fund distributions and dispositions of fund shares.
Shareholders should consult their own tax advisors regarding the particular tax
consequences of an investment in a Fund. Each Fund is required by law to
withhold 31% of taxable dividends and redemption proceeds paid to certain
shareholders who do not furnish a correct taxpayer identification number (in the
case of individuals, a social security number) and in certain other
circumstances. Any amounts so withheld are not an additional tax, and may be
applied against the affected shareholder's U.S. federal income tax liability.
A Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of a Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance. Shareholders
may be able to claim a credit or deduction on their income tax returns for their
pro rata portion of qualified taxes paid by the Fund to foreign countries.
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
27
<PAGE>
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.
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 the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
a Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of 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 Exchange is scheduled to be closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than money market instruments, are valued at prices
supplied by a Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
purchased with an original maturity of sixty days or less, maturing at par,
shall be valued at amortized cost, which the Board believes approximates market
value. If it is not possible to value a particular debt security pursuant to
these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of a Fund's Valuation Committee, the value of a portfolio
asset as determined in accordance with these procedures does not represent the
fair market value of the portfolio asset, the value of the portfolio asset is
taken to be an amount which, in the opinion of the Valuation Committee,
represents fair market value on the basis of all available information. The
value of other portfolio holdings owned by 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.
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<PAGE>
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------------------------- ------------------------ ----------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge None Initial sales charge waived or
of 5.75% of the public offering reduced for certain purchases
Class B Maximum contingent deferred 0.__% Shares convert to Class A
sales charge of 4% of redemption shares six years after issuance
proceeds; declines to zero
after six years
Class C Contingent deferred sales charge 0.__% No conversion feature
of 1% of redemption proceeds
for redemptions made during first
year after purchase
</TABLE>
The minimum initial investment for each class of each Fund is $1,000 and the
minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
INITIAL SALES CHARGE ALTERNATIVE--Class A Shares. The public offering price of
Class A shares for purchasers 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 Dealers as a
As a Percentage of Net Asset Percentage of
of Offering Price Value* Offering Price
----------------- ------ --------------
Amount of Purchase
<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
29
<PAGE>
$100,000 but less than $250,000. 3.50 3.63 3.00
$250,000 but less than $500,000. 2.60 2.67 2.25
$500,000 but less than $1 2.00 2.04 1.75
million.........................
$1 million and over............. .00** .00** ***
</TABLE>
----------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by ZKDI as discussed below.
Each Fund receives the entire net asset value of all its shares sold. ZKDI, 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, ZKDI may re-allow up to the full applicable sales charge, as shown
in the above table, during periods and for transactions specified in such notice
and such reallowances may be based upon attainment of minimum sales levels.
During periods when 90% or more of the sales charge is reallowed, such dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which the Adviser does not serve as investment manager and ZKDI
does not serve as Distributor ("non-Kemper Fund") provided that: (a) the
investor has previously paid either an initial sales charge in connection with
the purchase of the non-Kemper Fund shares redeemed or a contingent deferred
sales charge in connection with the redemption of the non-Kemper Fund shares,
and (b) the purchase of Fund shares is made within 90 days after the date of
such redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. ZKDI may in
its discretion compensate firms for sales of Class A shares under this privilege
at a commission rate of 0.50% of the amount of Class A shares purchased. The
redemption of the shares of the non-Kemper Fund is, for Federal income tax
purposes, a sale upon which a gain or loss may be realized.
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 other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a), a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
ZKDI may at 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 Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, ZKDI 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. 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 is also
applicable.
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<PAGE>
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, ZKDI may in its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to 0.25% of net assets attributable to such shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to shares purchased under this
privilege in the month after the month of purchase and the concession continues
until terminated by ZKDI. 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 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 ZKDI, for themselves or members of their
families. ZKDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares 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 investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with ZKDI 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 Fund, Inc. ("KVF") on September 8, 1995, and have
continuously owned shares of KVF (or a Kemper Fund acquired by exchange of KVF
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 ZKDI 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 ZKDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase 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 advisers registered under the 1940 Act and other financial services
firms that adhere to certain standards established by ZKDI, including a
requirement that such shares be sold for the benefit of their clients
participating in an investment advisory program under which such clients pay a
fee to the investment adviser or other firm for portfolio management and other
services. Such shares are sold for investment purposes and on the condition that
they will not be resold except through redemption or repurchase by the 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.
31
<PAGE>
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
ZKDI 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. ZKDI
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 of the Class B shares. The purpose of the conversion feature is to
relieve holders of Class B shares from the distribution services fee when they
have been outstanding long enough for ZKDI to have been compensated for
distribution related expenses. For purposes of conversion to Class A shares,
shares purchased through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's Fund account will be
converted to Class A shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." ZKDI 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, ZKDI 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. ZKDI is
compensated by each Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six years might consider Class B shares.
Investors who prefer not to pay an initial sales charge but who plan to redeem
their shares within six years might consider Class C shares. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other Kemper Mutual Funds
listed under "Special Features--Class A Shares--Combined Purchases" is in excess
of $5 million including purchases pursuant to the "Combined Purchases," "Letter
of Intent" and "Cumulative Discount" features described under "Special
Features." For more information about the three sales arrangements, consult your
financial representative or the Shareholder Service Agent. Financial services
firms may receive different compensation depending upon which class of shares
they sell.
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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 ZKDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. ZKDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
ZKDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a 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 Zurich
Kemper Service Company, (iii) the registered representative placing the trade is
a member of ProStar, a group of persons designated by ZKDI 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, ZKDI will, from
time to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Funds. Non cash compensation includes luxury merchandise and trips to
luxury resorts. 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 ZKDI.
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 in good order
by ZKDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by ZKDI 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"). Each Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.
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 ZKDI,
may receive compensation from the Funds through the Shareholder Service Agent
for these services. This prospectus should be read in connection with such
firms' material regarding their fees and services.
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Each Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, 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.
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 Zurich Kemper Service Company, 811
Main Street, Kansas City, Missouri 64105-2005 or to the firm from which they
received this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by a Fund's transfer agent, the
shareholder may redeem such shares by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet received
good payment (i.e., purchases by check, Express-Transfer or Bank Direct
Deposit), it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 10 days from receipt by 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 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, each Fund reserves the
right to redeem an account (and impose any applicable contingent deferred sales
charge) that falls below the minimum investment level, currently $1,000, as a
result of redemptions. Currently, Individual Retirement Accounts and employee
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benefit plan accounts are not subject to this procedure. A shareholder will be
notified in writing and will be allowed 60 days to make additional purchases to
bring the account value up to the minimum investment level before a Fund redeems
the shareholder's account. The investment required to reach that level may be
made at net asset value (without any initial sales charge in the case of Class A
shares).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record-keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. Each Fund reserves the right to terminate or modify
this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to ZKDI, which each Fund has authorized to act as its agent. There
is no charge by ZKDI with respect to repurchases; however, dealers or other
firms may charge customary commissions for their services. Dealers and other
financial services firms are obligated to transmit orders promptly. The
repurchase price will be the net asset value of the Fund next determined after
receipt of a request by ZKDI. 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 ZKDI prior to the close of ZKDI'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.
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EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of 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 the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by the Fund for up to seven days
if the Fund or the Shareholder 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. No Fund
is responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. Each Fund currently does not charge
the account holder for wire transfers. The account holder is responsible for any
charges imposed by the account holder's firm or bank. There is a $1,000 wire
redemption minimum (including any contingent deferred sales charge). To change
the designated account to receive wire redemption proceeds, send a written
request to the Shareholder Service Agent with signatures guaranteed as described
above or contact the firm through which shares of the Fund were purchased.
Shares purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may
not be redeemed by wire transfer until such shares have been owned for at least
10 days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. Each Fund reserves the right to terminate or
modify this privilege at any time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under 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 ZKDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
Contingent
Deferred
Sales
Year of Redemption After Purchase Charge
----------------------------------- -----------
First............................. 4%
Second............................ 3%
Third............................. 3%
Fourth............................ 2%
Fifth............................. 2%
Sixth............................. 1%
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The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in 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: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent, and (g) for redemption of shares by an employer sponsored employee
benefit plan that (i) offers funds in addition to Kemper Funds (i.e.,
"multi-manager"), and (ii) whose dealer of record has waived the advance of the
first year administrative service and distribution fees applicable to such
shares and agrees to receive such fees quarterly.
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of a Fund's Class B shares and that 16 months
later the value of the shares has grown by $1,000 through reinvested dividends
and by an additional $1,000 of share appreciation to a total of $12,000. If the
investor were then to redeem the entire $12,000 in share value, the contingent
deferred sales charge would be payable only with respect to $10,000 because
neither the $1,000 of reinvested dividends nor the $1,000 of share appreciation
is subject to the charge. The charge would be at the rate of 3% ($300) because
it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. ZKDI receives any contingent deferred sales
charge directly.
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REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of 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 other listed Kemper Mutual Funds. A shareholder of a Fund or
other Kemper Mutual Fund who redeems Class A shares purchased under the Large
Order NAV Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares") or Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in the same class of shares as
the case may be, of a Fund or of other Kemper Mutual Funds. The amount of any
contingent deferred sales charge also will be reinvested. These reinvested
shares will retain their original cost and purchase date for purposes of the
contingent deferred sales charge schedule. Also, a holder of Class B shares who
has redeemed shares may reinvest up to the full amount redeemed, less any
applicable contingent deferred sales charge that may have been imposed upon the
redemption of such shares, at net asset value in Class A shares of a Fund or of
the other Kemper Mutual Funds listed under "Special Features--Class A
Shares--Combined Purchases." Purchases through the reinvestment privilege are
subject to the minimum investment requirements applicable to the shares being
purchased and may only be made for Kemper Mutual Funds available for sale in the
shareholder's state of residence as listed under "Special Features--Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of shares of a Fund, the reinvestment in
shares of a Fund may be subject to the "wash sale" rules if made within 30 days
of the redemption, resulting in a postponement of the recognition of such loss
for federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
REDEMPTION IN KIND. Although it is each Fund's present policy to redeem in cash,
if the Board of Directors determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Directors may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and selling them could receive less than the redemption value of such securities
and in addition would incur certain transaction costs. Such a redemption would
not be as liquid as a redemption entirely in cash.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper U.S. Growth and Income Fund, Kemper Global Blue Chip
Fund, Kemper Latin America Fund, Kemper International Growth and Income Fund,
Kemper Emerging Markets Income Fund, Kemper Emerging Markets Growth Fund, Kemper
Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small
Capitalization Equity Fund, Kemper Income and Capital Preservation Fund, Kemper
Municipal Bond Fund, Kemper Diversified Income Fund, Kemper High Yield Series,
Kemper U.S. Government Securities Fund, Kemper International Fund, Kemper State
Tax-Free Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue
Chip Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are
subject to a limited offering period), Kemper Intermediate Municipal Bond Fund,
Kemper Cash Reserves Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate
Government Fund, Kemper Value+ Growth Fund, Kemper Value Fund, Inc., Kemper
Quantitative Equity Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian
Growth Fund and Kemper Aggressive Growth Fund ("Kemper Mutual Funds"). Except as
noted below, there is no combined purchase credit for direct purchases of shares
of Kemper Money Funds, Cash Equivalent Fund, Tax-Exempt California Money Market
Fund, Cash Account Trust, Investor's Municipal Cash Fund or Investors Cash Trust
("Money Market Funds"), which are not considered "Kemper Mutual Funds" for
purposes hereof. For purposes of the Combined Purchases feature described above
as well as for the Letter of Intent and Cumulative Discount features described
below, employer sponsored employee benefit plans using the subaccount record
keeping system made available through the Shareholder Service Agent may include:
(a) Money Market Funds as "Kemper Mutual Funds", (b) all classes of shares of
any Kemper Mutual Fund and (c) the value of any other plan investment, such as
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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 ZKDI. 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 are included in this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or ZKDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investor's
Municipal Cash Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with ZKDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Mutual Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.
CLASS B SHARES. Class B shares of a Fund and Class B shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of calculating the contingent deferred
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sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.
CLASS C SHARES. Class C shares of a Fund and Class C shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For determining whether there is a contingent deferred
sales charge that may be imposed upon the redemption of the Class C shares
received by exchange, they retain the cost and purchase date of the shares that
were originally purchased and exchanged.
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange through 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"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under common control, discretion or
advice, including without limitation accounts administered by a financial
services firm offering market timing, asset allocation or similar services. The
total value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis of such shares. Shareholders interested in exercising the exchange
privilege may obtain prospectuses of the other funds from dealers, other firms
or ZKDI. Exchanges may be accomplished by a written request to Zurich Kemper
Service Company, Attention: Exchange Department, P.O. Box 419557, Kansas City,
Missouri 64141-6557, or by telephone if the shareholder has given authorization.
