1
Filed electronically with the Securities and Exchange Commission
on November 27, 1998
File No. 811-8395
File No. 333-42337
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
Kemper Global/International Series, Inc.
(Exact name of Registrant as Specified in Charter)
222 South Riverside Plaza Street, Chicago, IL 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
X on December 1, 1998 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on _______ pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on _______ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
X This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to an Agreement and Plan of Reorganization between The Growth Fund of
Spain, Inc. and Kemper Global/International Series, Inc. (the "Corporation"),
all of the assets of The Growth Fund of Spain, Inc. will be transferred to a new
series of the Corporation created by PEA 1, which will have no more than nominal
assets and liabilities as of the effective time of such reorganization.
Consequently, the Corporation intends to treat the reorganization as a change in
domicile/change in form transaction for purposes of Rule 145(a)(2) under the
Securities Act of 1933, as amended, and Rule 24f-2(b) under the Investment
Company Act of 1940, as amended, and therefore, intends to pay no registration
fees with respect to shares of the Corporation issued in exchange for shares of
The Growth Fund of Spain, Inc., as to which fees were previously paid.
<PAGE>
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
Growth Fund of Spain
CROSS-REFERENCE SHEET
Items Required by Form N-1A
PART A
Item No. Item Caption Prospectus Caption
1. Cover Page COVER PAGE
2. Synopsis SUMMARY
SUMMARY OF EXPENSES
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information
4. General Description INVESTMENT OBJECTIVE, POLICIES AND RISK
of Registrant FACTORS
SUMMARY
FUND ORGANIZATION AND CAPITAL STRUCTURE
5. Management of the Fund SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
5A. Management's Discussion TO BE PROVIDED IN REGISTRANT'S ANNUAL REPORT
of Fund Performance TO SHAREHOLDERS
6. Capital Stock and SUMMARY
Other Securities INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
DIVIDENDS, DISTRIBUTIONS AND TAXES
PURCHASE OF SHARES
7. Purchase of Securities PURCHASE OF SHARES
Being Offered SUMMARY
INVESTMENT MANAGER AND UNDERWRITER
8. Redemption or SUMMARY
Repurchase REDEMPTION OR REPURCHASE OF SHARES
9. Pending Legal NOT APPLICABLE
Proceedings
<PAGE>
KEMPER GLOBAL/ INTERNATIONAL SERIES, INC.
Growth Fund of Spain
(continued)
PART B
Caption in Statement of
Item Item Caption Additional Information
No.
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information FUND ORGANIZATION AND CAPITAL STRUCTURE
and History (in Part A)
13. Investment Objectives INVESTMENT RESTRICTIONS
and Policies INVESTMENT POLICIES AND TECHNIQUES
APPENDIX B
14. Management of the Fund OFFICERS AND DIRECTORS
15. Control Persons and Principal OFFICERS AND DIRECTORS
Holders of Securities
16. Investment Advisory and Other INVESTMENT MANAGER AND UNDERWRITER
Services
17. Brokerage Allocation PORTFOLIO TRANSACTIONS
18. Capital Stock and Other SHAREHOLDER RIGHTS
Securities
19. Purchase, Redemption PURCHASE AND REDEMPTION OF SHARES
and Pricing of Securities
Being Offered
20. Tax Status DIVIDENDS AND TAXES
21. Underwriters INVESTMENT MANAGER AND UNDERWRITER
22. Calculation of Performance Data PERFORMANCE
23. Financial Statements FINANCIAL STATEMENTS
<PAGE>
SUMMARY ................................................. 1
SUMMARY OF EXPENSES.......................................3
FINANCIAL HIGHLIGHTS......................................5
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS...........7
INVESTMENT MANAGER AND UNDERWRITER.......................13
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................16
NET ASSET VALUE..........................................19
PURCHASE OF SHARES.......................................19
REDEMPTION OR REPURCHASE OF SHARES.......................24
SPECIAL FEATURES.........................................29
PERFORMANCE..............................................32
FUND ORGANIZATION AND CAPITAL STRUCTURE..................33
This prospectus of the Growth Fund of Spain (the "Fund"), a series of
Kemper Global/International Series, Inc. (the "Corporation"), an open-end
management investment company, contains concisely the information about the Fund
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 Fund and the Corporation, dated December 1,
1998, has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by reference. It is available upon request without charge
from the Fund 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 Fund is the successor entity to The Growth Fund of Spain, Inc., a
closed-end fund listed on the New York Stock Exchange, Inc. whose shareholders
approved a proposal to open-end the fund and reorganize it as a series of the
Corporation. The Fund will not commence operations until after the closing of
the reorganization transaction. This reorganization is expected to occur on
December 11, 1998 or as soon as practicable thereafter. Accordingly, the Fund is
not offering its shares for purchase, and will not accept subscriptions for such
shares, until after the reorganization takes place.
