TABLE OF CONTENTS
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Summary 1
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Summary of Expenses 3
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Investment Objectives, Policies and Risk
Factors 7
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Investment Manager and Underwriter 24
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Dividends, Distributions and Taxes 28
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Net Asset Value 30
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Purchase of Shares 30
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Redemption or Repurchase of Shares 36
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Special Features 41
- -----------------------------------------------------
Performance 45
- -----------------------------------------------------
Fund Organization and Capital Structure 46
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This combined prospectus of the Kemper Global and International Funds (the
"Funds"), each a 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 31, 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.
[LOGO]
KEMPER
GLOBAL AND
INTERNATIONAL FUNDS
PROSPECTUS DATED DECEMBER 31, 1997
AS REVISED JANUARY 14, 1998
KEMPER GLOBAL AND
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
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
KEMPER EMERGING MARKETS INCOME FUND INVESTS PREDOMINANTLY IN LOWER QUALITY
BONDS, COMMONLY REFERRED TO AS JUNK BONDS. BONDS OF THIS TYPE ARE CONSIDERED TO
BE SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL.
PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THE FUND.
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.
Each Fund is a series of Kemper Global/International Series, Inc., an open-end
management investment company. Global Blue Chip Fund and International Growth
and Income Fund each are diversified series. Emerging Markets Income Fund,
Emerging Markets Growth Fund and Latin America Fund are non-diversified series.
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.
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 a Fund, see "Special Risk Factors."
Each Fund involves above-average investment risk. They are designed as long-term
investments and not for short-term trading purposes, and each should not be
considered a complete investment program.
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, since 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
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
1
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 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. Non-diversification by the Latin America Fund
of investments in a single issuer creates greater risk than investments 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 extensions 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. Emerging
Markets Income Fund may borrow money for leverage purposes, which can exaggerate
the effect on its net asset value of any increase or decrease in the market
value of the Fund. In an attempt to eliminate currency risk, Emerging Markets
Income Fund invests exclusively in U.S. dollar-denominated debt securities, or
in foreign currency denominated debt securities that are fully hedged back into
the U.S. dollar. See "Investment Objectives, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. Each Fund provides investors with the option of
purchasing shares in the following ways:
<TABLE>
<CAPTION>
<S> <C>
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 applied to the value of
shares redeemed within six years of purchase. The contingent
deferred sales charge is computed at the following rates:
CONTINGENT
DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE
------------------------------------------------- ---------------
First............................................ 4%
Second........................................... 3%
Third............................................ 3%
Fourth........................................... 2%
Fifth............................................ 2%
Sixth............................................ 1%
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.
</TABLE>
2
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 for 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 the average daily net assets
of that Fund at an effective annual rate that differs for each Fund. Kemper
Distributors, Inc. ("KDI"), a subsidiary of the Adviser, is principal
underwriter and administrator for each Fund. For Class B shares and Class C
shares of each Fund, KDI receives a Rule 12b-1 distribution fee of 0.75% of
average daily net assets of each such class. KDI 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, but not necessarily higher than the fees charged to funds with investment
objectives similar to those of the Funds. Administrative services are provided
to shareholders under an administrative services agreement with KDI. Each Fund
pays an administrative services fee at an annual rate of up to 0.25% of average
daily net assets of each of Class A, B and C shares of the Fund, which KDI pays
to financial services firms. See "Investment Manager and Underwriter."
DIVIDENDS. 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 these 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."
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO ALL FUNDS)(1) CLASS A CLASS B CLASS 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 Contingent Deferred Sales Charge (as a percentage of
redemption proceeds)............................................. None(3) 4%(4) 1%(5)
- -------------------------
</TABLE>
(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% during the first year and 0.50% during 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 of 1% on Class C Shares applies to
redemptions during the first year after purchase.