Once the authorization is on file, the Shareholder Service Agent will honor
requests by telephone at 1-800-621-1048, subject to the limitations on liability
under "Redemption or Repurchase of Shares--General." Any share certificates must
be deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Exchanges may
only be made for funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Investor's Municipal Cash Fund is available for sale
only in New York, Connecticut, New Jersey and Pennsylvania. Except as otherwise
permitted by applicable regulations, 60 days' prior written notice of any
termination or material change will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the 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,
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savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Zurich Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Zurich Kemper Service Company, P.O. Box 419415,
Kansas City, Missouri 64141-6415. Termination by a shareholder will become
effective within thirty days after the Shareholder Service Agent has received
the request. A Fund may immediately terminate a shareholder's Plan in the event
that any item is unpaid by the shareholder's financial institution. The Funds
may terminate or modify this privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be redeemed
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in their first year following the purchase) under a systematic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
ZKDI 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 ZKDI can establish investor accounts
in any of the following types of retirement plans:
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o Individual Retirement Accounts ("IRAs") with _____ as custodian. This
includes Simplified Employee Pension Plan ("SEP") IRA accounts and
prototype documents.
o 403(b)(7) Custodial Accounts also with _____ as custodian. This type of
plan is available to employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from the Shareholder Service Agent upon request. The
brochures for plans with _____ as custodian describe the current fees payable to
_____ for its services as custodian. Investors should consult with their own tax
advisers before establishing a retirement plan.
PERFORMANCE
TO BE UPDATED
Each Fund may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B and Class C shares.
Each of these figures is based upon historical results and is not representative
of the future performance of any class of a particular Fund.
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 any such period has 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 may be compared to that of the Consumer Price Index or
various unmanaged indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's Composite Stock Price 500 Index, the
Russell 1000(R) Index, the Russell 1000(R) Growth Index, the Wilshire Large
Company Growth Index, the Wilshire 750 Mid Cap Company Growth Index, the
Standard & Poor's/Barra Value Index, Standard & Poor's/Barra Growth Index, the
Russell 1000(R) Value Index, the Europe/Australia/Far East Index, International
Finance Corporation's Latin America Investable Return Index, the Morgan Stanley
Capital International World Index, the J.P. Morgan Global Traded Bond Index, and
the Salomon Brothers World Government Bond Index. The performance of a Fund may
also be compared to the performance of other mutual funds or mutual fund indices
with similar objectives and policies as reported by independent mutual fund
reporting services such as Lipper Analytical Services, Inc. ("Lipper"). Lipper
performance calculations are based upon changes in net asset value with all
dividends reinvested and do not include the effect of any sales charges.
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, money
market funds and U.S. Treasury obligations. Bank product performance may be
based upon, among other things, the BANK RATE MONITOR National Index(TM) or
various certificate of deposit indexes. Money market fund performance may be
based upon, among other things, the IBC/Donoghue's Money Fund Report(R) or Money
Market Insight(R), reporting services on money market funds. Performance of U.S.
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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.
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. The relative performance of growth stocks versus
value stocks may also be discussed.
Because some or all each Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part the Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Funds. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which any of the Funds invest, including, but not limited
to, the following: population growth, gross domestic product, inflation rate,
average stock market price-earnings ratios and the total value of stock markets.
Sources for such statistics may include official publications of various foreign
governments and exchanges.
Each Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included. Class B shares and Class C shares are sold at net
asset value. Redemptions of Class B shares within the first six years after
purchase may be subject to a contingent deferred sales charge that ranges from
4% during the first year to 0% after six years. Redemption of Class C shares
within the first year after purchase may be subject to a 1% contingent deferred
sales charge. Average annual total return figures do, and total return figures
may, include the effect of the contingent deferred sales charge for the Class B
shares and Class C shares that may be imposed at the end of the period in
question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included.
Each Fund's returns and net asset value will fluctuate. 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 concerning each Fund's performance appears in the Statement of
Additional Information. Additional information about each Fund's performance
also appears in its Annual Report to Shareholders, which is available without
charge from the Fund.
FUND ORGANIZATION AND CAPITAL STRUCTURE
The Funds are series of the Corporation, an open-end management investment
company registered under the 1940 Act. The Corporation was organized as a
corporation under the laws of Maryland on October 2, 1997.
The Corporation may issue an indefinite amount of shares of capital stock, all
having $.001 par value, which may be divided by the Board of Directors into
classes of shares. Initially, 100,000,000 shares have been classified for each
of the Corporation's five series. Currently, each Fund offers three classes of
shares. These are Class A, Class B and Class C shares. The Board of Directors
may authorize the issuance of additional classes and additional series or
Portfolios if deemed desirable, each with its own investment objectives,
policies and restrictions. Since the Corporation may offer multiple Portfolios,
each is known as a "series company." Shares of a Portfolio have equal
noncumulative voting rights except that Class B and Class C shares have separate
and exclusive voting rights with respect to each such class' Rule 12b-1 Plan.
Shares of each class also have equal rights with respect to dividends, assets
and liquidation of such Fund subject to any preferences (such as resulting from
different Rule 12b-1 distribution fees), rights or privileges of any classes of
shares of the Fund. Shares of each Fund are fully paid and nonassessable when
issued, are transferable without restriction and have no preemptive or
conversion rights. If shares of more than one Portfolio are outstanding,
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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 directors or when voting by class is appropriate.
Each Fund's activities are supervised by the Corporation's Board of Directors.
The Corporation is not required to hold and has no current intention of holding
annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment management contract. Subject to the Articles
of Incorporation, shareholders may remove Directors. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.
44
<PAGE>
Zurick Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606-5808
KEF-1 12/96 (Recycled Logo) printed on
recycled paper
Kemper
Global/International
Funds
December 17, 1997
Kemper Global Blue Chip Fund
Kemper International Growth and Income Fund
Kemper Emerging Markets Income Fund
Kemper Emerging Markets Growth Fund
Kemper Latin America Fund
KEMPER FUNDS LOGO
<PAGE>
KEMPER GLOBAL/INTERNATIONAL
FUNDS STATEMENT OF ADDITIONAL INFORMATION
December 17, 1997
Kemper Global Blue Chip Fund ("Global Blue Chip Fund")
Kemper International Growth and Income Fund ("International Growth and Income
Fund")
Kemper Emerging Markets Income Fund ("Emerging Markets Income Fund")
Kemper Emerging Markets Growth Fund ("Emerging Markets Growth Fund")
Kemper Latin America Fund ("Latin America Fund")
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for each of the Funds listed above (the
"Funds"), each a series of Kemper Global/International Series, Inc. (the
"Corporation"). All five Funds are open-end management investment companies. It
should be read in conjunction with the combined prospectus of the Funds dated
December 17, 1997. A prospectus may be obtained without charge from the Funds.
---------------
TABLE OF CONTENTS
Page
Investment Restrictions B-1
Investment Policies and Techniques B-10
Portfolio Transactions B-16
Investment Manager and Underwriter B-18
Purchase and Redemption of Shares B-25
Dividends, Distributions and Taxes B-26
Performance B-28
Officers and Directors B-42
Shareholder Rights B-47
Appendix -- Ratings of Fixed Income Investments B-50
The Statement of Assets and Liabilities as of December 17, 1997 and the Report
of Independent Accountants for each Fund will be filed by amendment.
Scudder Kemper Investments, Inc. (the "Adviser") serves as each
Fund's investment manager.
KEF-13 12/96 (Recycled Logo) printed on recycled paper
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which,
together with the fundamental policies of such Fund, cannot be changed without
approval of a majority of its outstanding voting shares. As defined in the
Investment Company Act of 1940, as amended (the "1940 Act") this means the
lesser of the vote of (a) 67% of the shares of the Fund present at a meeting
where more than 50% of the outstanding shares are present in person or by proxy
or (b) more than 50% of the outstanding shares of the Fund.
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<PAGE>
As a matter of fundamental policy, each Fund will not:
(a) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(b) issue senior securities, except as permitted under the 1940 Act
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time; or
(c) purchase physical commodities or contracts relating to physical
commodities;
(d) engage in the business of underwriting securities issued by
others, except to the extent that a Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(e) 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 a Fund reserves freedom of action to hold and to sell real
estate acquired as a result of the Fund's ownership of
securities; or;
(f) make loans to other persons except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with a Fund's investment objective and
policies may be deemed to be loans.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond that specified limit resulting from a
change in values or net assets will not be considered a violation.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Kemper Global Blue Chip Fund (the "Global Blue Chip Fund") seeks
long-term growth of capital through a diversified portfolio of marketable
securities, primarily equity securities, including common stocks, preferred
stocks and debt securities convertible into common stocks. Kemper International
Growth And Income Fund (the "International Growth and Income Fund") seeks
long-term growth of capital and current income primarily from foreign equity
securities. Kemper Emerging Markets Income Fund (the "Emerging Markets Income
Fund") has dual investment objectives. The Fund's primary investment objective
is to provide investors with high current income. As a secondary objective, the
Fund seeks long-term capital appreciation. Kemper Emerging Markets Growth Fund
(the "Emerging Markets Growth Fund") seeks long-term growth of capital primarily
through equity investment in emerging markets around the globe. Kemper Latin
America Fund (the "Latin America Fund") seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin American
issuers.
Each Fund may engage in futures, options and other derivative transactions
("Strategic Transactions and Derivatives") in accordance with its respective
investment objectives and policies. Each such Fund intends to engage in such
transactions if it appears to the investment manager to be advantageous for the
Fund to do so in order to pursue its investment objective, to hedge against the
effects of fluctuation interest rates, and also to hedge against the effects of
market risks, but not for speculative purposes. The use of futures and options,
and possible benefits and attendant risks, are discussed below along with
information concerning other investment policies and techniques.
REPURCHASE AGREEMENTS. Each Fund, except International Growth and Income Fund
and Emerging Markets Income Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, any foreign bank or with any
domestic or foreign broker/dealer which is recognized as a reporting government
securities dealer, if the creditworthiness of the bank or broker/dealer has been
determined by the Adviser to be at least as high as that of other obligations a
Fund may purchase.
International Growth and Income Fund and Emerging Markets Income Fund may enter
into repurchase agreements with any member bank of the Federal Reserve System
and any broker-dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or brokerdealer has been determined
by the Adviser to be at least as high as that of other obligations the Fund may
purchase or to be at least equal to that of issuers of commercial paper rated
within the two highest grades assigned by Moody's Investor Services ("Moody's")
or Standard & Poor's Corporation ("S&P").
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A repurchase agreement provides a means for a Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., a Fund) acquires a debt security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities is kept at least equal to the repurchase price
on a daily basis. The repurchase price may be higher than the purchase price,
the difference being income to a Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to a Fund together with the
repurchase price on repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
physically held by the Fund's custodian or in the Federal Reserve Book Entry
system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan
from a Fund to the seller of the Obligation subject to the repurchase agreement
and is therefore subject to that Fund's investment restrictions applicable to
loans. It is not clear whether a court would consider the Obligation purchased
by a Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for the loan by a 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, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and a 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, a Fund would be at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt instrument purchased for a Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation, 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. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security. However, if the market value of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), a Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
For Global Fund and Emerging Markets Income Fund, a repurchase agreement with
foreign banks may be available with respect to government securities of the
particular foreign jurisdiction, and such repurchase agreements involve risks
similar to repurchase agreements with U.S. entities.
REPURCHASE COMMITMENTS. Emerging Markets Income Fund and Latin America Fund may
enter into repurchase commitments with any party deemed creditworthy by the
Adviser, including foreign banks and broker/dealers, if the transaction is
entered into for investment purposes and the counterparty's creditworthiness is
at least equal to that of issuers of securities which a Fund may purchase. Such
transactions may not provide a Fund with collateral marked-to-market during the
term of the commitment.
DEBT SECURITIES. Each Fund may purchase "investment-grade" bonds, which are
those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Adviser. Bonds
rated Baa or BBB may have speculative elements as well as investment-grade
characteristics.
When the Adviser believes that it is appropriate to do so in order to achieve
the Fund's objective of long-term growth and current income, International
Growth and Income Fund may invest up to 20% of its net assets in debt securities
including bonds of foreign governments, supranational organizations and private
issuers, including bonds denominated in the ECU. Portfolio debt investments will
be selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund may also invest up to 5% of its total assets in
debt securities which are rated below investment-grade, that is, rated below Baa
by Moody's or below BBB by S&P and unrated securities, which usually entail
greater risk (including the possibility of default or bankruptcy of the issuers
of such securities), generally involve greater volatility of price and risk of
principal and income, and may be less liquid, than securities in the higher
rating categories.
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Global Fund may not invest more than 5% of its total assets in securities rated
Baa/BBB or lower and in unrated securities of equivalent quality in the
Adviser's judgment. Global Fund may invest in debt securities which are rated as
low as C by Moody's or D by S&P. Such securities may be in default with respect
to payment of principal or interest.
Emerging Markets Income Fund invests predominantly in debt securities that are
rated lower than Baa/BBB and in unrated securities judged to be of equivalent
quality as determined by the Adviser. On occasion, the Fund may invest up to 5%
of its net assets in non-performing securities rated as low as C by Moody's or D
by S&P. Such securities may be in default with respect to payment of principal
or interest.
Latin America Fund (subject to a limit of no more than 10% of its total assets
invested in bonds rated B or lower) and Emerging Markets Growth Fund may each
also purchase debt securities which are rated below investment-grade and may
invest in securities which are rated C by Moody's or D by S&P or securities of
comparable quality in the Adviser's judgment. Such securities may be in default
with respect to payment of principal or interest. Such securities carry a high
degree of risk and are considered speculative.(See "Appendix").