The Fund's 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 the Fund's shares involves risk, including the possible loss of principal.
Growth Fund
of Spain
PROSPECTUS DATED DECEMBER 1, 1998
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes the Growth Fund of Spain, a mutual fund
managed by Scudder Kemper Investments, Inc. (the "Adviser"), whose investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of Spanish companies. The Fund may also invest up to 35% of
its total assets in the securities of non-Spanish companies, which investments
may be concentrated in whole or in part in the equity securities of Portuguese
companies.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENT BY THE FUND IN SECURITIES OF SPANISH AND PORTUGUESE COMPANIES
INVOLVES CERTAIN RISKS NOT TYPICALLY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. COMPANIES INCLUDING: CURRENCY FLUCTUATIONS, POTENTIAL PRICE VOLATILITY,
LESS LIQUIDITY AND CONCENTRATION IN THE SPANISH AND PORTUGUESE EQUITIES MARKETS.
<PAGE>
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
222 South Riverside Plaza, Chicago, Illinois 60606, Telephone 1-800-621-1048
SUMMARY
Investment Objective. GROWTH FUND OF SPAIN (the "Fund") seeks long-term capital
appreciation by investing primarily in equity securities of Spanish companies.
The Fund is a non-diversified series of Kemper Global/International
Series, Inc. (the "Corporation"), an open-end management investment company. As
part of its overall investment strategy, the Fund may also invest up to 35% of
its total assets in the securities of non-Spanish companies, which investments
may be concentrated in whole or in part in the equity securities of Portuguese
companies. The Fund 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.
Risk Factors. The 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
the Fund may use from time to time. For a more complete discussion of risks
involved in an investment in the Fund, see "Special Risk Factors."
The Fund involves above-average investment risk. It is designed as a
long-term investment and not for short-term trading purposes, and should not be
considered a complete investment program.
There is no assurance that the investment objective of the Fund will be
achieved. The return and net asset value of the Fund will fluctuate. The Fund's
non-diversified status involves greater risk than typical diversified mutual
funds, since the Fund 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.
Investment by the Fund in securities of Spanish and other non-United
States companies involves certain considerations not typically associated with
investing in securities of U.S. companies including: currency fluctuations,
potential price volatility, heightened political and economic risk, less
liquidity and concentration in foreign equities markets. Foreign investments by
the Fund 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 the Fund's portfolio, and the Fund's net asset
value, may change in response to changes in currency exchange rates even though
the value of the foreign securities in local currency terms may not have
changed. The Fund's possible concentration of investments in a single issuer
(i.e., non-diversification) creates greater risk than if its investments were
spread across a more diversified portfolio. There are special risks associated
with options, financial futures and foreign currency transactions and other
derivatives and there is no assurance that use of those investment techniques
will be successful. See "Investment Objective, Policies and Risk Factors."
Purchases and Redemptions. The Fund provides investors with the option of
purchasing shares in the following ways:
Class A Shares.....Offered at net asset value plus a maximum sales charge of
5.75% of the offering price. Reduced sales charges apply to purchases of
$50,000 or more. Subject to a 2% redemption fee on shares redeemed or
exchanged within one year after purchase, with limited exceptions. Class A
shares purchased at net asset value under the "Large Order NAV Purchase
Privilege" may also 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 of 0.75% per annum, a 2% redemption fee on shares redeemed
or exchanged within one year after purchase, with limited exceptions, and a
contingent deferred sales charge applied to the value of shares redeemed
within six years of purchase. Class B shares convert to Class A shares six
years after issuance. The contingent deferred sales charge is computed at
the following rates:
Contingent
Year of Redemption After Purchase Deferred
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 of 0.75% per annum, a 2%
redemption fee on shares redeemed or exchanged within one year after
purchase, with limited exceptions, and a 1% contingent deferred sales
charge on redemptions made within one year of purchase. Class C shares do
not convert into any other class.
Each class of shares represents interests in the same portfolio of
investments of the 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 redemption fee and/or contingent deferred sales charge. Certain large
redemption requests are subject to being fulfilled through an in-kind
distribution of portfolio securities. See "Purchase of Shares" and "Redemption
or Repurchase of Shares."