3
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(estimated as a percentage of average net assets)
INTERNATIONAL EMERGING EMERGING LATIN
GLOBAL BLUE GROWTH AND MARKETS INCOME MARKETS AMERICA
CHIP FUND INCOME FUND FUND GROWTH FUND FUND
----------- ------------- --------------- ------------- ---------
CLASS A SHARES
Management Fees* (after waiver)..................... 0.85% 0.70% 0.30% 0.90% 0.90%
12b-1 Fees.......................................... None None None None None
Other Expenses...................................... 0.95% 1.11% 1.38% 1.27% 1.29%
----------- ------ ------ ------ ---------
Total Fund Operating Expenses* (after waiver)....... 1.80% 1.81% 1.68% 2.17% 2.19%
----------- ------ ------ ------ ---------
----------- ------ ------ ------ ---------
INTERNATIONAL EMERGING EMERGING LATIN
GLOBAL BLUE GROWTH AND MARKETS INCOME MARKETS AMERICA
CHIP FUND INCOME FUND FUND GROWTH FUND FUND
----------- ------------- --------------- ------------- ---------
CLASS B SHARES
Management Fees* (after waiver)..................... 0.85% 0.70% 0.30% 0.90% 0.90%
12b-1 Fees.......................................... 0.75% 0.75% 0.75% 0.75% 0.75%
Other Expenses...................................... 1.08% 1.24% 1.51% 1.40% 1.42%
----------- ------ ------ ------ ---------
Total Fund Operating Expenses* (after waiver)....... 2.68% 2.69% 2.56% 3.05% 3.07%
----------- ------ ------ ------ ---------
----------- ------ ------ ------ ---------
INTERNATIONAL EMERGING EMERGING LATIN
GLOBAL BLUE GROWTH AND MARKETS INCOME MARKETS AMERICA
CHIP FUND INCOME FUND FUND GROWTH FUND FUND
----------- ------------- --------------- ------------- ---------
CLASS C SHARES
Management Fees* (after waiver)..................... 0.85% 0.70% 0.30% 0.90% 0.90%
12b-1 Fees.......................................... 0.75% 0.75% 0.75% 0.75% 0.75%
Other Expenses...................................... 1.05% 1.21% 1.48% 1.37% 1.39%
----------- ------ ------ ------ ---------
Total Fund Operating Expenses* (after waiver)....... 2.65% 2.66% 2.53% 3.02% 3.04%
----------- ------ ------ ------ ---------
----------- ------ ------ ------ ---------
- --------------------
* For a one year period, the Adviser has agreed to waive a portion of its
management fee amounting to 0.15%, 0.30%, 0.70%, 0.35%, and 0.35% of average
daily net assets for Global Blue Chip Fund, International Growth and Income
Fund, Emerging Markets Income Fund, Emerging Markets Growth Fund, and Latin
America Fund, respectively.
4
If the Adviser had not agreed to waive a portion of its management fee, the
annualized expenses of the Funds would be:
INTERNATIONAL EMERGING EMERGING LATIN
GLOBAL BLUE GROWTH AND MARKETS INCOME MARKETS AMERICA
CHIP FUND INCOME FUND FUND GROWTH FUND FUND
----------- ------------ --------------- ------------- ---------
CLASS A SHARES
Management Fees..................................... 1.00% 1.00% 1.00% 1.25% 1.25%
12b-1 Fees.......................................... None None None None None
Other Expenses...................................... 0.95% 1.11% 1.38% 1.27% 1.29%
----------- ------ ------ ------ ---------
Total Fund Operating Expenses....................... 1.95% 2.11% 2.38% 2.52% 2.54%
----------- ------ ------ ------ ---------
----------- ------ ------ ------ ---------
CLASS B SHARES(6)
Management Fees..................................... 1.00% 1.00% 1.00% 1.25% 1.25%
12b-1 Fees.......................................... 0.75% 0.75% 0.75% 0.75% 0.75%
Other Expenses...................................... 1.08% 1.24% 1.51% 1.40% 1.42%
----------- ------ ------ ------ ---------
Total Fund Operating Expenses....................... 2.83% 2.99% 3.26% 3.40% 3.42%
----------- ------ ------ ------ ---------
----------- ------ ------ ------ ---------
CLASS C SHARES(7)
Management Fees..................................... 1.00% 1.00% 1.00% 1.25% 1.25%
12b-1 Fees.......................................... 0.75% 0.75% 0.75% 0.75% 0.75%
Other Expenses...................................... 1.05% 1.21% 1.48% 1.37% 1.39%
----------- ------ ------ ------ ---------
Total Fund Operating Expenses....................... 2.80% 2.96% 3.23% 3.37% 3.39%
----------- ------ ------ ------ ---------
----------- ------ ------ ------ ---------
- -------------------------
</TABLE>
(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 KDI believes that this 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>
<S> <C> <C> <C>
FUND 1 YEAR 3 YEARS
------------------------------------ ----------- -----------
CLASS A SHARES(8)
Based on the estimated level of total operating expenses Global Blue Chip $75 $111
listed above, you would pay the following expenses on a International Growth & Income $75 $111
$1,000 investment, assuming a 5% annual return and redemption Emerging Markets Income $74 $107
at the end of each time period: Emerging Markets Growth $78 $122
Latin America $78 $122
5
FUND 1 YEAR 3 YEARS
------------------------------------ ----------- -----------
CLASS B SHARES(9)
Based on the estimated level of total operating expenses Global Blue Chip $67 $113
listed above, you would pay the following expenses on a International Growth & Income $67 $114
$1,000 investment, assuming a 5% annual return and redemption Emerging Markets Income $66 $110
at the end of each time period: Emerging Markets Growth $71 $124
Latin America $71 $125
You would pay the following expenses on the same investment, Global Blue Chip $27 $83
assuming no redemption: International Growth & Income $27 $84
Emerging Markets Income $26 $80
Emerging Markets Growth $31 $94
Latin America $31 $95
CLASS C SHARES(10)
Based on the estimated level of total operating expenses Global Blue Chip $37 $82
listed above, you would pay the following expenses on a International Growth & Income $37 $83
$1,000 investment, assuming a 5% annual return and redemption Emerging Markets Income $36 $79
at the end of each time period: Emerging Markets Growth $41 $93
Latin America $41 $94
You would pay the following expenses on the same investment, Global Blue Chip $27 $82
assuming no redemption: International Growth & Income $27 $83
Emerging Markets Income $26 $79
Emerging Markets Growth $31 $93
Latin America $31 $94
- -------------------------
</TABLE>
** 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 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 (4%) and 3 years (3%).