Emerging Markets Growth Fund will not purchase the securities of any issuer if,
as a result, more than 35% of the Fund's total assets would be invested in below
investment-grade securities or unrated securities of equivalent quality.
The Adviser expects that a significant portion of any of the Emerging Markets
Income Fund and Emerging Markets Growth Fund's bond investments will be
purchased at a discount to par value. To the extent developments in emerging
markets result in improving credit fundamentals and rating upgrades for
countries in emerging markets, the Adviser believes that there is the potential
for capital appreciation as the improving fundamentals become reflected in the
price of the debt instruments. The Adviser also believes that a country's
sovereign credit rating (with respect to foreign currency denominated issues)
acts as a "ceiling" on the rating of all debt issuers from that country. Thus,
the ratings of private sector companies cannot be higher than that of their home
countries. The Adviser believes, however, that many companies in emerging market
countries, if rated on a stand alone basis without regard to the rating of the
home country, possess fundamentals that could justify a higher credit rating,
particularly if they are major exporters and receive the bulk of their revenues
in U.S. dollars or other hard currencies. The Adviser seeks to identify such
opportunities and benefit from this type of market inefficiency.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Trading in debt obligations ("sovereign debt")
issued or guaranteed by Latin American governments or their agencies or
instrumentalities ("governmental entities") involves a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
willing or able to repay the principal and/or interest when due in accordance
with the terms of such obligations. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, dependence on expected
disbursements from third parties, the governmental entity's policy towards the
International Monetary Fund and the political constraints to which a
governmental entity may be subject. As a result, governmental entities may
default on their sovereign debt. Holders of sovereign debt (including Emerging
Markets Income Fund and Latin America Fund) may be requested to participate in
the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
HIGH YIELD, HIGH RISK SECURITIES. Below investment grade securities (rated below
Baa by Moody's and below BBB by S&P) or unrated securities of equivalent quality
in the Adviser's judgment, carry a high degree of risk (including the
possibility of default or bankruptcy of the issuers of such securities),
generally involve greater volatility of price and risk of principal and income,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. The lower the ratings of such debt securities, the
greater their risks render them like equity securities. See the Appendix to this
Statement of Additional Information for a more complete description of the
ratings assigned by ratings organizations and their respective characteristics.
An economic downturn could disrupt the high-yield market and impair the ability
of issuers to repay principal and interest. Also, an increase in interest rates
would likely have a greater adverse impact on the value of such obligations than
on higher quality debt securities. During an economic downturn or period of
rising interest rates, highly leveraged issues may experience financial stress
which could adversely affect their ability to service their principal and
interest payment obligations. Prices and yields of high-yield securities will
fluctuate over time and, during periods of economic uncertainty, volatility of
high-yield securities may adversely affect a Fund's net asset value. In
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addition, investments in high-yield zero coupon or pay-in-kind bonds, rather
than income-bearing high-yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high-yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may limit
the ability of a Fund to accurately value high-yield securities in its portfolio
and to dispose of those securities. Adverse publicity and investor perceptions
may decrease the values and liquidity of high-yield securities. These securities
may also involve special registration responsibilities, liabilities and costs,
and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of a Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
recent legislation restricts the issuer's tax deduction for interest payments on
these securities. Such legislation may significantly depress the prices of
outstanding securities of this type. For more information regarding tax issues
related to high-yield securities (see "TAXES").
ILLIQUID AND RESTRICTED SECURITIES. Each Fund may invest a portion of its assets
in securities for which there is not an active trading market including
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933 or which are otherwise not
readily marketable. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities" or "not readily
marketable," i.e., securities which cannot be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") or the
availability of an exemption from registration (such as Rules 144 or 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale.
The absence of a trading market can make it difficult to ascertain a market
value for illiquid and restricted securities. Disposing of illiquid and
restricted securities may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Fund to sell them promptly at an
acceptable price. Each Fund may have to bear the extra expense of registering
such securities for resale and the risk of substantial delay in effecting such
registration. Also market quotations are less readily available. The judgment of
the Adviser may at times play a greater role in valuing these securities than in
the case of unrestricted securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the 1933 Act. A Fund may be deemed to be an "underwriter" for
purposes of the 1933 Act when selling restricted securities to the public, and
in such event a Fund may be liable to purchasers of such securities if the
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
ZERO COUPON SECURITIES. Each Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
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will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as a Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. Each Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if a Fund is "diversified"
under the 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
CONVERTIBLE SECURITIES. Each 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 a Fund may invest are either fixed income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
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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)). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
INDEXED SECURITIES. Emerging Markets Income Fund may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
Most indexed securities have maturities of three years or less.
Indexed securities differ from other types of debt securities in which the Fund
may invest in several respects. First, the interest rate or, unlike other debt
securities, the principal amount payable at maturity of an indexed security may
vary based on changes in one or more specified reference instruments, such as an
interest rate compared with a fixed interest rate or the currency exchange rates
between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).
Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
FOREIGN CURRENCIES. With the exception of Emerging Markets Income Fund, each
Fund has foreign currency exposure. Because investments in foreign securities
usually will involve currencies of foreign countries, and because a Fund may
hold funds in bank deposits in foreign currencies during the completion of
investment programs and may purchase foreign currency, foreign currency futures
contracts, and options on foreign currencies and foreign currency futures
contracts, the value of the assets of a Fund as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. In particular, many Latin American
currencies have experienced significant devaluation relative to the dollar.
Although each 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. Each 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.
Because a Fund normally will be invested in both U.S. and foreign securities
markets, changes in the Fund's share price may have a low correlation with
movements in the U.S. markets. A Fund's share price will reflect the movements
of both the different stock and bond markets in which it is invested and of the
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currencies in which the investments are denominated; the strength or weakness of
the U.S. dollar against foreign currencies may account for part of the Fund's
investment performance. U.S. and foreign securities markets do not always move
in step with each other, and the total returns from different markets may vary
significantly. The Funds invest in many securities markets around the world in
an attempt to take advantage of opportunities wherever they may arise.
DEPOSITARY RECEIPTS. International Growth and Income Fund, Emerging Markets
Growth Fund and Latin America Fund may invest directly in securities of emerging
country issuers through sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts
("IDRs") and other types of Depositary Receipts (which, together with ADRs, GDRs
and IDRs are hereinafter referred to as "Depositary Receipts"). Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of unsponsored Depositary Receipts are not obligated to disclose
material information in the 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 typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may be issued by
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 each Fund's
investment policies, a Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts other than those denominated in U.S. dollars
will be subject to foreign currency exchange rate risk. Certain Depositary
Receipts may not be listed on an exchange and therefore may be illiquid
securities.
LENDING OF PORTFOLIO SECURITIES. International Growth and Income Fund may lend
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 and liquid assets maintained on a current basis at an amount
at least equal to the market value and accrued interest of the securities
loaned. Each 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 will continue to receive the
equivalent of any distributions paid by the issuer on the securities loaned and
will also receive compensation based on investment of the collateral. The risks
in lending securities, as with other extensions of secured credit, consist of a
possible delay in recovery or even a loss of rights in the collateral should the
borrower of the securities fail financially. Loans will only be made to firms
deemed by the Adviser to be of good standing, and will not be made unless, in
the judgment of the Adviser, the consideration to be earned from such loans
would justify the risk. The value of the securities loaned will not exceed 33
1/3% of the value of a Fund's total assets at the time any loan is made. Upon
approval from the Board of Directors, each of the other Funds may seek to
increase its net income by lending portfolio securities.
WHEN ISSUED SECURITIES. Emerging Markets Income Fund, Emerging Markets Growth
Fund and Latin America Fund may from time to time purchase securities on a
"when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when- issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by a Fund
to the issuer and no interest accrues to the Fund. To the extent that assets of
a Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income; however, it is the Fund's intention to be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued or forward delivery securities may be sold prior to the
settlement date, a Fund intends to purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time a Fund makes the commitment to purchase a security on a when-issued
or forward delivery basis, it will record the transaction and reflect the value
of the security in determining its net asset value. At the time of settlement,
the market value of the when-issued or forward delivery securities may be more
or less than the purchase price. A Fund does not believe that its net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis.
BRADY BONDS. Each Fund, with the exception of International Growth and Income
Fund, may invest in Brady Bonds, which are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Bulgaria, Brazil, Costa Rica,
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Dominican Republic, Ecuador, Jordan, Mexico, Morocco, Nigeria, the Philippines,
Poland, and Uruguay.
Brady Bonds have been issued only recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the U.S. dollar) and are actively
traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the bonds. Interest
payments on many Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's rolling interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
SOVEREIGN DEBT. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Emerging Markets Income Fund, Emerging
Markets Growth Fund and Latin America Fund may invest in fixedand floating-rate
loans ("Loans") arranged through private negotiations between an issuer of
emerging market debt instruments and one or more financial institutions
("Lenders"). Each Fund's investments in Loans are expected in most instances to
be in the form of participations in Loans ("Participations") and assignments of
portions of Loans ("Assignments") from third parties. Participations typically
will result in a Fund having a contractual relationship only with the Lender and
not with the borrower. Each Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and a Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result, a
Fund will assume the credit risk of both the borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender selling
a Participation, a Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. Each Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the borrower is determined by the Adviser to be creditworthy.
When a Fund purchases Assignments from Lenders, it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by a Fund as the purchaser of an
Assignment may differ from, and may be more limited than, those held by the
assigning Lender.
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Each Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for these obligations typically exists, each Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on a Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for a Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
FOREIGN SECURITIES. Each Fund is designed for investors who can accept currency
and other forms of international investment risk. In an attempt to eliminate
currency risk, however, Emerging Markets Income Fund invests exclusively in U.S.
dollar-denominated debt securities, "hard currency" denominated debt securities,
or those that are fully hedged back into the U.S. dollar. The Adviser believes
that diversification of assets on an international basis decreases the degree to
which events in any one country, including the U.S., will affect an investor's
entire investment holdings. In certain periods since World War II, many leading
foreign economies and foreign stock market indices have grown more rapidly than
the U.S. economy and leading U.S. stock market indices, although there can be no
assurance that this will be true in the future.
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect a 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. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause that Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a Fund
due to subsequent declines in value of the portfolio security or, if a Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. Payment for securities without delivery may be required in
certain foreign markets. Fixed commissions on some foreign 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 Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. Further, a Fund may encounter difficulties or be unable to pursue
legal remedies and obtain judgments in foreign courts. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed companies than in the U.S. It may be more difficult for the Fund's agents
to keep currently informed about corporate actions which may affect the prices
of portfolio securities. Communications between the U.S. and foreign countries
may be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign countries, there is the
possibility of nationalization, expropriation, the imposition of withholding or
confiscatory taxes, political, social, or economic instability, or diplomatic
developments which could affect United States investments in those countries.
Investments in foreign securities may also entail certain risks, such as
possible currency blockages or transfer restrictions, and the difficulty of
enforcing rights in other countries. Payment for securities without delivery may
be required in certain foreign markets. 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.
Many of the currencies of Eastern European countries have experienced a steady
devaluation relative to western currencies. Any future devaluation may have a
detrimental impact on any investments made by the Fund in Eastern Europe. The
currencies of most Eastern European countries are not freely convertible into
other currencies and are not internationally traded. The Fund will not invest
its assets in non-convertible fixed income securities denominated in currencies
that are not freely convertible into other currencies at the time the investment
is made.
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These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of each Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, none of the Funds will invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
INVESTING IN EMERGING MARKETS. Each Fund, with the exception of International
Growth and Income Fund, may invest in securities of issuers in emerging markets.
Most emerging securities markets may have substantially less volume and are
subject to less government supervision than U.S. securities markets. Securities
of many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. In addition, there is less regulation
of securities exchanges, securities dealers, and listed and unlisted companies
in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have 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
cash is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in U.S. securities.
Such transactions also involve additional costs for the purchase or sale of
foreign currency.
Foreign investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging markets debt obligations and
increase the costs and expenses of a Fund. Certain emerging markets require
prior governmental approval of investments by foreign persons, limit the amount
of investment by foreign persons in a particular company, limit the investment
by foreign persons only to a specific class of securities of a company that may
have less advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on foreign
investors. Certain emerging markets may also restrict investment opportunities
in issuers in industries deemed important to national interest.
Certain emerging markets 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. A 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, a Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. Political changes in emerging market countries may
affect the willingness of an emerging market country governmental issuer to make
or provide for timely payments of its obligations. The country's economic
status, as reflected, among other things, in its inflation rate, the amount of
its external debt and its gross domestic product, also affects its ability to
honor its obligations. While each Fund manages its assets in a manner that will
seek to minimize the exposure to such risks, and will further reduce risk by
owning the bonds of many issuers, there can be no assurance that adverse
political, social or economic changes will not cause a Fund to suffer a loss of
value in respect of the securities in the Fund's portfolio.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for a Fund's securities in such markets may
not be readily available. The Corporation may suspend redemption of its shares
for any period during which an emergency exists, as determined by the Securities
12
<PAGE>
and Exchange Commission (the "SEC"). Accordingly if a Fund believes that
appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from
the Fund's identification of such condition until the date of the SEC action,
the Fund's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Corporation's Board of
Directors. Volume and liquidity in most foreign markets are less than in the
U.S., and securities of many foreign companies are less liquid and more volatile
than securities of comparable U.S. companies. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of business and industry practices, securities
exchanges, brokers, dealers and listed companies than in the U.S. Mail service
between the U.S. and foreign countries may be slower or less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. In addition, with
respect to certain emerging markets, there is the possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments which could affect a Fund's investments in those countries.