As an open-end fund, the Fund is required to redeem its securities if
so requested by shareholders. To the extent the Fund is required to sell
appreciated portfolio securities to pay redemptions, the Fund will realize
capital gains which must be distributed along with all of the Fund's other
income and gains to its shareholders each year and will be taxable to
shareholders. A significant portion of the value of the Fund's portfolio is
represented by unrealized capital gains. To minimize realization of capital
gains on disposition of portfolio securities in connection with redemptions, the
Fund has instituted a policy requiring that certain large-scale redemptions be
paid in-kind in an attempt to avoid the imposition of adverse tax consequences
on remaining shareholders. See "Redemption or Repurchase of Shares-Redemption
in-Kind". This policy will not, however, lessen the tax effect of other
redemptions. The Fund anticipates that there may be significant redemptions as a
result of its conversion to an open-end fund. If so, the Fund may realize
significant capital gains.
Investment Manager and Underwriter. Scudder Kemper Investments, Inc. (the
"Adviser") serves as investment manager for the Fund. The Adviser is paid an
investment management fee by the Fund based upon the Fund's average daily net
assets. Kemper Distributors, Inc. ("KDI"), a subsidiary of the Adviser, is
principal underwriter and administrator for the Fund. For Class B shares and
Class C shares of the Fund, KDI receives an annual 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 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, but not necessarily higher than the fees charged to
funds with investment objectives similar to that of the Fund. Certain
administrative services are provided to shareholders under an administrative
services agreement with KDI. The 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. The Fund normally distributes annual dividends of net investment
income. Any net realized short-term and long-term capital gains for the Fund are
distributed at least annually. Income and capital gain dividends of the 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
Shareholder Transaction Expenses(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+.............................2.00% 2.00% 2.00%
Exchange Fee.................................None None None
Maximum Contingent Deferred Sales Charge
as a percentage of redemption proceeds).....None(3) 4%(4) 1%(5)
- -------------------------
+ A 2% fee, which is retained by the Fund, is imposed upon redemptions or
exchanges during the first year after purchase, with limited exceptions.
See "Redemption or Repurchase of Shares-Redemption Fee."
(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.
Annual Fund Operating Expenses
(estimated as a percentage of average net assets)
Class A Shares
Management Fees.................. 0.75%
12b-1 Fees.......................
None
Other Expenses................... 1.10%
Total Fund Operating Expenses.... 1.85%
Class B Shares(6)
Management Fees.................. 0.75%
12b-1 Fees....................... 0.75%
Other Expenses................... 1.35%
Total Fund Operating Expenses.... 2.85%
Class C Shares(7)
Management Fees.................. 0.75%
12b-1 Fees....................... 0.75%
Other Expenses................... 1.30%
Total Fund Operating Expenses.... 2.80%
- --------------------------
(6) Long-term Class B shareholders of the Fund may, as a result of the
Fund's 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 the 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.
1 year 3 years 5 years 10 years
Class A Shares(8)
Based on the estimated level of total
operating expenses $96* $112 $152 $262
listed above, you would pay the following
expenses on a $1,000 investment, assuming a
5% annual return and redemption at the end of
each time period:
You would pay the following expenses on the $75 $112 $152 $262
same investment, assuming no redemption:
Class B Shares(9)
Based on the estimated level of total $89* $118 $170 N/A(11)
operating expenses listed above, you would
pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
You would pay the following expenses on the $29 $88 $150 N/A(11)
same investment, assuming no redemption:
Class C Shares(10)
Based on the estimated level of total $59* $87 $148 $313
operating expenses listed above, you would
pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
You would pay the following expenses on the $28 $87 $148 $313
same investment, assuming no redemption:
- --------------------------
* Assumes that shareholder purchased shares on the first day of the first
year and the 2% redemption fee was applied.
(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%), 3 years (3%), and 5 years (2%).
(10) Assumes that the shareholder purchased shares on the first day of the first
year and a contingent deferred sales charge was applied as folllows: 1 year
(1%) and 3 years through 10 years (0%).
(11) Class B shares convert to Class A shares six years after issuance.
The purpose of the preceding table is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. See "Investment Manager and Underwriter" for more
information.
The expense ratios shown above are estimates for the Fund's current
fiscal year ending on October 31, 1999 based on the Fund's current fee schedule
and expenses incurred by the Fund during its most recent fiscal year, prior to
the reorganization transaction scheduled to be consummated on December 11, 1998.
The fees and expenses of the Fund subsequent to its conversion to open-end
status will differ from the fees and expenses of the Fund when it operated as a
closed-end fund, as described more fully below. The fees and expenses of
closed-end funds are, in many cases, lower than those of open-end funds. The
actual expenses for each class of shares in future years may be more or less
than the numbers in the tables above, depending on a number of factors,
including changes in actual value of the Fund's assets represented by each class
of shares.