(10) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge of 1.00% was applied.
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 31, 1997 thus "Management Fees" and "Other
Expenses" are estimates for the fiscal year ending October 31, 1998, 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.
6
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 objectives. 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 the Fund remains an
appropriate investment in light of their then current financial position and
needs.
Each Fund is designed for long-term investors who can accept international
investment risk in pursuit of additional opportunities that foreign securities
may provide. Since 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 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. 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 securities 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. Foreign investing does involve significant risks, as
discussed in this prospectus, and no Fund should be considered a complete
investment program.
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 Fund'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. While specific investment and financial
criteria may vary from market to market, Blue Chip companies around the world
are generally identified by the Adviser as having substantial capitalization,
established financial history, ready access to credit, good industry position
and superior management structure. 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. Global Blue Chip companies are believed to generally
exhibit less investment risk and less price volatility, on average, than
companies lacking these characteristics, such as smaller, less-seasoned
companies. In addition, the large market of publicly held shares for such
companies and the generally higher trading volume in those shares generally
result 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 usually be
invested 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
7
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,
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 (commonly referred to as "high yield" or "junk" bonds). (See "Special
Risk Factors").
The Fund may invest in zero coupon securities. In addition, fixed-income
securities 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 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, as well as shares of closed-end investment companies that invest
primarily in emerging market debt securities. In addition, the Fund may engage
in strategic transactions, which may include derivatives. (See "Special Risk
Factors").
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 developed foreign countries
included in the Morgan Stanley Capital International World ex-US Index (the
"MSCI").
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's net asset value can fluctuate
with changes in world securities 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
The Fund intends to diversify investments among several developed foreign
markets and normally to invest in securities of issuers located in at least
three different countries. The Fund will invest predominantly 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, governmental 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
"Special 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 dividend-paying foreign 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-earnings 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
9
income and appreciation potential, for long-term investors. In an attempt to
eliminate currency risk, the Fund invests exclusively in U.S. dollar-denominated
debt securities, or in foreign currency denominated debt securities that are
fully hedged back into the U.S. dollar.
The Fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. 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.
In seeking high current income and, secondarily, long-term capital appreciation,
the Fund invests, under normal market conditions, at least 65% of its total
assets in debt securities issued by governments, government-related entities and
corporations in emerging markets, or in debt securities, the return on which is
derived primarily from emerging markets. The Fund considers "emerging markets"
to include any country that is defined as an emerging or developing economy by
any 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:
- - the issuer is organized under the laws of an emerging market country;
- - the issuer's principal securities trading market is in an emerging market; or
- - at least 50% of the issuer's non-current assets, capitalization, gross revenue
or profit in any one of the two most recent fiscal years is derived (directly
or indirectly from subsidiaries) from assets or activities located in emerging
markets.
The Fund may invest in a wide variety of high-yielding debt obligations,
including 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. Some "Brady Bonds" have their
principal collateralized by zero coupon U.S. Treasury bonds.
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
10
upon the Adviser's assessment of economic and market conditions, taking into
account the Fund's investment objectives.
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 governmental initiatives.
While the Fund is not "diversified" for purposes of the Investment Company Act
of 1940, as amended (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 in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"), as well as Synthetic Investments.
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 predict accurately 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.
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.
11
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.