Moreover, individual emerging market economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. The chart below sets forth the risk ratings of
selected emerging market countries' sovereign debt securities.
TO BE UPDATED
Sovereign Risk Ratings for Selected Emerging Market Countries as of 2/19/97
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)
Country Moody's Standard &
Poor's
Chile Baa1 A-
Turkey Ba3 B+
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Baa3 BBB-
Colombia Baa3 BBB-
Venezuela Ba2 B
Morocco NR NR
Argentina B1 BB-
Brazil B1 B+
Poland Baa3 BBB-
Ivory Coast NR NR
A 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 fixedincome security owned
by a 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. A Fund's ability to
enforce its rights against private issuers may be limited. The ability to attach
assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements. With four exceptions, (Panama, Cuba, Costa Rica and Yugoslavia), no
sovereign emerging markets borrower has defaulted on an external bond issue
since World War II.
Income from securities held by a Fund could be reduced by a withholding tax on
the source or other taxes imposed by the emerging market countries in which the
Fund makes its investments. A Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the Fund or to
entities in which the Fund has invested. The Adviser will consider the cost of
any taxes in determining whether to acquire any particular investments, but can
provide no assurance that the taxes will not be subject to change.
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Many emerging markets have experienced substantial, and, in some periods,
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies. Emerging market
governmental issuers are among the largest debtors to commercial banks, foreign
governments, international financial organizations and other financial
institutions. Certain emerging market governmental issuers have not been able to
make payments of interest on or principal of debt obligations as those payments
have come due. Obligations arising from past restructuring agreements may affect
the economic performance and political and social stability of those issuers.
Governments of many emerging market countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given country. As a result, government actions in the future could have a
significant effect on economic conditions in emerging markets, which in turn,
may adversely affect companies in the private sector, general market conditions
and prices and yields of certain of the securities in a Fund's portfolio.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments have occurred frequently over
the history of certain emerging markets and could adversely affect a 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 on inflows of foreign investment. The access of emerging markets to these
forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of emerging market country
governmental issuers to make payments on their obligations. In addition, the
cost of servicing emerging market debt obligations can be affected by a change
in international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.
INVESTING IN LATIN AMERICA. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, a Fund
could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the U.S. Disclosure and regulatory standards are in many respects less
stringent than U.S. standards. Furthermore, there is a lower level of monitoring
and regulation of the markets and the activities of investors in such markets.
The limited size of many Latin American securities markets and limited trading
volume in the securities of Latin American issuers compared to volume of trading
in the securities of U.S. issuers could cause prices to be erratic for reasons
apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
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<PAGE>
Changes in the value of Latin American currencies against the U.S.
dollar may result in corresponding changes in the U.S. dollar value of
the Fund's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
Latin American countries may restrict the free conversion of their currencies
into other currencies. Further, certain Latin American currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to a Fund
at a higher rate than those imposed by other foreign countries. This may reduce
a Fund's investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are among
the world's largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared moratoria on the payment
of principal and/or interest on outstanding debt. Investment in sovereign debt
can involve a high degree of risk. The governmental entity that controls the
repayment of sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt. Holders of sovereign debt,
including the Fund, may be requested to participate in the rescheduling of such
debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which defaulted sovereign debt may be collected in
whole or in part. Latin America is a region rich in natural resources such as
oil, copper, tin, silver, iron ore, forestry, fishing, livestock and
agriculture. The region has a large population (roughly 300 million)
representing a large domestic market. Economic growth was strong in the 1960s
and 1970s, but slowed dramatically (and in some instances was negative) in the
1980s as a result of poor economic policies, higher international interest
rates, and the denial of access to new foreign capital. Although a number of
Latin American countries are currently experiencing lower rates of inflation and
higher rates of real growth in gross domestic product than they have in the
past, other Latin American countries continue to experience significant
problems, including high inflation rates and high interest rates. Capital flight
has proven a persistent problem and external debt has been forcibly
restructured. Political turmoil, high inflation, capital repatriation
restrictions, and nationalization have further exacerbated conditions.
Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect a Fund's investments in this region.
Changes in political leadership, the implementation of market oriented economic
policies, such as privatization, trade reform and fiscal and monetary reform are
among the recent steps taken to renew economic growth. External debt is being
restructured and flight capital (domestic capital that has left home country)
has begun to return. Inflation control efforts have also been implemented. Free
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Trade Zones are being discussed in various areas around the region, the most
notable being a free zone among Mexico, the U.S. and Canada and another zone
among four countries in the southernmost point of Latin America. Currencies are
typically weak, but most are now relatively free floating, and it is not unusual
for the currencies to undergo wide fluctuations in value over short periods of
time due to changes in the market.
INVESTING IN THE PACIFIC BASIN. Economies of individual Pacific Basin countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.
With respect to the Peoples Republic of China and other markets in which a Fund
may participate, there is the possibility of nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments that could adversely impact a Pacific
Basin country or the Fund's investment in the debt of that country. Trading
volume on Pacific Basin stock exchanges outside of Japan, although increasing,
is substantially less than in the U.S. stock market. Further, securities of some
Pacific Basin companies are less liquid and more volatile than securities of
comparable U.S. companies. Fixed commissions on Pacific Basin stock 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 and may be able to purchase securities in which the Fund may invest
on other stock exchanges where commissions are negotiable. Foreign companies,
including Pacific Basin companies, are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. Consequently,
there may be less publicly available information about such companies than about
U.S. companies. Moreover, there is generally less government supervision and
regulation in the Pacific Basin than in the U.S.
These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with the foregoing considerations through continuous professional management.
INVESTING IN EUROPE. Most Eastern European nations, including Hungary, Poland,
Czech Republic, Slovak Republic, and Romania have had centrally planned,
socialist economies since shortly after World War II. A number of their
governments, including those of Hungary, the Czech Republic, and Poland are
currently implementing or considering reforms directed at political and economic
liberalization, including efforts to foster multiparty political systems,
decentralize economic planning, and move toward free market economies. At
present, no Eastern European country has a developed stock market, but Poland,
Hungary, and the Czech Republic have small securities markets in operation.
Ethnic and civil conflict currently rage through the former Yugoslavia. The
outcome is uncertain.
Both the European Community (the "EC") and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.
The conditions that have given rise to these developments are changeable, and
there is no assurance that reforms will continue or that their goals will be
achieved.
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Portugal is a genuinely emerging market which has experienced rapid growth since
the mid-1980s, except for a brief period of stagnation over 1990- 91. Portugal's
government remains committed to privatization of the financial system away from
one dependent upon the banking system to a more balanced structure appropriate
for the requirements of a modern economy. Inflation continues to be about three
times the EC average.
Economic reforms launched in the 1980s continue to benefit Turkey in the 1990s.
Turkey's economy has grown steadily since the early 1980s, with real growth in
per capita Gross Domestic Product (the "GDP") increasing more than 6% annually.
Agriculture remains the most important economic sector, employing approximately
55% of the labor force, and accounting for nearly 20% of GDP and 20% of exports.
Inflation and interest rates remain high, and a large budget deficit will
continue to cause difficulties in Turkey's substantial transformation to a
dynamic free market economy.
Like many other Western economies, Greece suffered severely from the global oil
price hikes of the 1970s, with annual GDP growth plunging from 8% to 2% in the
1980s, and inflation, unemployment, and budget deficits rising sharply. The fall
of the socialist government in 1989 and the inability of the conservative
opposition to obtain a clear majority have led to business uncertainty and the
continued prospects for flat economic performance. Once Greece has sorted out
its political situation, it will have to face the challenges posed by the
steadily increasing integration of the EC, including the progressive lowering of
trade and investment barriers. Tourism continues as a major industry, providing
a vital offset to a sizable commodity trade deficit.
Securities traded in certain emerging European securities markets may be subject
to risks due to the inexperience of financial intermediaries, the lack of modern
technology and the lack of a sufficient capital base to expand business
operations. Additionally, former Communist regimes of a number of Eastern
European countries had expropriated a large amount of property, the claims of
which have not been entirely settled. There can be no assurance that a Fund's
investments in Eastern Europe would not also be expropriated, nationalized or
otherwise confiscated. Finally, any change in leadership or policies of Eastern
European countries, or countries that exercise a significant influence over
those countries, may halt the expansion of or reverse the liberalization of
foreign investment policies now occurring and adversely affect existing
investment opportunities.
INVESTING IN AFRICA. Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the percentage
of people who are over 15 years of age and who can read and write) are
relatively low, ranging from 20% to 60%. The primary industries include crude
oil, natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.
Many of the countries are fraught with political instability. However, there has
been a trend over the past five years toward democratization. Many countries are
moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.
Economically, the Northern Rim countries (including Morocco, Egypt and Algeria)
and Nigeria, Zimbabwe and South Africa are the wealthier countries on the
continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.
On the other end of the economic spectrum are countries, such as Burkina Faso,
Madagascar and Malawi, that are considered to be among the poorest or least
developed in the world. These countries are generally landlocked or have poor
natural resources. The economies of many African countries are heavily dependent
on international oil prices. Of all the African industries, oil has been the
most lucrative, accounting for 40% to 60% of many countries' GDP. However,
general decline in oil prices has had an adverse impact on many economies.
ECONOMIC GROWTH. Emerging markets are an increasingly important part of the
world's investment activity. In 1985, emerging markets accounted for only 2.7%
of the world's stock market trading value, compared to 17% in 1994.1 The chief
rationale for investing in emerging markets is the dramatic growth rates that
these economies continue to enjoy. Over the past decade, the annual percentage
17
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change in the economic growth rates of emerging market countries has been
climbing above that of the mature markets, as shown in the chart below.2
TO BE UPDATED
A line chart is inserted here.
Chart Title: Economic Growth
Annual Percent Change
Mature Developing
1986 2.9 3.93
1987 3.2 4.45
1988 4.5 3.43
1989 3.2 3.4
1990 2.3 3.28
1991 0.8 3.58
1992 1.6 4.15
1993 1.4 4.1
1994 3.1 4
1995 2.3 4.55
This growth translates into an average annual percentage change (as measured by
GDP) of 2.53% for mature economies, compared to 3.89% for developing countries.3
Emerging market economies are projected to grow at a 6.3% annual rate _ more
than double the expected growth of established countries in Europe, Asia and
North America (2.4%).4
EASTERN EUROPE. Investments in companies domiciled in Eastern European countries
may be subject to potentially greater risks than those of other foreign issuers.
These risks include (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict a Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries, or in
the countries of the former Soviet Union.
Investments in such countries involve risks of nationalization, expropriation
and confiscatory taxation. The Communist governments of a number of East
European countries expropriated large amounts of private property in the past,
in many cases without adequate compensation, and there may be no assurance that
such expropriation will not occur in the future.In the event of such
expropriation, a Fund could lose a substantial portion of any investments it has
made in the affected countries. Further, no accounting standards exist in East
European countries. Finally, even though certain East European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to a Fund's shareholders.
STRATEGIC TRANSACTIONS AND DERIVATIVES. Each Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the fixed-income securities in a Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
- --------------------------
- -------------------------------
1 International Finance Corporation, 1995.
2 International Monetary Fund, 1995. OECD Economic Outlook, June 1995.
3 International Monetary Fund, 1995. OECD Economic Outlook, June 1995.
4 IMF World Economic Outlook, 1995.
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In the course of pursuing these investment strategies, a Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used without limit to attempt to protect against possible
changes in the market value of securities held in or to be purchased for a
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect a Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective maturity or duration of the fixed-income securities in a
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. Some
Strategic Transactions may also be used to enhance potential gain although no
more than 5% of a 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 a Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. Each Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes.
Strategic Transactions, including derivative contracts have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to a Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Fund can realize on its investments or cause
a Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, a Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving a Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. A Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect a Fund against
an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. Each Fund
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<PAGE>
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.
Each Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A Fund
will only sell OTC options (other than OTC currency options) that are subject to
a buy-back provision permitting a Fund to require the Counterparty to sell the
option back to a Fund at a formula price within seven days. Each Fund expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. Each Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P- 1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the inthe-money amount, if
any) are illiquid, and are subject to a Fund's limitation on investing no more
than 10% of its total assets in illiquid securities.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
Each Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a 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 a 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.
Each 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
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<PAGE>
contracts other than futures on individual corporate debt and individual equity
securities. None of the Funds will sell put options if, as a result, more than
50% of a Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that a Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
GENERAL CHARACTERISTICS OF FUTURES. Each Fund may enter into financial 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, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by a Fund, as seller, to deliver to the buyer
the specific type of 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.
Each Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
None of the Funds will 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 a 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. Each 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.
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CURRENCY TRANSACTIONS. Each Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. A 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 are determined to be of equivalent credit
quality by the Adviser.
Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
None of the Funds will 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.
Each 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 a Fund has or in which a Fund expects to
have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, each Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Adviser believes that
the value of schillings will decline against the U.S. dollar, the Adviser may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a 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 a 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 a 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. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
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transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which a
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. Each Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date. Each Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream a Fund may be obligated to pay. Interest
rate swaps involve the exchange by a 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.