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 the 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.
Prior to reorganization of the Fund as an open-end investment company,
the Fund was organized as a closed-end investment company. Operation of the Fund
as an open-end investment company will result in an immediate increase in the
Fund's expenses as a percentage of average net assets (the "expense ratio").
Increases in expense ratios will adversely effect the Fund's investment
performance. While the annual investment management fee of the Fund was
decreased from 1.00% to a graduated fee starting at 0.75% of net assets in
connection with the conversion to open-end status, the Fund now bears certain
expenses that it previously did not, including an administrative services fee at
an annual rate of up to 0.25% of average daily net assets, and certain other
expenses related to its operations as an open-end fund, such as a fund
accounting fee, higher transfer agency expenses, increased portfolio transaction
expenses, additional shareholder communications expenses, and distribution
expenses (with respect to Class B and C shares). For the Fund's fiscal year
ended November 30, 1997, the Fund had an annual expense ratio of 1.22%. The
expense ratios of the Fund as an open-end investment company for the current
fiscal year are estimated to be 1.85%, 2.85% and 2.80% for Class A, B and C
shares, respectively, assuming no reduction in net assets.
In addition, conversion to an open-end investment company could result
in the immediate redemption of Fund shares, which could be substantial. As a
result of any decrease in size resulting from redemptions, the Fund could
experience further increases in its expense ratio. Further, decreased asset size
could result in less diversification or in smaller portfolio positions in
investments, which could adversely affect the Fund's investment performance.
Other closed-end funds that have converted to open-end format have experienced
redemptions that exceed sales after conversion, and, in some instances, net
redemptions have been substantial. The Fund and its shareholders bear this risk.
FINANCIAL HIGHLIGHTS
The Fund is the successor entity to The Growth Fund of Spain, Inc.
("GSP"), a closed-end management investment company. It is presently
contemplated that on December 11, 1998, GSP will be reorganized as an open-end
series of the Corporation consisting of Class A, Class B, and Class C shares. As
of the date of this prospectus, GSP consisted of only one class of shares; the
shares of GSP outstanding as of December 11, 1998 are to be exchanged for Class
A shares of the Fund. Accordingly, the following table shows financial
information for the Fund's Class A shares expressed in terms of one share
outstanding throughout the relevant period, and reflects the operations of GSP
as a closed-end investment company that was not required to redeem its shares.
As of the date of this prospectus, the Fund has not issued any Class B or Class
C shares. The financial highlights are part of the Fund's financial statements,
which are included in its Annual Report to Shareholders for the fiscal year
ended November 30, 1997, and Semiannual Report to Shareholders for the period
ended May 31, 1998 and are incorporated by reference into the Fund's Statement
of Additional Information and this Prospectus. The financial statements and
accompanying notes for the Fund's fiscal year ended November 30, 1997 have been
audited by Ernst & Young LLP, independent auditors, which together with Ernst &
Young LLP's report thereon are included in the Fund's Annual Report to
Shareholders for such fiscal year. Further information about the Fund's
performance is contained in the Fund's Statement of Additional Information and
its Annual Report to Shareholders for the fiscal year ended November 30, 1997,
and Semiannual Report to Shareholders for the period ended May 31, 1998, which
may each be obtained without charge by calling 1-800-621-1048. Effective as of
the Fund's 1998 fiscal year, the Fund's fiscal year end has been changed to
October 31.
<PAGE>
<TABLE>
<CAPTION>
Six Months February 14,
Ended May 1990
31, to
Year ended November 30 November 30,
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 19.06 15.67 13.33 12.40 10.67 8.99 11.08 10.71 11.12
Income from investment operations:
Net investment income .06 .24 .36 .37 .32 .40 .54 .37 .32
Net realized and unrealized gain 6.07 4.15 2.69 1.01 1.41 1.28 (2.48) .36 (.73)
Total from investment operations 6.13 4.39 3.05 1.38 1.73 1.68 (1.94) .73 (.41)
Less dividends:
Distribution from net investment
income .11 .17 .42 .45 --- --- .15 .36 ---
Distribution from net realized gain 1.36 .83 .29 --- --- --- --- --- ---
Total dividends 1.47 1.00 .71 .45 --- --- --- --- ---
Net asset value, end of period $23.72 19.06 15.67 13.33 12.40 10.67 8.99 11.08 10.71
TOTAL RETURN (not annualized) 34.60% 29.86 24.12 11.62 16.21 18.69 (17.73) 7.06 (3.69)
RATIOS TO AVERAGE NET ASSETS
(annualized)
Expenses 1.21% 1.22 1.25 1.22 1.23 1.22 1.22 1.23 1.26
Net investment income .56% 1.29 2.46 2.89 2.57 3.97 4.98 3.32 3.46
SUPPLEMENTAL DATA
Net assets at end of period $392,061 315,059 263,935 227,997 213,972 184,884 156,179 192,986 186,638
(in thousands)
Portfolio turnover rate (annualized) 5% 29 45 69 85 50 72 104 19
Note: Each figure includes reinvestment of dividends. Data for the period ended May 31, 1998 is unaudited.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The following information sets forth the Fund's investment objective and
policies. The Fund's returns and net asset value will fluctuate, and there is no
assurance that the Fund will meet its objective.