The Fund's net asset value 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 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 intends to allocate its investments among
issuers located in 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:
- - the issuer is organized under the laws of an emerging market country;
- - the issuer's principal securities trading market is in an emerging market; or
- - 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 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. 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. Such
closed-end investment company investments will generally only be made when
market
12
access or liquidity considerations restricts direct investment in the market.
More information about the risks related to 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
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.
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:
- - Securities of companies organized under the laws of a Latin American country
or for which the principal securities trading market is in Latin America;
- - 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;
- - 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
- - 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
six 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.
13
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.
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, level of sales 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. 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 predict
accurately 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.
14
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 is each classified as a
non-diversified investment company under 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 decision 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.
Each Fund has foreign currency exposure. In an attempt to eliminate currency
risk, Emerging Markets Income Fund invests exclusively in U.S.
dollar-denominated debt securities, or in foreign currency denominated debt
securities that are fully hedged back into the U.S. dollar. 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 eliminate 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.
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
15
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 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 will invest no more than 5% of its total assets in debt
securities rated BBB or Baa or below or in unrated securities. International
Growth and Income Fund will invest no more than 5% of its total assets in debt
securities rated below BBB or Baa or in unrated securities.
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. An investment in common stock entails greater risk
of becoming valueless than does an investment in fixed-income securities.
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
16
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. Each 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.
INVESTING IN EMERGING MARKETS. The Funds consider "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.
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
return 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 a 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.
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 a 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,
17
social or economic changes will not cause a Fund to suffer a loss of value in
respect of the securities in a 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 may 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 a
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.
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
18
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.
Investments in emerging markets can be volatile. A 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.
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 investment in Chile will be limited by a Fund's
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 the commitment. Emerging Markets Growth Fund and Latin
America 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.
19
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. In addition, the change in
the interest rate or value of the security at maturity may be some multiple of
the change in the value of the reference instrument. Thus, in addition to the
credit risk of the security's issuer, the Fund will bear the market risk of the
reference instrument.
SYNTHETIC INVESTMENTS. Under certain circumstances, the Emerging Markets Income
Fund may wish to obtain the price performance of a security without actually
purchasing the security in circumstances where, for example, the security is
illiquid, or is unavailable for direct investment or available only on less
attractive terms. In such circumstances, the Fund may invest in synthetic or
derivative alternative investments ("Synthetic Investments") that are based upon
or otherwise relate to the economic performance of the underlying securities.
Synthetic Investments may include swap transactions, notes or units with
variable redemption amounts, and other similar instruments and contracts.
Synthetic Investments typically do not represent beneficial ownership of the
underlying security, usually are not collateralized or otherwise secured by the
counterparty and may or may not have any credit enhancements attached to them.
Accordingly, Synthetic Investments involve exposure not only to the
creditworthiness of the issuer of the underlying security, changes in exchange
rates and future governmental actions taken by the jurisdiction in which the
underlying security is issued, but also to the creditworthiness and legal
standing of the counterparties involved. In addition, Synthetic Investments
typically are illiquid. As such, investments in these securities will be limited
by the Fund's policy of investing in illiquid 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 in connection with outstanding reverse repurchase
agreements. 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.
BORROWING. Each Fund is 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.
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 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
20
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
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 Securities" for more information.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be
acquired by each Fund, to the extent permitted under the 1940 Act. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by a Fund in shares of other
investment companies may be subject to such duplicate expenses.
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
21
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 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 since they can be sold to other qualified institutional buyers
under a rule of the SEC (Rule 144A). 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.
INVESTING IN SMALL COMPANIES. There is typically less publicly available
information concerning foreign and smaller companies than for domestic and
larger, more established companies. Some small companies have limited product
lines, distribution channels and financial and managerial resources. Also,
because smaller companies normally have fewer shares outstanding than larger
companies and trade less frequently, it may be more difficult for a Fund to buy
and sell significant amounts of such shares without an unfavorable impact on
prevailing market prices. Some of the companies in which a Fund may invest may
distribute, sell or produce products which have recently been brought to market
and may be dependent on key personnel with varying degrees of experience.
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.
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
22
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 leveraging 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.
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.
Investment objectives and 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, each Fund may not borrow money except as
permitted under Federal law. Further, as a matter of non-fundamental policy,
each Fund, with the exception of Emerging Markets Income Fund, may not borrow
money in an amount greater than 5% of total assets, except for temporary or
emergency purposes, although each Fund may engage up to 5% of total assets in
reverse repurchase agreements or dollar rolls.
23
As a matter of fundamental policy, each Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or through
repurchase agreements. Each Fund, with the exception of International Growth and
Income Fund, has adopted a non-fundamental policy restricting the lending of
portfolio securities to no more than 5% of total assets.