Each 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 a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Funds believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. None of the Funds will enter into any swap, cap, floor
or collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, a 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. Each 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. Each Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that a Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
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"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a 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 a 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 a 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 a Fund requires the Fund to segregate cash or liquid assets
equal to the exercise price.
Except when a Fund enters into a forward contract for the purchase or sale of a
security denominated in a particular currency, which requires no segregation, a
currency contract which obligates a Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
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 a 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 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 a 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
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, a Fund must deposit
initial margin and possible daily variation margin in addition to segregating
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 assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, a 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 a Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. Each 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, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Each Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company. (See
"TAXES.")
Additional information concerning high yield securities appears under
"Appendix--Ratings of Fixed Income Investments."
PORTFOLIO TRANSACTIONS
TO BE UPDATED
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Brokerage
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase and sale
of securities for a Fund's portfolio is to obtain the most favorable net results
taking into account such factors as price, commission (negotiable in the case of
U.S. national securities exchange transactions) where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Adviser seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through its familiarity with commissions charged
on comparable transactions, as well as by comparing commissions paid by the Fund
to reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
Each Fund's purchases and sales of fixed-income securities are generally placed
by the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes or who supply research, market and
statistical information to a Fund. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Adviser is authorized when placing
portfolio transactions for the Fund to pay a brokerage commission in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
[In selecting among firms believed to meet the criteria for handling a
particular transaction, the Adviser may give consideration to those firms that
have sold or are selling shares of a Fund and of other funds managed by the
Adviser.]
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements its own research effort since
the information must still be analyzed, weighed and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Funds and not all such information is used by the Adviser
in connection with the Funds. Conversely, such information provided to the
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Fund.
The Directors for the Funds review from time to time whether the recapture for
the benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for the Fund's portfolio whenever necessary, in
management's opinion, to meet the Fund's objective. Under normal investment
conditions, it is anticipated that the portfolio turnover rate in each Fund's
initial fiscal year will not exceed 75%, with the exception of Emerging Markets
Income Fund, which may exceed 100%.
INVESTMENT MANAGER AND UNDERWRITER
TO BE UPDATED
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INVESTMENT MANAGER. Scudder Kemper Investments, Inc. (the "Adviser"), an
investment counsel firm, 345 Park Avenue, New York, New York, is each Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. The Adviser is [wholly owned] by ZKI
Holding Corp. ZKI Holding Corp. is a more than 90% owned subsidiary of Zurich
Holding Company of America, Inc., which is a wholly owned subsidiary of Zurich
Insurance Company, an internationally recognized provider of financial services
in property/ casualty and life insurance, reinsurance and asset management.
Pursuant to the investment management agreement, the Adviser acts as each Fund's
investment adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, bookkeeping and
administrative services and permits any of its officers or employees to serve
without compensation as directors or officers of the Fund if elected to such
positions. The investment management agreement provides that each Fund shall pay
the charges and expenses of its operations, including the fees and expenses of
the directors (except those who are affiliates of the Adviser), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value, taxes and membership
dues. Each Fund bears the expenses of registration of its shares with the
Securities and Exchange Commission, while Zurich Kemper Distributors, Inc.
("ZKDI"), as principal underwriter, pays the cost of qualifying and maintaining
the qualification of the Fund's shares for sale under the securities laws of the
various states.
The Adviser maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Adviser utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for each Fund and for clients of the Adviser,
but conclusions are based primarily on investigations and critical analyses by
its own research specialists.
Certain investments may be appropriate for a Fund and also for other clients
advised by the Adviser. Investment decisions for a Fund and other clients are
made with a view toward achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a Fund. Purchase and sale orders for a Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund. The Investment Management Agreement (the
"Agreement") between the Corporation, on behalf of each Fund, and the Adviser
was approved by the Directors of the Corporation on ____________. Each Agreement
is dated __________ and will continue in effect until _______ 1999 and from year
to year thereafter only if its continuance is approved annually by the vote of a
majority of those Directors who are not parties to such Agreement or interested
persons of the Adviser or the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and by a majority vote either of the Fund's
Directors or of the outstanding voting securities of the Fund. The Agreement may
be terminated at any time without payment of penalty by either party on sixty
days' written notice, and automatically terminates in the event of its
assignment.
Under the Agreement, the Adviser provides each Fund with continuing investment
management for the Fund's portfolio consistent with the Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for the portfolio of the Fund, what portfolio securities shall be held
or sold by the Fund and what portion of the Fund's assets shall be held
uninvested, subject always to the provisions of the Fund's Articles of
Corporation and ByLaws, the 1940 Act and the Code and to the Fund's investment
objectives, policies and restrictions and subject, further, to such policies and
instructions as the Directors of the Corporation may from time to time
establish. The Adviser also advises and assists the officers of the Corporation
in taking such steps as are necessary or appropriate to carry out the decisions
of its Directors and the appropriate committees of the Directors regarding the
conduct of the business of a Fund.
The Adviser also renders significant administrative services (not otherwise
provided by third parties) necessary for each Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Directors and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
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Fund (such as the Funds' 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 each Fund's federal, state
and local tax returns; preparing and filing each 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 each Fund under applicable federal and state
securities laws; maintaining each Fund's books and records to the extent not
otherwise maintained by a third party; assisting in establishing accounting
policies of each Fund; assisting in the resolution of accounting and legal
issues; establishing and monitoring each Fund's operating budget; processing the
payment of each Fund's bills; assisting each Fund in, and otherwise arranging
for, the payment of distributions and dividends; and otherwise assisting each
Fund in the conduct of its business, subject to the direction and control of the
Directors.
The Adviser pays the compensation and expenses (except those for attending Board
and Committee meetings outside New York, New York, Chicago, Illinois and Boston,
Massachusetts) of all Directors, officers and executive employees of the
Corporation affiliated with the Adviser and makes available, without expense to
the Corporation, the services of such Directors, officers and employees of the
Adviser as may duly be elected officers or Directors of the Corporation, subject
to their individual consent to serve and to any limitations imposed by law, and
provides the Corporation's office space and facilities.
Under the Agreement each Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; 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 issue, redemption or repurchase of shares; the expenses of and the fees for
registering or qualifying securities for sale; the fees and expenses of
Directors, officers and employees of the Corporation who are not affiliated with
the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians. Each Fund may
arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of each Fund. Each 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
Directors with respect thereto.
The Agreement expressly provides that the Adviser shall not be required to pay a
pricing agent of each Fund for portfolio pricing services, if any.
In reviewing the terms of the Agreement and in discussions with the Adviser
concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Corporation have been represented by independent
counsel at each 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 each Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have transactions
with various banks, including the Funds' custodian bank. It is the Adviser's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Directors of the Corporation may have dealings with the
Corporation as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of the Corporation.
Employees of the Adviser and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Adviser's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as each Fund's. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
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research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Zurich Kemper Distributors, Inc. ("ZKDI"),
a [wholly owned] [indirect] subsidiary of the [Adviser], 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. ZKDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. Each Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
ZKDI pays for the printing and distribution of copies thereof used in connection
with the offering of shares to prospective investors. ZKDI also pays for
supplementary sales literature and advertising costs.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Directors of each Fund, including the Directors who are not interested
persons of each Fund and who have no direct or indirect financial interest in
the agreement. The distribution agreement automatically terminates in the event
of its assignment and may be terminated for a class at any time without penalty
by each Fund or by ZKDI upon 60 days' notice. Termination by each Fund with
respect to a class may be by vote of a majority of the Board of Directors, or a
majority of the Directors who are not interested persons of each Fund and who
have no direct or indirect financial interest in the distribution agreement, or
a "majority of the outstanding voting securities" of the class of each Fund, as
defined under the 1940 Act. The distribution agreement may not be amended for a
class to increase the fee to be paid by each Fund with respect to such class
without approval by a majority of the outstanding voting securities of such
class of each Fund and all material amendments must in any event be approved by
the Board of Directors in the manner described above with respect to the
continuation of the distribution agreement. The provisions concerning the
continuation, amendment and termination of the distribution agreement are on a
class by class basis.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with ZKDI.
ZKDI bears all its expenses of providing services pursuant to the administrative
agreement between ZKDI and each Fund, including the payment of service fees. For
the services under the administrative agreement, each Fund's pays ZKDI an
administrative services fee, payable monthly, at an annual rate of up to ___% of
average daily net assets of Class A, B and C shares of each Fund.
ZKDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms") that provide services and facilities
for their customers or clients who are investors in 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 a Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. With respect to
Class A shares, ZKDI pays each firm a service fee, payable quarterly, at an
annual rate of up to ___% 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, ZKDI 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, ZKDI currently intends
to pay firms a service fee at a rate of up to 0.25% (calculated monthly and paid
quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm. After the first year, a firm becomes
eligible for the quarterly service fee and the fee continues until terminated by
ZKDI or each Fund. Firms to which service fees may be paid may include
affiliates of ZKDI.
ZKDI 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 ZKDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on each Fund's
records and it is intended that ZKDI 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
Directors of each Fund, in its discretion, may approve basing the fee to ZKDI on
all Fund assets in the future.
Certain directors or officers of each Fund are also directors or officers of the
Adviser or ZKDI, as indicated under "Officers and Directors."
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CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE
AGENT___________________________, as custodian, has custody of all securities
and cash of each Fund held outside the United States.
______________________________, as custodian, and __________________, as
sub-custodian, have custody of all securities and cash of each Fund maintained
in the United States. They attend to the collection of principal and income, and
payment for and collection of proceeds of securities bought and sold by each
Fund. _________ is also each Fund's transfer agent and dividend-paying agent.
Pursuant to a services agreement with _________, Zurich Kemper Service Company
("ZKSC"), an affiliate of _________, serves as "Shareholder Service Agent" of
each Fund, and as such, performs all of _________'s duties as transfer agent and
dividend-paying agent. _________ receives as transfer agent, and pays to ZKSC,
annual account fees of $__ per account plus account set up, transaction and
maintenance charges, annual fees associated with the contingent deferred sales
charge (Class B shares only) and out-of-pocket expense reimbursement.
_________'s fee is reduced by certain earnings credits in favor of each Fund.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. Each Fund's independent
auditors, _____________________________________, audit and report on each Fund's
annual financial statements, review certain regulatory reports and each Fund's
federal income tax return, and perform other professional accounting, auditing,
tax and advisory services when engaged to do so by a Fund. Shareholders will
receive annual audited financial statements and semi-annual unaudited financial
statements.
PURCHASE AND REDEMPTION OF SHARES
As described in the prospectus, Fund shares are sold at their public offering
price, which is the net asset value next determined after an order is received
in proper form plus, with respect to Class A shares, an initial sales charge.
The minimum initial investment for each class is $1,000 and the minimum
subsequent investment is $100 but such minimum amounts may be changed at any
time. See the prospectus for certain exceptions to these minimums. A Fund may
waive the minimum for purchases by directors, directors, officers or employees
of a Fund or the Adviser and its affiliates. An order for the purchase of shares
that is accompanied by a check drawn on a foreign bank (other than a check drawn
on a Canadian bank in U.S. Dollars) will not be considered in proper form and
will not be processed unless and until 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 each Fund at the applicable net asset value
per share of each Fund as described in the Funds' prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares by certain classes of persons or
through certain types of transactions as described in the prospectus are
provided because of anticipated economies of scale in sales and salesrelated
efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange ("Exchange") is closed
other than customary weekend and holiday closings or during any period in which
trading on the Exchange is restricted, (b) during any period when an emergency
exists as a result of which (i) disposal of each Fund' 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 the
Funds' shareholders.
The net asset value per share of a Fund is determined separately for each class
by dividing the value of each Fund's net assets attributable to that class by
the number of shares of that class outstanding. The per share net asset value of
the Class B and Class C shares of a Fund will generally be lower than that of
the Class A shares of the Fund because of the higher expenses borne by the Class
B and Class C shares. The net asset value of shares of a Fund is computed as of
the close of regular trading on the Exchange on each day the Exchange is open
for trading. The Exchange is scheduled to be closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
Although it is each Fund's present policy to redeem in cash, if the Board of
Directors determines that a material adverse effect would be experienced by the
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remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Directors may
deem fair and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be so liquid as a redemption entirely in cash.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to a Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in 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 as described in the prospectus.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS. Each 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 longterm
capital losses. A Fund may follow the practice of distributing the entire excess
of net realized long-term capital gains over net realized short-term capital
losses. However, a Fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If a Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
Each of Emerging Markets Growth Fund, Global Blue Chip Fund and Latin America
Fund normally distributes annual dividends of net investment income. Any net
realized short-term and long-term capital gains for the Funds are distributed at
least annually. International Growth and Income Fund and Emerging Markets Income
Fund distribute net investment income on a semi-annual and monthly basis,
respectively. Income and capital gain dividends of a Fund are automatically
reinvested in additional shares of the Fund, without a sales charge, unless the
investor makes an election otherwise. Distributions of net capital gains
realized during each fiscal year will be made at least annually before the end
of each Fund's fiscal year on _____________________. Additional distributions,
including distributions of net short-term capital gains in excess of net
long-term capital losses, may be made, if necessary.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
Dividends will be reinvested in shares of each Fund unless shareholders indicate
in writing that they wish to receive them in cash or in shares of other Kemper
Funds as provided in the prospectus.