The Fund is designed for long-term investors who can accept
international investment risk in pursuit of additional opportunities that
foreign securities may provide. Since the Fund normally will be invested
primarily in foreign securities markets, changes in the Fund's share price may
have a low correlation with movements in the U.S. markets. The Fund's share
price will reflect the movements of both the stock and bond markets in which it
is invested and the currency in which the investments are denominated; the
strength or weakness of the U.S. dollar against the Spanish Peseta, the
Portuguese Escudos and other 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, Spanish and Portuguese 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 the Fund should not be
considered a complete investment program. The Fund is designed primarily for
long-term investment and investors should not consider it a trading vehicle.
The Fund seeks long-term capital appreciation by investing primarily in
equity securities of companies organized under the laws of Spain or traded in
the Spanish securities markets and doing business in Spain ("Spanish
companies"). Under normal market conditions, at least 65% of the Fund's total
assets will be invested in equity securities of Spanish companies. The Fund is
permitted to invest up to 25% of its total assets in unlisted equity and debt
securities, including convertible debt securities, and in other securities that
are not readily marketable, a significant portion of which may be considered
illiquid (see "Unlisted and Illiquid Securities" below). Investment in Spanish
equity securities that are unlisted or are not readily marketable will be
treated as investments in Spanish equity securities for purposes of the Fund's
fundamental policy of investing at least 65% of its total assets in Spanish
equity securities. The Fund may invest up to 35% of total assets in
investment-grade fixed income instruments denominated in Pesetas or U.S. dollars
as described below. The Fund's investment objective and the foregoing policies
are fundamental and cannot be changed without the approval of a majority of the
Fund's outstanding voting securities. As an operating policy, the Adviser
intends to evaluate investment opportunities present throughout the Iberian
Peninsula (i.e., Spain and Portugal). Accordingly, the Fund may, as a matter of
nonfundamental policy, invest up to 35% of total assets in equity securities of
companies other than Spanish companies, and may concentrate such investments in
whole or in part in equity securities of companies organized under the laws of
Portugal or traded in the Portuguese securities markets and doing business in
Portugal ("Portuguese companies"). Unless otherwise noted, the Fund's other
investment policies described below are not fundamental and may be changed by
the Fund without shareholder approval.
Investment-grade fixed-income instruments are defined to include
securities rated in the four highest rating categories by Standard & Poor's
Ratings Group ("S&P") or by Moody's Investors Service, Inc. ("Moody's"), or, if
such securities are not so rated, securities of equivalent investment quality as
determined by the Adviser, and short-term indebtedness or cash equivalents
denominated in either Pesetas or U.S. dollars. For temporary defensive purposes,
e.g., during periods in which changes in the Spanish securities markets, other
economic conditions or political conditions in Spain warrant, the Fund may vary
from its investment objective and may invest, without limit, in high quality
debt instruments, such as U.S. and Spanish government securities. The Fund may
also at any time invest funds in U.S. dollar-denominated money market
instruments as reserves for expenses and dividend and other distributions to
shareholders.
Special Risk Factors. The 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 the Fund may use from time to time.
Non-Diversified Investment Company. The Fund is classified as
non-diversified under the Investment Company Act of 1940, as amended (the "1940
Act"), which means that the 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, the Fund may be subject to
greater market and credit risk than a more broadly diversified portfolio. The
investment of a large percentage of the Fund's assets in the securities of a
small number of issuers may cause the Fund's share price to fluctuate more than
that of a diversified investment company. The Fund will, however, be subject to
the diversification requirements imposed by Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code").
Foreign Securities, In General. 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 the Fund's agents to keep
currently informed about corporate actions which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S., 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.
The 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.