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 Corporation's 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 December 31,
1997, 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 and 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.
The Adviser is located at 345 Park Avenue, New York, New York.
Scudder Kemper Investments, Inc. an investment counsel firm, acts as investment
adviser to the Fund. This organization, the predecessor of which is Scudder,
Stevens & Clark, Inc. ("Scudder"), is one of the most experienced investment
counsel firms in the U.S. It was established as a partnership in 1919 and
pioneered the practice of providing investment counsel to individual clients on
a fee basis. In 1953 the Adviser introduced Scudder International Fund, Inc.,
the first mutual fund available in the U.S. investing internationally in
securities of issuers in several foreign countries. The predecessor firm
reorganized from a partnership to a corporation on June 28, 1985. On June 26,
1997, the Adviser's predecessor entered into an agreement with Zurich Insurance
Company ("Zurich") pursuant to which the predecessor and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich made its subsidiary Zurich Kemper Investments, Inc., a part
of the predecessor organization. The predecessor's name has been changed to
Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
24
The Funds each pay the Adviser an investment management fee, payable monthly, at
the annual rates shown below.
Global Blue Chip Fund......... 1.00% for the first $250 million
0.95% for the next $750 million
0.90% over $1 billion
International Growth and 1.00%
Income Fund.................
Emerging Markets Income 1.00%
Fund........................
Emerging Markets Growth 1.25%
Fund........................
Latin America Fund............ 1.25% for the first $250 million
1.20% for the next $750 million
1.15% over $1 billion
For a one year period, the Adviser has agreed to maintain its annual management
fee for each Fund at the following rates:
<TABLE>
<CAPTION>
<S> <C>
Global Blue Chip Fund..................................................... 0.85%
International Growth and Income Fund...................................... 0.70%
Emerging Markets Income Fund.............................................. 0.30%
Emerging Markets Growth Fund.............................................. 0.90%
Latin America Fund........................................................ 0.90%
</TABLE>
The expenses of the Fund, and of other investment companies investing in foreign
securities can be expected to be higher than for investment companies investing
primarily in domestic securities since the costs of operation are higher,
including custody and transaction costs for foreign securities and investment
management fees.
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.
GLOBAL BLUE CHIP FUND. Lead Portfolio Manager Diego Espinosa joined the Adviser
in 1996. Mr. Espinosa is responsible for development of the Fund's strategy and
management of the portfolio on a daily basis. Mr. Espinosa has four years of
direct investment experience as both an analyst and a portfolio manager. Prior
to that, he worked in commercial banking for two years and as a management
consultant for three years. William E. Holzer, Portfolio Manager, also has
day-to-day responsibility for the Fund's worldwide strategy and investment
themes. Mr. Holzer has over 20 years' experience in global investing - first as
an analyst and later as a portfolio manager. He joined the Adviser in 1980.
Nicholas Bratt, Portfolio Manager, directs the Fund's overall global equity
investment strategies. Mr. Bratt joined the Adviser as a portfolio manager in
1976.
INTERNATIONAL GROWTH AND INCOME FUND. Lead Portfolio Manager Sheridan Reilly
joined the Adviser in 1995 and has over 10 years of experience as an
international economic analyst in the financial service industry where he
developed strategies for global portfolios, currency hedging, and foreign equity
markets. Portfolio Manager Irene Cheng joined the Adviser in 1993. Ms. Cheng,
who has over 13 years of industry experience, including five years as a
portfolio manager, focuses on portfolio management and research for the
Adviser's international equity accounts.
25
EMERGING MARKETS INCOME FUND. Lead Portfolio Manager M. Isabel Saltzman has
responsibility for the Fund's investment strategies and day-to-day management.
Ms. Saltzman, who joined the Adviser in 1990 as a portfolio manager, has been
involved in foreign finance and investing since 1979 and contributes special
expertise in Latin America. Susan E. Dahl, Portfolio Manager, assists with the
development of investment strategy. Ms. Dahl, who has over six years of emerging
markets investment experience as a portfolio manager, has worked with the
Adviser since 1987.
EMERGING MARKETS GROWTH FUND. Joyce E. Cornell, Lead Portfolio Manager, has
responsibility for the Fund's day-to-day management and investment strategies.
Ms. Cornell has been a portfolio manager since 1993, and joined the Adviser in
1991 after five years of investment experience as a research analyst. Andre
DeSimone, Portfolio Manager, joined the Adviser in 1997 after spending two years
as CEO of a stock brokerage company in Kenya. Prior to that, he was a vice
president of an investment firm. Mr. DeSimone assists with the Fund's research
and investment strategy.