(THE FOLLOWING SECTION TO BE UPDATED)
TAXES. Distributions of investment company taxable income are taxable to
shareholders as ordinary income. Each Fund intends to qualify as a regulated
investment company under Subchapter M of the Code and, if so qualified,
generally will not be liable for federal income taxes to the extent its earnings
are distributed. To so qualify, each Fund must satisfy certain income and asset
diversification requirements, and must distribute to its shareholders at least
90% of its investment company taxable income (including net short-term capital
gain).
Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for each calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
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realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of a Fund.
If any net realized long-term capital gains in excess of net realized shortterm
capital losses are retained by a Fund for reinvestment, requiring federal income
taxes to be paid thereon by the Fund, each Fund intends to elect to treat such
capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim a relative share of federal income taxes paid by a Fund on such
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on Fund shares by the difference
between a pro rata share of such gains owned and the individual tax credit.
Dividends from domestic corporations may comprise a substantial part of the
gross income of Global Blue Chip Fund, International Growth and Income Fund,
Emerging Markets Growth Fund and Latin America Fund. 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 dividendsreceived deduction is reduced to the
extent the shares of a Fund with respect to which the dividends are received are
treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
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Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss, which a Fund designates as capital gain
dividends, are taxable to shareholders as long-term capital gain, regardless of
the length of time the shares of a Fund have been held by such shareholders.
Such distributions are not eligible for the dividends received deduction. Any
loss realized upon the redemption of shares held at the time of redemption for
six months or less will be treated as a longterm 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.
A qualifying individual may make a deductible IRA contribution 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 a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
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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. Each Fund may invest
in shares of certain foreign corporations which may be classified under the Code
as passive foreign investment companies ("PFICs"). If a Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution. Certain
distributions from a PFIC as well as gains from the sale of the PFIC shares are
treated as "excess distributions." In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the period during
which a Fund held the PFIC shares.
Each Fund will be subject to tax on the portion, if any, of an excess
distribution that is allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Excess distributions allocated to the current taxable year are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
A Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock) written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on a Fund's holding period for the option and, in
the case of an exercise of the option, on a Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or substantially identical security in a Fund's
portfolio. If a Fund writes a call option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as a short-term capital gain or loss. If a call option is exercised, any
resulting gain or loss is short-term or long-term capital gain or loss depending
on the holding period of the underlying security. The exercise of a put option
written by a Fund is not a taxable transaction for a Fund.
Many futures and forward contracts entered into by a Fund and all listed
nonequity options written or purchased by a Fund (including covered call options
written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of a Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by a Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in a
Fund's portfolio.
Positions of a Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes a Fund's risk of loss with respect to such stock could be treated as
a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by a Fund.
Positions of a Fund consisting of at least one position not governed by Section
1256 and at least one future, forward, or nonequity option contract which is
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
32
<PAGE>
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. A Fund will monitor its transactions in options and
futures and may make certain tax elections in connection with these investments.
Notwithstanding any of the foregoing, recent tax law changes may require a Fund
to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting material principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests including options, futures and forward contracts and short sales in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of a Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time a Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain futures, forward or options
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contracts and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.
If a Fund holds zero coupon securities or other securities which are issued at a
discount a portion of the difference between the issue price and the face value
of such securities ("original issue discount") will be treated as income to a
Fund each year, even though a Fund will not receive cash interest payments from
these securities. This original issue discount (imputed income) will comprise a
part of the investment company taxable income of a Fund which must be
distributed to shareholders in order to maintain the qualification of a Fund as
a regulated investment company and to avoid federal income tax at a Fund level.
If a Fund acquires a debt instrument at a market discount, a portion of the gain
recognized (if any) on disposition of such instrument may be treated as ordinary
income.
Each Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of a Fund or any other Kemper Mutual Fund listed in the
prospectus under "Special Features--Class A Shares--Combined Purchases" (other
than shares of Kemper Cash Reserves Fund not acquired by exchange from another
Kemper Mutual Fund) may reinvest the amount redeemed at net asset value at the
time of the reinvestment in shares of the Fund or in shares of the other Kemper
Mutual Funds within six months of the redemption as described in the prospectus
under "Redemption or Repurchase of Shares--Reinvestment Privilege." If redeemed
shares were held less than 91 days, then the lesser of (a) the sales charge
waived on the reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested shares and is not
included in the basis of the redeemed shares. If a shareholder realizes a loss
on the redemption or exchange of a Fund's shares and reinvests in shares of the
same Fund within 30 days before or after the redemption or exchange, the
transactions may be subject to the wash sale rules resulting in a postponement
33
<PAGE>
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.
Shareholders of a Fund may be subject to state and local taxes on distributions
received from a Fund and on redemptions of a Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year a Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code. 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 advisers about the application of the
provisions of tax law in light of their particular tax situations.
PERFORMANCE
TO BE UPDATED
As described in the Prospectus, 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 measures of performance are described below.
Performance information will be computed separately for each class. The Adviser
has agreed to a reduction of its management fee for a Fund to the extent
specified in the prospectus. See "Investment Manager and Underwriter." This fee
reduction will improve the performance results of a Fund.
Average annual total return and total return measure both the net investment
income generated by, and the effect of any realized or unrealized appreciation
or depreciation of, the underlying investments in a Fund's portfolio. Each
Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for each class of a Fund for a
specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in the class' 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. Average annual return quotations will be determined to the nearest
1/100th of 1%. The redeemable value in the case of Class B shares or Class C
shares include the effect of the applicable contingent deferred sales charge
that may be imposed at the end of the period. The redeemable value is then
divided by the initial investment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. Average annual return
calculated in accordance with this formula does not take into account any
required payments for federal of state income taxes. Such quotations for Class B
shares for periods over six years will reflect conversion of such shares to
Class A shares at the end of the sixth year. The calculation assumes that all
income and capital gains dividends paid by a Fund have been reinvested at net
asset value on the reinvestment dates during the period. Average annual total
return may also be calculated in a manner not consistent with the standard
formula described above, without deducting the maximum sales charge or
contingent deferred sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for a Fund's "Financial Highlights" table in each Fund's
financial statements and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("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 shares or Class C shares may or may not include the
34
<PAGE>
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 a Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B and Class C shares
would be reduced if such charges were included.
Each Fund's performance figures are based upon historical results and are not
necessarily 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 and Class C shares are sold at net asset value. Redemption of
Class B shares may be subject to a contingent deferred sales charge that is 4%
in the first year following the purchase, declines by a specified percentage
each year thereafter and becomes zero after six years. Redemption of Class C
shares may be subject to a 1% contingent deferred sales charge in the first year
following the purchase. Returns and net asset value will fluctuate. Factors
affecting a Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services firm would reduce returns described in this section.
Shares of a Fund are redeemable at the then current net asset value, which may
be more or less than original cost.
There are differences and similarities between the investments which a Fund may
purchase and the investments measured by the indices which are described herein.
The Consumer Price Index is generally considered to be a measure of inflation.
The Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index are
indices of common stocks which are considered to be generally representative of
the U.S. stock market. The Financial Times/Standard & Poor's Actuaries World
Index-Europe(TM) is a managed index that is generally representative of the
equity securities of European markets. The foregoing indices are unmanaged. The
net asset value and returns of a Fund will fluctuate.
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. 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 to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC/Donoghue's Money Fund Averages(R) (All
Taxable). As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.
OFFICERS AND DIRECTORS
TO BE UPDATED
The officers and directors of the Corporation, their birth dates, their
principal occupations and their affiliations, if any, with the Adviser, and
ZKDI, the principal underwriter, are as follows (the number following each
person's title is the number of investment companies managed by the Adviser for
which he or she holds similar positions and the date following each person's
name is his or her date of birth):
35
<PAGE>
DANIEL PIERCE (xx/xx/xx), President and Director (6), 345 Park Avenue, New York,
New York*.
MARK S. CASADY (xx/xx/xx), Director, Vice President and Treasurer (6),
345 Park Avenue, New York, New York*.
KATHRYN L. QUIRK (xx/xx/xx), Director, Vice President and Secretary (6),
345 Park Avenue, New York, New York*.
*Interested persons of the Corporation as defined in the 1940 Act.
Compensation of Officers and Directors
The Independent Directors receive the following compensation from the
Corporation: an annual director's fee of $_____; a fee of $____ for attendance
at each Board meeting, audit committee meeting, or other meeting held for the
purposes of considering arrangements between a Fund and the Adviser or any
affiliate of the Adviser; $____ for any other committee meeting (although in
some cases the Independent Directors have waived committee meeting fees); and
reimbursement of expenses incurred for travel to and from Board Meetings. No
additional compensation is paid to any Independent Director for travel time to
meetings, attendance at directors' educational seminars or conferences, service
on industry or association committees, participation as speakers at directors'
conferences, service on special director task forces or subcommittees or service
as lead or liaison director. Independent Directors do not receive any employee
benefits such as pension, retirement or health insurance.
The Directors and Officers as a group owned less than 1% of each Fund's shares
as of the commencement of operations.
SHAREHOLDER RIGHTS
Each Fund's activities are supervised by the Corporation's Board of Directors.
Each Fund is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Directors, changing fundamental investment policies or
approving an investment advisory contract. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Director as
if Section 16(c) of the 1940 Act were applicable.
Each director serves until the next meeting of shareholders, if any, called for
the purpose of electing directors and until the election and qualification of a
successor or until such director sooner dies, resigns, retires or is removed by
a majority vote of the shares entitled to vote (as described below) or a
majority of the directors.
A majority of the Directors shall be present in person at any regular or special
meeting of the Directors in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Directors present at any such meeting, at which a quorum is
present, shall be the act of the Directors.
Any matter shall be deemed to have been effectively acted upon with respect to a
Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Corporation's Articles of Incorporation. As used in
the Prospectuses 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 Funds and all additional
portfolios (e.g., election of directors), means the vote of the lesser of (i)
67% of the Corporation'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 Corporation'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.
In the event of the liquidation or dissolution of the Corporation, shares of a
Fund are entitled to receive the assets attributable to that Fund that are
available for distribution, and a proportionate distribution, based upon the
relative net assets of the Funds, of any general assets not attributable to a
Fund that are available for distribution.
36
<PAGE>
Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid and non-assessable by the Corporation. Further, each Fund's
Board of Directors may determine, without further shareholder approval, in the
future that the objectives of each Fund would be achieved more effectively by
investing in a master fund in a master/feeder fund structure.
ADDITIONAL INFORMATION
Other Information
The CUSIP number of each class of Global Blue Chip Fund is __________.
The CUSIP number of each class of International Growth and Income Fund is
__________.
The CUSIP number of each class of Emerging Markets Income Fund is
__________.
The CUSIP number of each class of Emerging Markets Growth Fund is
__________.
The CUSIP number of each class of Latin America Fund is __________.
Global Blue Chip Fund has a fiscal year ending __________.
International Growth and Income Fund has a fiscal year ending __________.
Emerging Markets Income Fund has a fiscal year ending __________.
Emerging Markets Growth Fund has a fiscal year ending __________.
Latin America Fund has a fiscal year ending __________.
Many of the investment changes in a Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of a Fund. These transactions will reflect investment decisions
made by the Adviser in light of a Fund's investment objectives and policies, its
other portfolio holdings and tax considerations, and should not be construed as
recommendations for similar action by other investors.
Costs of $____________ incurred by _______ Fund, in conjunction with its
organization, are amortized over the five year period beginning ---------.
Portfolio securities of each Fund are held separately pursuant to a custodian
agreement, by the Fund's custodian, _________________.
The law firm of _______________ is counsel to the Funds.
The Fund's prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement and its amendments which the
Fund has filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. The Registration Statement and
its amendments, are available for inspection by the public at the SEC in
Washington, D.C.
37
<PAGE>
APPENDI--RATINGS OF FIXED INCOME INVESTMENTS
Standard & Poor's Corporation Bond Ratings
AAA. Debt rated AAA has 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, 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
38
<PAGE>
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.
39
<PAGE>
<PAGE>
KEMPER GLOBAL/ INTERNATIONAL SERIES, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights
For Kemper Global Blue Chip Fund:
For Kemper International Growth and Income Fund:
For Scudder Global Discovery Fund:
For Kemper Latin America Fund:
For Kemper Emerging Markets Income Fund:
to be filed by Amendment.
Included in Part B of this Registration Statement:
Statements, schedules and historical information
other than those listed above have been omitted since
they are either not applicable or are not required.
<TABLE>
<CAPTION>
b. Exhibits:
<S> <C> <C>
1. Articles of Incorporation dated October 1, 1997 is filed herein.
2. By-Laws to be filed by Amendment.
3. Inapplicable.
4. Specimen Share Certificate to be filed by Amendment.
5. Investment Management Agreement to be filed by Amendment.
6. Underwriting Agreement to be filed by Amendment.
7. Inapplicable.
8. (a) Custodian Agreement to be filed by Amendment.
(b) Fee schedule for Exhibit 8(a) to be filed by Amendment.
9. (a)(1) Transfer Agency and Service Agreement to be filed by Amendment.
(a)(2) Fee schedule for Exhibit 9(a)(1) to be filed by Amendment.