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 the
Fund's foreign currency risk through hedging. Any devaluations in the currencies
in which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
Spanish and Portuguese Market Characteristics. The securities markets
of Spain and Portugal have substantially less volume than the securities markets
of the United States and securities of some companies in Spain and Portugal are
less liquid and more volatile than securities of comparable U.S. companies.
Accordingly, these markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Brokerage commissions
and other transaction costs on securities exchanges in Spain and Portugal are
generally higher than in the United States.
Though foreign investment in the securities markets of Spain and
Portugal is permitted, certain controls and restrictions may apply in certain
circumstances. These controls may at times limit or preclude investment in
certain Spanish or Portuguese companies and may increase the cost and expenses
of the Fund. The right of foreign investors to repatriate both investment income
and capital from Spain and Portugal is recognized. Notwithstanding, such
repatriation is regulated in Spain, including in some cases certain notification
requirements. Although restrictions on foreign investment in Spain and Portugal
may in the future make it undesirable to invest in Spain and Portugal, the
Adviser does not believe that any current repatriation controls would affect its
decision to invest in Spain and Portugal.
Companies in Spain and Portugal are subject to accounting, auditing and
financial standards and requirements which are not equivalent to those
applicable to U.S. companies. There is less government supervision and
regulation of Spanish and Portuguese securities exchanges, brokers and listed
companies than exists in the United States. In addition, there may be the
possibility of increased taxation, and political, economic or diplomatic
developments which could adversely affect assets held in Spain and Portugal.
There is also less publicly available information about Spanish and Portuguese
companies and governments compared to reports and ratings published about U.S.
companies and the U.S. Government.
See Appendix B in the Fund's Statement of Additional Information for a
more detailed discussion of Spanish and Portuguese market and economic
characteristics.
Exchange Rate Fluctuations. Although the Fund's assets will be invested
in Spanish and Portuguese securities and substantial revenues will be received
in Pesetas or Escudos, the Fund will value its net assets and will make
distributions to its shareholders in U.S. dollars. Accordingly, the U.S. dollar
equivalent of the Fund's net assets, including accrued income and realized
capital gains, will be adversely affected by reductions in the value of such
currency relative to the U.S. dollar. In addition, significant uncertainty
surrounds the proposed introduction of the euro (a common currency for the
European Union) in January 1999 and its effect on the value of securities
denominated in Spanish Pesetas or Portuguese Escudos. See "Investment Manager
and Underwriter--Euro Conversion" below. The Fund may enter into transactions to
seek to hedge foreign currency exchange rate risks. See "Strategic Transactions
and Derivatives" below.
Corporate Disclosure Standards. Issuers of securities in Spain and Portugal
are not subject to the same degree of regulation as are U.S. issuers with
respect to such matters as insider trading rules, tender offer regulation,
shareholder proxy requirements and the timely disclosure of information.
Furthermore, Spanish and Portuguese accounting, auditing and financial reporting
standards are not comparable to U.S. standards and less information is available
to investors in Spanish and Portuguese securities than to investors in U.S.
securities.
Investment and Repatriation Restrictions. Regulation of foreign
investment in Spanish companies is relatively limited. In general, only foreign
investor participation which exceeds a 50% interest in a company is subject to a
review procedure by the Ministry of Economy and Finance. Foreign investment in
certain sectors, such as national defense, television, radio, gambling,
communications and air transportation, requires prior governmental approval
pursuant to applicable legislation.
Existing exchange control regulations in Spain permit non-residents to
convert Pesetas to foreign currencies only by means of "foreign currency
convertible Peseta accounts." Non-residents typically acquire Pesetas through
their receipt of proceeds from the sale of investments in Spain. All such
exchange operations are authorized in accordance with the regulations of the
Bank of Spain and some require specific government authorization.
Other Risks of Foreign Investments. As in the case of all foreign
investments, the Fund's investments in Spanish and Portuguese securities could
in the future be adversely affected by any increase in taxes or by political,
economic or diplomatic developments.
Common Stocks. The 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, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic 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.
Investment Company Securities. Securities of other investment companies
may be acquired by the 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 the Fund in shares of
other investment companies may be subject to such duplicate expenses.
Debt Securities, In General. The Fund may invest in investment-grade
fixed-income instruments rated in the four highest rating categories by S&P or
Moody's, or, if unrated, are determined to be of equivalent 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. Investment in debt securities involves both
interest rate and credit risk. Generally, the value of debt instruments rises
and falls inversely with fluctuations in interest rates. As interest rates
decline, the value of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to decrease. Bonds
with longer maturities generally are more volatile than bonds with shorter
maturities. The market value of debt securities also varies according to the
relative financial condition of the issuer.