LATIN AMERICA FUND. Lead Portfolio Manager Tara C. Kenney has responsibility
for the Fund's investment strategy and oversees its daily operation. Ms. Kenney
has over ten years of financial industry experience specializing in the Latin
America region. She was a vice president of corporate finance for an investment
banking firm for seven years, and most recently, a portfolio manager for two
years. Edmund B. Games, Jr., Portfolio Manager, assists with the Fund's research
and investment strategy. Mr. Games joined the Adviser's equity research area in
1960 and has focused on Latin American stocks since 1988. He has been a
portfolio manager with the Adviser since 1991. Paul H. Rogers, Portfolio
Manager, is primarily responsible for research on Latin American corporations,
joined the Adviser in 1994 and has over 10 years of investment experience as an
analyst and a portfolio manager in the Latin American region.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement (the "distribution agreement") with the Corporation, Kemper
Distributors, Inc. ("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606,
a 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. KDI
bears all of its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. KDI provides for the
preparation of advertising or sales literature and bears the cost of printing
and mailing prospectuses to persons other than shareholders. KDI 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. KDI may enter into related selling group
agreements with various broker-dealers, including affiliates of KDI, that
provide distribution services to investors. KDI also may provide some of the
distribution services.
CLASS A SHARES. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays 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, KDI
receives a fee from each Fund, payable monthly, at the annual rate of 0.75% 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. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class B Shares." KDI currently
compensates firms for sales of Class B shares at a commission rate of 3.75%.
26
CLASS C SHARES. For its services under the Class C distribution plan, KDI
receives a fee from each Fund, payable monthly, at the annual rate of 0.75% 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. KDI currently advances to
firms the first year distribution fee at a rate of 0.75% of the purchase price
of Class C shares. For periods after the first year, KDI currently pays firms
for sales of Class C shares a distribution fee, payable quarterly, at an annual
rate of 0.75% of net assets attributable to Class C shares maintained and
serviced by the firm and the fee continues until terminated by KDI or a Fund.
KDI also receives any contingent deferred sales charges. See "Redemption or
Repurchase of Shares--Contingent Deferred Sales Charges--Class C Shares".
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
KDI to pay for distribution services for those classes, each agreement is
approved and reviewed separately for the Class B shares and the Class C shares
in accordance with Rule 12b-1 under the 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 KDI pursuant to such
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for a Fund to pay any
expenses incurred by KDI in excess of its fees under a Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under a Plan
may or may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of each Fund pursuant to an administrative services
agreement with the Corporation (the "administrative agreement"). KDI 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. KDI
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 KDI a fee, payable monthly, at the
annual rate of up to 0.25% of average daily net assets of each of Class A, B and
C shares of such Fund. KDI then pays each firm a service fee at an annual rate
of up to 0.25% of net assets of each of Class A, B and C shares maintained and
serviced by the firm. Firms to which service fees are paid may include
affiliates of KDI.
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 KDI or the Fund. The fees are calculated monthly and paid
quarterly.
CLASS B AND CLASS C SHARES. KDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of Class B and Class
C shares of a Fund. For periods after the first year, KDI currently intends to
pay firms a service fee at a rate of up to 0.25% (calculated monthly and paid
quarterly) of average daily 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 KDI or the Fund.
27
KDI 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 KDI 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 KDI 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, KDI may, from time to
time, from its own resources pay certain firms additional amounts for ongoing
administrative services and assistance provided to their customers and clients
who are shareholders of the Funds.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Brown Brothers
Harriman & Co., as custodian, has custody of all securities and cash of each
Fund. Pursuant to a services agreement with Kemper Service Company, an
subsidiary of the Adviser, Kemper Service Company serves as "Shareholder Service
Agent" of the Funds and, as such, performs all of the duties as transfer agent
and dividend-paying agent. For a description of transfer agent and shareholder
service agent fees payable to Kemper Service Company 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.
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. 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. Global Blue Chip Fund, 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.
A Fund may make the election permitted under Section 853 of the Code. If this
election is made, 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.
For all the Funds, any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. According
to preference, shareholders may receive distributions in cash or have them
reinvested in additional shares of a Fund. If an investment is in the form of a
retirement plan, all dividends and capital gains distributions must be
reinvested in the shareholder's account.