(b) Shareholder Services Agreement to be filed by Amendment.
(c) Fund Accounting Services Agreement to be filed by Amendment.
</TABLE>
Part C - Page 1
<PAGE>
10. Inapplicable.
11. Inapplicable.
12. Inapplicable.
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Inapplicable.
17. Inapplicable.
18. Inapplicable.
Item 25. Persons Controlled by or under Common Control with Registrant
- -------- -------------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of September 30, 1997).
- -------- -----------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Shareholders
-------------- ----------------------
<S> <C>
Shares of capital stock
($.001 par value)
Kemper Global Blue Chip Fund 0
Kemper International Growth and Income Fund 0
Kemper Latin America Fund 0
Kemper Emerging Markets Growth Fund 0
Kemper Emerging Markets Income Fund 0
</TABLE>
Item 27. Indemnification.
- -------- ----------------
Article Tenth of Registrant's Articles of Incorporation state as
follows:
TENTH: Liability and Indemnification
- ------ -----------------------------
To the fullest extent permitted by the Maryland General Corporation Law
and the Investment Company Act of 1940, no director or officer of the
Corporation shall be liable to the Corporation or to its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation, whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted. No amendment to these Articles of Amendment and Restatement or
repeal of any of its provisions shall limit or eliminate the benefits provided
to directors and officers under this provision with respect to any act or
omission which occurred prior to such amendment or repeal.
The Corporation, including its successors and assigns, shall indemnify
its directors and officers and make advance payment of related expenses to the
fullest extent permitted, and in accordance with the procedures required by
Maryland law, including Section 2-418 of the Maryland General Corporation Law,
as may be amended from time to time, and the Investment Company Act of 1940. The
By-laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
Part C - Page 2
<PAGE>
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.
The rights provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
such rights in serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Amendment and Restatement shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
Nothing in these Articles of Amendment and Restatement shall be deemed
to (i) require a waiver of compliance with any provision of the Securities Act
of 1933, as amended, or the Investment Company Act of 1940, as amended, or of
any valid rule, regulation or order of the Securities and Exchange Commission
under those Acts or (ii) protect any director or officer of the Corporation
against any liability to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of his or her duties or by reason of his or her
reckless disregard of his or her obligations and duties hereunder.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
To be filed by Amendment.
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Zurich Kemper Distributors, Inc. acts as principal underwriter
and distributor of the Registrant's shares.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Underwriter Offices with Registrant
---------------- ----------- -----------------------
<S> <C> <C>
Mark S. Casady None Director, Treasurer and Vice
Two International Place President
Boston, MA 02110
Daniel Pierce None President and Director
Two International Place
Boston, MA 02110
Kathryn L. Quirk None Director, Secretary and Vice
345 Park Avenue President
New York, NY 10154
</TABLE>
Part C - Page 3
<PAGE>
<TABLE>
<CAPTION>
(c)
(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>
Zurich Kemper None None None None
Distributors, Inc.
</TABLE>
Item 30. 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 will be maintained by Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, NY 10154.
Records relating to the duties of the Registrant's custodian
are maintained by _____________________________ .
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
The Registrant hereby undertakes to file post-effective
amendments, using reasonably current financial statements of
each Fund within four to six months from the effectiveness
date of the Registrant's Registration Statement under the 1933
Act.
The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of a Fund's latest
annual report to shareholders upon request and without change.
The Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the question of
removal of a Director or Directors when requested to do so by
the holders of at least 10% of the Registrant's outstanding
shares and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
The Registrant hereby undertakes, insofar as indemnification
for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of
the registrant 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 in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will submit unless in the opinion of its counsel
the matter has been settled by controlling precedent, to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the financial adjudication of
such issue.
Part C - Page 4
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 1st day of October, 1997.
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
By /s/Kathryn L. Quirk
----------------------------------
Kathryn L. Quirk, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk Director, Vice President and Secretary October 1, 1997
/s/Mark S. Casady
- ---------------------------------------
Mark S. Casady Director, Vice President and October 1, 1997
Treasurer (Principal Financial and
Accounting Officer)
/s/Daniel Pierce
- ---------------------------------------
Daniel Pierce Director and President October 1, 1997
</TABLE>
File No. _________
File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
INITIAL REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
INITIAL REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER GLOBAL/ INTERNATIONAL SERIES, INC.
<PAGE>
KEMPER GLOBAL/ INTERNATIONAL SERIES, INC.
Exhibit Index
Exhibit 1
<PAGE>
Exhibit 1
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
ARTICLES OF INCORPORATION
First: The undersigned, Kenneth B. Abel, whose post office address is c/o Ober,
Kaler, Grimes & Shriver, 120 E. Baltimore Street, Baltimore, Maryland
21220-1643, being at least eighteen years of age, does hereby form a corporation
under and by virtue of the general laws of the State of Maryland.
Second: Name.
The name of the corporation (which is hereinafter called the
"Corporation"), is KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
Third: Corporate Purposes.
The purpose or purposes for which the Corporation is formed is to act as
an investment company under the federal Investment Company Act of 1940, as
amended and as may be further amended from time to time (the "Investment Company
Act of 1940") and to exercise and enjoy all the powers, rights and privileges
granted to, or conferred upon, corporations by the Maryland General Corporation
Law, as amended from time to time (the "Maryland General Corporation Law"). The
Corporation shall exercise and enjoy all such powers, rights and privileges to
the extent not inconsistent with these Articles of Incorporation.
Fourth: Principal Office Address and Resident Agent.
The post office address of the principal office of the Corporation in the
State of Maryland is:
c/o The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
The name and post office address of the resident agent of the Corporation
in the State of Maryland is:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
Such resident agent is a Maryland corporation.
Fifth: Capital Stock.
(1) Authorized Shares. The total number of shares of all classes and
series of capital stock which the Corporation shall have authority to issue is
Five Hundred Million (500,000,000) shares with a par value of One-Tenth of One
Cent ($0.001) per share, such shares having an aggregate par value of Five
Hundred Thousand Dollars ($500,000). Initially, all 500,000,000 of such shares
of capital stock shall be divided into five (5) series of 100,000,000 shares
each, as follows:
Name of Series Number of Shares Initially allocated
Kemper Global Blue Chip Fund 100,000,000
Kemper International Growth and
Income Fund 100,000,000
Kemper Emerging Markets Income Fund 100,000,000
Kemper Emerging Markets Growth Fund 100,000,000
Kemper Latin America Fund 100,000,000
(2) Authorization of Stock Issuance. The Board of Directors may authorize
the issuance and sale of capital stock of this Corporation, including stock of
any class or series, whether now or hereafter authorized, or securities
convertible into shares of capital stock, including stock of any class or
series, whether now or hereafter authorized, from time to time in such amounts
and on such terms and conditions, for such purposes and for such amount or kind
of consideration as the Board of Directors shall
<PAGE>
determine, subject to any limits required by then applicable law. All shares
shall be issued on a fully paid and non-assessable basis.
All persons who shall acquire shares of capital stock in the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation and the By-Laws of the Corporation, as each may be amended,
supplemented and/or restated from time to time.
(3) Fractional Shares. The Corporation may issue and sell fractional
shares. Any fractional share shall carry proportionately the rights of a whole
share, including without limitation the right to vote and the right to receive
dividends.
(4) Power to Classify. The Board of Directors may classify and reclassify
any unissued shares of capital stock (whether or not such shares have been
previously classified or reclassified) into one or more additional or other
classes or series as may be established from time to time by setting or changing
in any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemptions of such shares of stock. In addition, the Board of
Directors may increase or decrease the number of authorized shares of stock, or
shares of any existing class or series of stock. Except as otherwise provided
herein, all references herein to capital stock shall apply without
discrimination to the shares of each class or series of stock.
(5) Series-General. The relative preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of each class or series of stock of the
Corporation shall be as follows, unless otherwise provided in Articles
Supplementary hereto:
(a) Assets Belonging to Class. All consideration received by the
Corporation for the issue or sale of stock of a particular class or series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that class or series for all purposes,
and shall be so recorded on the books of account of the Corporation. Any assets,
income, earnings, profits or proceeds thereof, funds or payments which are not
readily attributable to a particular class or series shall be allocated to and
among any one or more series or classes in such manner and on such basis as the
Board of Directors, in its sole discretion, shall deem fair and equitable, and
items so allocated to a particular series or class shall belong to that series
or class. Each such allocation shall be conclusive and binding upon the
stockholders of all classes and series for all purposes.
(b) Liabilities Belonging to Class. The assets belonging to each class or
series shall be charged with the liabilities of the Corporation in respect of
that class or series and with all expenses, costs, charges and reserves
attributable to that class or series and shall be so recorded on the books of
account of the Corporation. Any general liabilities, expenses, costs, charges or
reserves of the Corporation which are not readily identifiable as belonging to
any particular class or series shall be allocated and charged to and among any
one or more of the classes or series in such manner and on such basis as the
Board of Directors in its sole discretion deems fair and equitable, and any
items so allocated to a particular class or series shall be charged to, and
shall be a liability belonging to, that class or series. Each such allocation
shall be conclusive and binding upon the stockholders of all classes and series
for all purposes.
(c) Income. The Board of Directors shall have full discretion, to the
extent not inconsistent with the Maryland General Corporation Law and the
Investment Company Act of 1940, to determine which items shall be treated as
income and which items shall be treated as capital. Each such determination
shall be conclusive and binding. "Income belonging to" a class or series
includes all income, earnings and profits derived from assets belonging to that
class or series, less any expenses, costs, charges or reserves belonging to that
class or series, for the relevant time period.
(d) Dividends and Distributions. Dividends and distributions on shares of
a particular class or series may be declared and paid with such frequency, in
such form and in such amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the Board
of Directors may determine, after providing for actual and accrued liabilities
belonging to that class or series.
All dividends on shares of a particular class or series shall be paid only
out of the income belonging to that class or series and capital gains
distributions on shares of the class or series shall be only out of the capital
gains belonging to the class or series. All dividends and distributions on
shares of a particular class or series shall be distributed pro rata to the
stockholders of that class or series in proportion to the number of shares of
that class or series held by such stockholders at the date and time
2
<PAGE>
of record established for the payment of such dividends or distributions, except
that in connection with any dividend or distribution program or procedure, the
Board of Directors may determine that no dividend or distribution shall be
payable on shares as to which the stockholder's purchase order and/or payment
have not been received by the time or times established by the Board of
Directors under such program or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends, including dividends designated in
whole or in part as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation or a class or
series thereof to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended, or any successor or comparable statute
thereto, and regulations promulgated thereunder, and to reduce or eliminate
liability of the Corporation or the class or series for taxes, including federal
income and excise taxes, but nothing in the foregoing shall limit the authority
of the Board of Directors to make distributions greater than or less than the
amount necessary to qualify as a regulated investment company or to reduce or
eliminate liability of the Corporation or the class or series for any such
taxes.
Dividends and distributions may be paid in cash, property or shares of the
same or another series or class, or a combination thereof, as determined by the
Board of Directors or pursuant to any program that the Board of Directors may
have in effect at the time.
(e) Liquidation. At any time that there are no shares outstanding for a
particular class or series, the Board of Directors may liquidate such class or
series in accordance with applicable law. In the event of the liquidation or
dissolution of the Corporation, or of a class or series thereof when there are
shares outstanding of the Corporation or of such class or series, as applicable,
the stockholders of such, or of each, class or series, as applicable, shall be
entitled to receive, when and as declared by the Board of Directors, the excess
of the assets of that class or series over the liabilities of that class or
series, determined as provided herein and including assets and liabilities
allocated pursuant to sections (5)(a) and (5)(b) of this Article Fifth. Any such
excess amounts will be distributed to each stockholder of the applicable class
or series in proportion to the number of outstanding shares of that class or
series held by that stockholder and recorded on the books of the Corporation.
Subject to the requirements of applicable law, liquidation or dissolution of a
class or series may be accomplished by distribution of assets to stockholders of
that class or series as provided herein, by the transfer of assets of that class
or series to another class or series of the Corporation, by the exchange of
shares of that class or series for shares of another class or series of the
Corporation, or in any other legal manner.
(f) Voting Rights. On each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be entitled to
one vote for each full share, and a fractional vote for each fractional share of
stock standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of all classes and
series shall vote together as a single class, provided that (i) when the
Maryland General Corporation Law or the Investment Company Act of 1940 requires
that a class or series vote separately with respect to a given matter, the
separate voting requirements of the applicable law shall govern with respect to
the affected classes or series; (ii) in the event that the separate vote
requirement referred to in (i) above applies with respect to one ore more
classes or series, then, subject to (iii) below, the shares of all other classes
or series shall vote as a single class and (iii) as to any matter, which, in the
judgment of the Board of Directors (which shall be conclusive and binding for
all purposes), does not affect the interests of a particular class or series,
such class or series shall not be entitled to any vote, and only the
stockholders of the affected classes or series shall be entitled to vote.
(g) Redemption of Shares.
(i) The Board of Directors shall authorize the Corporation to the extent
it has funds or other property legally available therefor and subject to such
reasonable conditions as the Board of Directors may determine, to permit each
holder of shares of capital stock of the Corporation to redeem all or any part
of the shares standing in the name of such holder on the books of the
Corporation, at the applicable redemption price of such shares, determined in
accordance with procedures established by the Board of Directors of the
Corporation from time to time in accordance with applicable law.