Convertible Securities. The 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 the Fund may invest are bonds,
notes, debentures and preferred stocks, including 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. Prior to their
conversion, convertible securities may have characteristics similar to both
nonconvertible debt securities and equity securities. While convertible
securities generally offer lower yields than nonconvertible debt securities of
similar quality, their prices may reflect changes in the value of the underlying
common stock. Convertible securities generally entail less credit risk than the
issuer's common stock. The 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 the Fund's ability to achieve its investment objective.
In selecting convertible securities for the Fund, the following
factors, among others, will be considered by the Adviser: (1) the Adviser's
evaluations of creditworthiness of the issuers of the securities; (2) the
interest or dividend income generated by the securities; (3) the potential for
capital appreciation of the securities and the underlying common stock; (4) the
prices of the securities relative to the underlying common stocks; (5) the
prices of the securities relative to other comparable securities; (6) whether
the securities are entitled to the benefits of sinking funds or other protective
conditions; (7) diversification of the Fund's portfolio as to issuers and
industries; and (8) whether the securities are rated by Moody's and/or S&P and,
if so, the ratings assigned.
Zero Coupon Securities. The 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.
When-Issued Securities. The 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 the
Fund. At the time of settlement, the market value of the security may be more or
less than the purchase price.
Repurchase Agreements. As a means of earning income for periods as
short as overnight, the Fund may enter into repurchase agreements with selected
banks and broker/dealers with respect to its U.S. dollar-denominated debt
securities. Under a repurchase agreement, the 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 the 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, the Fund may encounter delays and incur costs, including a decline in
the value of the securities, before being able to sell the securities. The total
amount of all repurchase agreements having a maturity greater than seven days,
plus the total value of all securities held by the Fund which are not readily
marketable, will be limited to 15% of the Fund's net assets. See "Unlisted and
Illiquid Securities" below.
Reverse Repurchase Agreements. The 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.
The Fund maintains a segregated account in connection with outstanding reverse
repurchase agreements. The 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.
Unlisted and Illiquid Securities. The Fund is permitted to invest up to
25% of its total assets in unlisted securities and in securities that are not
readily marketable, a significant portion of which may be considered illiquid.
Under current interpretations of the SEC's staff, the Fund is limited to
investing 15% of its net assets in such securities to the extent they are deemed
to be illiquid. Such unlisted securities may consist of both equity securities
and debt securities, including convertible debt securities. There is no
requirement to register the sale of securities with a government agency in Spain
and there are no legal restrictions on resales of such securities, either as to
length of time such securities must be held or manner of resale. However, there
may be contractual restrictions on resale of such securities. The sale price of
unlisted securities may be lower or higher than the Adviser's most recent
estimate of their fair value. Generally, less public information is available
with respect to the issuers of such securities than with respect to companies
whose securities are traded on an exchange. Unlisted securities are more likely
to be issued by emerging, small or family businesses and therefore subject to
greater economic, business and market risks than the listed securities of more
well-established companies.
Illiquid securities may have been acquired through private placements
(transactions in which the securities acquired have not been registered with the
SEC). These securities generally offer a higher return than more readily
marketable securities, but carry the risk that the Fund may not be able to
dispose of them at an advantageous time or price. Some restricted securities
purchased by the 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 the Fund to sell them promptly at an
acceptable price. Upon approval from the 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 the
Fund to buy and sell significant amounts of such shares without an unfavorable
impact on prevailing market prices. Some of the companies in which the 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.
Short Sales. The Fund may make short sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. The Fund
expects to make short sales both as a form of hedging to offset potential
declines in long positions in similar securities and in order to maintain
portfolio flexibility.
Currently, under applicable Spanish law short sales of listed Spanish
securities are prohibited. To the extent that such law changes to permit short
sales, the Fund may engage in such transactions. In addition, to the extent that
companies that have their shares listed on a Spanish exchange also have
depository receipts for such shares listed on a non-Spanish exchange, such as
the New York Stock Exchange, which permits short sales of such depository
receipts, the Fund may engage in short sales of such depository receipts.
When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured
by collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other liquid securities, equivalent in value to the borrowed
securities. The Fund will also be required to deposit similar collateral with
its custodian to the extent necessary so that the value of both collateral
deposits in the aggregate is at all times equal to at least 100% of the current
market value of the security sold short (see "Use of Segregated and Other
Special Accounts" in the Fund's SAI). Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding any payments
received by the Fund on such security, the Fund may not receive any payments
(including interest and dividends) on its collateral deposited with such
broker-dealer.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
The Fund will not make a short sale if, after giving effect to such
sale, the market value of all securities sold short exceeds 25% of the value of
its total assets. The Fund may also make short sales "against the box" without
respect to such limitation. In this type of short sale, at the time of the sale,
the Fund owns or has the immediate and unconditional right to acquire at no
additional cost the identical security.