28
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 proportion 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 dividends from income and short-term capital gain in cash and net
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
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 capital gain dividends are taxable to shareholders at
the applicable mid-term or long-term capital gains rate 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 at 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
29
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. A Fund may
make the election permitted under Section 853 of the Code. If this election is
made, 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
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. Portfolio
securities for which market quotations are readily available are generally
valued at market value. All other securities may be valued at fair value as
determined in good faith by or under the direction of the Board of Directors.
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
30
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>
<S> <C> <C> <C>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
----------------------------------------- ---------------------- -----------------------------------------
Class A Maximum initial sales charge of 5.75% of None Initial sales charge waived or reduced
the public offering price for certain purchases
Class B Maximum contingent deferred sales charge 0.75% Shares convert to Class A shares six
of 4% of redemption proceeds; declines to years after issuance
zero after six years
Class C Contingent deferred sales charge of 1% of 0.75% No conversion feature
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 value of 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>
<S> <C> <C> <C>
SALES CHARGE ALLOWED TO
AS A AS A DEALERS AS A
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET ASSET VALUE* OFFERING PRICE
- ------------------------------------------------------------------------ --------------- ------------------ ---------------
Less than $50,000....................................................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000.......................................... 4.50 4.71 4.00
$100,000 but less than $250,000......................................... 3.50 3.63 3.00
$250,000 but less than $500,000......................................... 2.60 2.67 2.25
$500,000 but less than $1 million....................................... 2.00 2.04 1.75
$1 million and over..................................................... 0.00** 0.00** ***
- --------------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
</TABLE>
31
Each Fund receives the entire net asset value of all its shares sold. KDI, the
Funds' principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may 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 KDI
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. KDI may in
its discretion compensate firms for sales of Class A shares under this privilege
at a commission rate of 0.50% of the amount of Class A shares purchased. 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 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."
KDI 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 record keeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in a Fund and other Kemper 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.
As of February 1, 1996, Class A shares of a Fund or any other Kemper Fund listed
under "Special Features-- Class A Shares--Combined Purchases" may be purchased
at net asset value in any amount by members of the
32
plaintiff class in the proceeding known as HOWARD AND AUDREY TABANKIN, ET AL. V.
KEMPER SHORT-TERM GLOBAL INCOME FUND, ET AL., Case No. 93 C 5231 (N.D. IL). This
privilege is generally non-transferable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement,
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, KDI may in its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to 0.25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by KDI. The
privilege of purchasing Class A shares of 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 KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares 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 KDI and officers, directors and employees of service agents of the Funds,
for themselves or their spouses or dependent children; (c) shareholders who
owned shares of Kemper Value 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 KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Funds for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase 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 KDI, including a
requirement that such shares be sold for the benefit of their clients
participating in an investment advisory program under which such clients pay a
fee to the investment adviser or other firm for portfolio management and other
services. Such shares are sold for investment purposes and on the
33
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.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge-- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by 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 the
shares have been outstanding long enough for KDI to have been compensated for
distribution related expenses. For purposes of conversion to Class A shares,
shares purchased through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's Fund account will be
converted to Class A shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of
a Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to which class of shares
provides the most 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
34
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 Funds listed under "Special Features--Class A Shares--Combined
Purchases" is in excess of $5 million including purchases pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features." For more information about the three sales
arrangements, consult your financial representative or the Shareholder Service
Agent. Financial services firms may receive different compensation depending
upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash 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 KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt in good order
by KDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
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
35
arrange with their clients for other investment or administrative services. Such
firms may independently establish and charge additional amounts to their clients
for such services, which charges would reduce the clients' return. Firms also
may hold the Funds' shares in nominee or street name as agent for and on behalf
of their customers. In such instances, the Funds' transfer agent will have no
information with respect to or control over the accounts of specific
shareholders. Such shareholders may obtain access to their accounts and
information about their accounts only from their firm. Certain of these firms
may receive compensation from the Funds through the Shareholder Service Agent
for recordkeeping and other expenses relating to these nominee accounts. In
addition, certain privileges with respect to the purchase and redemption of
shares or the reinvestment of dividends may not be available through such firms.
Some firms may participate in a program allowing them access to their clients'
accounts for servicing. including, without limitation, transfers of registration
and dividend payee changes; and may perform functions such as generation of
confirmation statements and disbursement of cash dividends. Such firms,
including affiliates of KDI, may receive compensation from the Funds through the
Shareholder Service Agent for these services. This prospectus should be read in
connection with such firms' material regarding their fees and services.
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 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 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.