(ii) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the extent
permitted by and in accordance with the conditions of applicable law, to redeem
stock owned by any stockholder under circumstances deemed appropriate by the
Board of Directors in its sole discretion from time to time, such circumstances
including but not limited to (1) failure to provide the Corporation with a tax
identification number and (2) failure to maintain ownership of a specified
minimum number or value of shares of any class or series of stock of the
3
<PAGE>
Corporation, such redemption to be effected at such a price, at such time and
subject to such conditions as may be required or permitted by applicable law.
(iii) Payment for redeemed stock shall be made in cash unless, in the
opinion of the Board of Directors, which shall be conclusive, conditions exist
which make it advisable for the Corporation to make payment wholly or partially
in securities or other property or assets. Payment made wholly or partially in
securities or other property or assets may be delayed to such reasonable extent,
not inconsistent with applicable law, as is reasonably necessary under the
circumstances. No stockholder shall have the right, except as determined by the
Board of Directors, to have his shares redeemed in such securities, property or
other assets.
(iv) All rights of a stockholder with respect to a share redeemed,
including the right to receive dividends and distributions with respect to such
share, shall cease as of the time at which the redemption price is to be paid,
except the right of such stockholder to receive payment for such shares as
provided herein.
(v) Notwithstanding any other provisions of this Article, the Board of
Directors may suspend the right of stockholders of any or all classes or series
of shares to require the Corporation to redeem shares held by them for such
periods and to the extent permitted by, or in accordance with, the Investment
Company Act of 1940, and the rules, regulations and orders issued thereunder.
The Board of Directors may, in the absence of a ruling by a responsible
regulatory official, terminate such suspension at such time as the Board of
Directors, in its discretion, shall deem reasonable, such determination to be
conclusive.
(vi) Shares of any class or series which have been redeemed shall
constitute authorized but unissued shares, subject to classification and
reclassification.
(h) Conversion and Exchange. Subject to compliance with the requirements
of the Investment Company Act of 1940, and the Maryland General Corporation Law,
the Board of Directors shall have the authority to provide that holders of
shares of any class or series shall have the right to convert or exchange said
shares into shares of one or more other classes or series of shares in
accordance with such requirements and procedures as may be established by the
Board of Directors.
(6) Certificateless Shares. Subject to the requirements of the Maryland
General Corporation Law, the Board of Directors may authorize the issuance of
some or all of the shares of any or all classes or series without certificates
and may establish such conditions as it may determine in connection with the
issuance of certificates.
(7) Non-cash Consideration. For any corporate purpose, such as in
connection with the acquisition of all or substantially all the assets or stock
of another investment company or investment trust, the Board of Directors may
issue or cause to be issued shares of capital stock of the Corporation and
accept in payment therefor, in lieu of cash, assets or other property, either
with or without adjustment for contingent costs or liabilities, provided such
assets or other property are of the character in which the Corporation is
permitted to invest.
(8) Repurchase of Shares. The Board may by resolution from time to time
authorize the Corporation to purchase or otherwise acquire, directly or through
an agent, shares of any class or series of its outstanding stock upon such terms
and conditions and for such consideration as permitted by applicable law and
determined to be reasonable by the Board of Directors and to take all other
steps deemed necessary in connection therewith. Shares so purchased or acquired
shall have the status of authorized but unissued shares, subject to
classification and reclassification.
Sixth: Board of Directors.
The number of directors of the Corporation shall be three (3), or such
other number as may from time to time be fixed in the manner provided in the
By-laws of the Corporation, provided that the number of directors shall not be
less than the minimum number required under the Maryland General Corporation
Law. The names of the directors who shall act until their successors are duly
elected and qualified are as follows:
Mark S. Casady
Daniel Pierce
Kathryn L. Quirk
(1) Removal of Directors. Subject to the limits of the Investment Company
Act of 1940 and unless otherwise provided by the By-laws, a director may be
removed with or without cause, by the affirmative vote of a majority of (a) the
Board of Directors, (b) a committee of the Board of Directors
4
<PAGE>
appointed for such purpose, or (c) the stockholders by vote of a majority of the
votes entitled to be cast for the election of directors.
(2) Powers of Directors. In addition to any powers conferred herein or in
the By-laws, the Board of Directors may, subject to any express limitations
contained in the Corporation's Charter or in the By-laws, exercise the full
extent of powers conferred by the Maryland General Corporation Law or other
applicable law upon corporations or directors thereof, and the enumeration and
definition of particular powers herein or in the By-laws shall in no way be
deemed to restrict or otherwise limit those lawfully conferred powers. In
furtherance and without limitation of the foregoing, the Board of Directors
shall have power:
(a) to make, alter, amend or repeal from time to time the By-laws of the
Corporation except as otherwise provided by the By-laws, or required by the
Investment Company Act of 1940.
(b) subject to requirements of the Investment Company Act of 1940, to
authorize the Corporation to enter into contracts. Such contracts may be for any
lawful purpose, whether or not such purpose involves delegating functions
normally performed by the Board of Directors, including, but not limited to, the
provision of investment management for the Corporation's investment portfolio,
the distribution of securities issued by the Corporation, the administration of
the Corporation's affairs, the provision of transfer agent services with respect
to the Corporation's shares of capital stock, and the custody of the
Corporation's assets. Any party (including its associates) may be retained in
multiple capacities pursuant to one or more contracts and may also perform
services, including similar or identical services, for others, including other
investment companies. Subject to the requirements of applicable law, such
contracts may provide for compensation to be paid by the Corporation in such
amounts, including payments of multiple amounts for parties (including their
affiliates) acting in multiple capacities, as the Board of Directors shall
determine in its discretion to be proper and reasonable.
(c) to authorize from time to time the payment of compensation and
expenses to the Directors for services to the Corporation, including fees for
attendance at meetings of the Board of Directors and committees thereof.
(d) subject to the requirements of applicable law, to establish, in its
absolute discretion, the basis or method, timing and frequency for determining
the value of assets belonging to each class or series and for determining the
net asset value of each share of each class or series for purposes of sales,
redemptions, repurchases or otherwise.
Without limiting the foregoing, the Board of Directors may determine that
the net asset value per share of any class or series should be maintained at a
designated constant value and may adopt procedures, not inconsistent with
applicable law, to accomplish that result. Such procedures may include a
requirement, in the event of a net loss with respect to the particular class or
series from time to time, for automatic pro rata capital contributions from each
stockholder of that class or series in amounts sufficient to maintain the
designated constant share value.
(e) to determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings, surplus or net
assets in excess of capital, and to determine what accounting periods shall be
used by the Corporation for any purpose; to set apart any funds of the
Corporation reserves for such purposes as it shall determine and to abolish the
same; to declare and pay any dividends and distributions in cash, securities or
other property from surplus or any funds legally available therefor, at such
intervals as it shall determine; to establish payment dates for dividends or any
other distributions on any basis, including dates occurring less frequently than
the effectiveness of declarations thereof.
(f) to make such elections, in its discretion, as to the tax status of the
Corporation or any series or class of the Corporation's capital stock as may be
permitted or required by the Internal Revenue Code of 1986, as amended, without
the vote of stockholders of any series or class.
(3) Determination by Board of Directors. Any determination made in good
faith and, in the case of accounting matters, in accordance with generally
accepted accounting principles, by or pursuant to the direction of the Board of
Directors, shall be final and shall be binding upon the Corporation and upon all
stockholders, past, present and future, of each class and series.
Seventh: Reservation of Right to Amend.
The Corporation reserves the right to adopt from time to time any
amendment to its Charter, as now or hereafter authorized by law, including any
amendment that alters the contract rights, as expressly set forth in the
Charter, of any outstanding capital stock.
5
<PAGE>
Eighth: Contracts.
The Corporation may enter into any contract with any corporation, firm,
partnership, trust or association, although one or more of the Directors,
officers or stockholders of the Corporation may be an officer, director,
partner, trustee, stockholder or member of, or have an interest in, such other
party to the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship or interest, nor
shall any person holding such relationship be liable merely by reason of such
relationship or interest for any loss or expense to the Corporation under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair to the Corporation.
Ninth: Liability and Indemnification.
To the fullest extent permitted by the Maryland General Corporation Law
and the Investment Company Act of 1940, no director or officer of the
Corporation shall be personally liable to the Corporation or to its stockholders
for money damages. This limitation on liability applies to events occurring at
the time a person serves as a director or officer of the Corporation, whether or
not such person is a director or officer at the time of any proceeding in which
liability is asserted. No amendment to the Charter of the Corporation or repeal
of any of its provisions shall limit or eliminate the benefits provided to
directors or former directors or officers or former officers under this
provision with respect to any act or omission which occurred prior to such
amendment or repeal.
The Corporation, including its successors and assigns, shall indemnify its
directors, officers and former officers, and make advance payment of related
expenses, to the fullest extent permitted, and in accordance with the procedures
required by Maryland law, including Section 2-418 of the Maryland General
Corporation Law, as may be amended from time to time, and the Investment Company
Act of 1940. The By-laws may provide that the Corporation shall indemnify its
employees and/or agents in any manner and within such limits as permitted by
applicable law. Such indemnification shall be in addition to any other right or
claim to which any current or former director, officer, employee or agent may
otherwise be entitled. For purposes of this provision, the word "director" shall
have the meaning ascribed to that word by Section 2-418. No amendment to the
Charter of the Corporation or repeal of any of its provisions shall limit or
eliminate the protection afforded by this provision to a director or officer or
former officer with respect to any act or omission that occurred prior to such
amendment or repeal.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.
The rights provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
such rights in serving or continuing to serve in the capacities indicated
herein. No amendment to the Charter of the Corporation shall impair the rights
of any person arising at any time with respect to events occurring prior to such
amendment.
Nothing in the Charter of the Corporation shall be deemed to require a
waiver of compliance with any provision of the Securities Act of 1933, as
amended, or the Investment Company Act of 1940, or of any valid rule, regulation
or order of the Securities and Exchange Commission under those acts.
Tenth: Stockholders.
(1) Meetings of Stockholders. Unless an election of directors is required
by the Investment Company Act of 1940, the Corporation shall not be required to
hold an annual meeting of stockholders in any year.
(2) Inspection of Records. Stockholders of the Corporation shall have only
such rights to inspect and copy the records, documents, accounts and books of
the Corporation and to request statements regarding its affairs as are provided
by the Maryland General Corporation Law, subject to such reasonable regulation,
not contrary to the Maryland General Corporation Law, as the Board of Directors
may from time to time adopt regarding the conditions and limits of such rights.
(3) No Liability. The stockholders of the Corporation shall not be liable
for, and their private property shall not be subject to, claim, levy or other
encumbrance on account of the debts or liabilities of the Corporation, to any
extent whatsoever.
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(4) Owner of Record. The Corporation shall be entitled to treat the person
in whose name any share of the capital stock of the Corporation is registered as
the owner thereof for purposes of dividends and other distributions in the
course of business or in the course of recapitalization, sale of the property
and assets of the Corporation, or otherwise, and for the purpose of votes,
approvals and consents by stockholders and for the purpose of notices to
stockholders, and for all other purposes whatsoever; and the Corporation shall
not be bound to recognize any equitable or other claim to or interest in such
share, on the part of any other person, whether or not the Corporation shall
have notice thereof, save as expressly required by law.
(5) Quorum. The presence in person or by proxy of the holders of one-third
of the shares of stock of the Corporation entitled to vote thereat, without
regard to class, shall constitute a quorum at any meeting of the stockholders,
except as otherwise required by applicable law, and except that where the
holders of shares of any class or series are entitled to a separate vote as a
class or series (a "Separate Class"), or where the holders of shares of two or
more (but not all) classes or series are required to vote as a single class or
series (a "Combined Class"), the presence in person or by proxy of the holders
of one-third of the shares of that Separate Class or Combined Class, as the case
may be, entitled to vote thereat, shall constitute a quorum for such vote. If at
any meeting of the stockholders there shall be less than a quorum present, the
stockholders present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall be present.
(6) Notwithstanding any provision of the Maryland General Corporation Law
requiring for any purpose a proportion greater than a majority of the votes of
all classes or series, or greater than a majority of votes of a particular class
or series entitled to vote separately, or greater than a majority of votes of
two or more (but not all) classes or series entitled to vote as a single class
or series, the affirmative vote of the holders of a majority of the total number
of votes of all classes or series, or of a class or classes or series of the
Corporation, as applicable, outstanding and entitled to vote under such
circumstances, shall be effective for such purpose, except to the extent
otherwise required by the Investment Company Act of 1940 and rules thereunder.
Eleventh: Master Feeder Structure.
The Corporation shall be empowered to transfer some or all of its assets
to any entity or entities of which all of the equity interests are owned by the
Corporation at the time of transfer for the purpose of creating a master feeder
or similar structure in accordance with the Investment company Act of 1940, the
precise structure of such transfer of assets to be determined by action of the
Corporation's Board of Directors as constituted at the time such Board of
Directors deems such transfer to be advisable.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation on this 1st
day of October, 1997, and acknowledge the same to be my act.
____________________________________
Kenneth B. Abel
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