36
The redemption price for shares of a class of a Fund will be the net asset value
per share of that class 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, 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
37
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 KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of a class 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
38
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent; (c) redemption of shares of a shareholder
(including a registered joint owner) who has died; (d) redemption of shares of a
shareholder (including a registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as evidenced by a determination
by the federal Social Security Administration); (e) redemptions under a Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
of the account; and (f) redemptions of shares whose dealer of record at the time
of the investment notifies KDI that the dealer waives the 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.
<TABLE>
<CAPTION>
<S> <C>
CONTINGENT DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE
- ---------------------------------------------------------------------- -------------------------
First................................................................. 4%
Second................................................................ 3%
Third................................................................. 3%
Fourth................................................................ 2%
Fifth................................................................. 2%
Sixth................................................................. 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The 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
39
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. KDI receives any contingent deferred sales
charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper 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 Funds. A shareholder of a Fund or other
Kemper 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 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 Funds listed under "Special Features--Class A Shares--Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Funds available for sale in the shareholder's state of
residence as listed under "Special Features--Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of shares of 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,
40
resulting in a postponement of the recognition of such loss for federal income
tax purposes. In addition, upon a reinvestment, the shareholder may not be
permitted to take into account sales charges incurred on the original purchase
of shares in computing their taxable gain or loss. The reinvestment privilege
may be terminated or modified at any time.
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 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 Plus
Growth Fund, Kemper Value Fund, Inc., Kemper Quantitative Equity Fund, Kemper
Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive
Growth Fund and Kemper Global/International Series, Inc. ("Kemper Funds").
Except as noted below, there is no combined purchase credit for direct purchases
of shares of Zurich Money Funds, Cash Equivalent Fund, Tax-Exempt California
Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund or
Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
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 Funds", (b) all classes of
shares of any Kemper Fund and (c) the value of any other plan investment, such
as guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer
41
sponsored employee benefit plan maintained on the subaccount record keeping
system available through the Shareholder Service Agent may have special
provisions regarding payment of any increased sales charge resulting from a
failure to complete the intended purchase under the Letter. A shareholder may
include the value (at the maximum offering price) of all shares of such Kemper
Funds held of record as of the initial purchase date under the Letter as an
"accumulation credit" toward the completion of the Letter, but no price
adjustment will be made on such shares. Only investments in Class A shares are
included 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 Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features--Class A Shares--Combined Purchases"
above may be exchanged for each other at their relative net asset values. Shares
of Money Market Funds and the Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the Offering Period for such series as
described in 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 KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper 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
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class B shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of calculating the contingent deferred sales
charge that may be imposed upon the redemption of the Class B shares received on
exchange, amounts exchanged retain their original cost and purchase date.
CLASS C SHARES. Class C shares of a Fund and Class C shares of any other Kemper
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class C shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For determining whether there is a contingent deferred sales
charge that may be imposed upon the
42
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 Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired by exchange through another Kemper Fund, or
from a Money Market Fund, may not be exchanged thereafter until they have been
owned for 15 days (the "15-Day Hold Policy"). 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 KDI.
Exchanges may be accomplished by a written request to 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 Investors 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 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,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase
43
of Shares--General." Once enrolled in EXPRESS-Transfer, a shareholder can
initiate a transaction by calling Kemper Shareholder Services toll free at
1-800-621-1048, Monday through Friday, 8:00 a.m. to 3:00 p.m. Chicago time.
Shareholders may terminate this privilege by sending written notice to Kemper
Service Company, P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination
will become effective as soon as the Shareholder Service Agent has had a
reasonable amount of time to act upon the request. EXPRESS-Transfer cannot be
used with passbook savings accounts or for tax-deferred plans such as Individual
Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of 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 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.
KDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or the Funds.
44
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- - Traditional, Roth and Education Individual Retirement Accounts ("IRAs"). This
includes Simplified Employee Pension Plan ("SEP") IRA accounts and prototype
documents.
- - 403(b)(7) Custodial Accounts. This type of plan is available to employees of
most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from the Shareholder Service Agent upon request. Investors
should consult with their own tax advisers before establishing a retirement
plan.
PERFORMANCE
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 particular
class of 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-Registered Trademark- Index, the Russell 1000-Registered Trademark-
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-Registered Trademark- 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
45
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-Registered Trademark- or Money Market Insight-Registered Trademark-,
reporting services on money market funds. Performance of U.S. Treasury
obligations may be based upon, among other things, various U.S. Treasury bill
indexes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured.
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 of 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 of 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 class of
Fund are redeemable by an investor at the class' 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
46
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 Funds
if deemed desirable, each with its own investment objectives, policies and
restrictions. Since the Corporation may offer multiple Funds, each is known as a
"series company." Shares of a Fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive voting rights with
respect to each 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.
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. 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.
47
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