Synthetic Investments. Under certain circumstances, the 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.
Strategic Transactions and Derivatives. The Fund may, but is not
required to, utilize various other investment strategies as described below to
hedge various market risks (such as interest rates, currency exchange rates, and
broad or specific equity or fixed-income market movements), to 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, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other 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 the Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Fund's unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a 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 the Fund's assets will be committed to Strategic
Transactions entered into for non-hedging purposes. Any or all of these
investment techniques may be used at any time and in any combination, and there
is no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.
Strategic Transactions 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 the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund'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 the Fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
use of futures 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 the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.
Additional Investment Information. The portfolio turnover rates for the
Fund are listed under "Financial Highlights." The portfolio turnover rate for
the Fund may be higher than the portfolio turnover rate for the predecessor of
the Fund. It is anticipated that, under normal circumstances the portfolio
turnover rate for the Fund will not exceed 100%. The Fund may periodically
experience a high turnover rate (over 100%). Higher portfolio turnover involves
correspondingly greater brokerage commissions or other transaction costs. Higher
portfolio turnover may also result in the realization of greater net short-term
or long-term capital gains. See "Dividends and Taxes" in the Statement of
Additional Information.
The 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 the Fund's investment risk.
Policies of the Fund that are not incorporated into any of the fundamental
investment restrictions referred to above or that are not specifically
identified as fundamental may be changed by the Board of Directors of the Fund
without shareholder approval.
As a matter of fundamental policy, the Fund may not borrow money except
as permitted under Federal law; however, as a matter of nonfundamental policy,
the Fund will not borrow in an amount exceeding 5% of total assets except for
temporary or emergency purposes and by engaging in reverse repurchase agreements
or other investments or transactions which may be deemed to be borrowings.
As a matter of fundamental policy, the Fund may not make loans except
through the purchase of debt securities or through repurchase agreements.
A complete description of these and other policies and restrictions is
contained under "Investment Restrictions" in the Fund's Statement of Additional
Information.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. The Fund retains the investment management firm of
Scudder Kemper Investments, Inc., a Delaware corporation, to manage the 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 Fund under Maryland law.
Under the Investment Management Agreement with the Adviser, dated
November 25, 1998, the 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 the 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.
For its investment management services, the Fund pays the Adviser an
investment management fee, payable monthly, at the annual rate of no more than
0.75% of the Fund's average daily net assets. The fee is graduated so that
increases in the Fund's net assets may result in a lower fee. In addition, the
fee is payable monthly, provided that the Fund will make such interim payments
as may be requested by the Adviser not to exceed 75% of the amount of the fee
then accrued on the books of the Fund and unpaid. For the year ended November
30, 1997, the fee paid to the Adviser by the Fund under the previous investment
management agreement was 1.00% of the Fund's average weekly net assets. This fee
was payable monthly at a rate of 1/12 of 1.00% of the value of the Fund's
average weekly net assets. During the same period, the Adviser paid BSN Gestion
de Patrimonios, S.A., S.G.C. ("BSN Gestion") a monthly fee of 0.35% of the
Fund's average weekly net assets for investment management services pursuant to
a now terminated sub-advisory agreement between the Adviser and BSN Gestion. The
sub-advisory arrangements with BSN Gestion were discontinued in connection with
the Fund's reorganization transaction.
The Adviser is headquartered 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. 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").
On September 7, 1998, the financial services businesses of Zurich
(including Zurich's 70% interest in the Adviser) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") formed a new global insurance
and financial services group known as Zurich Financial Services. By way of a
dual holding company structure, current Zurich shareholders own approximately
57% of the new organization, with the balance owned by B.A.T's shareholders.
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. The Fund is managed by a team of
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment strategies
and select securities for the Fund's portfolio. They are supported by the
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.
Joan R. Gregory, Lead Portfolio Manager since 1998, focuses on stock
selection. She joined the Adviser in 1992 and has been involved with investment
in global and international stocks since 1989. Nicholas Bratt, Portfolio
Manager, directs the Fund's general investment strategies. Mr. Bratt has over 20
years of experience in worldwide investing and has been with the Adviser since
1976.
Year 2000 Readiness. Like other mutual funds and financial and business
organizations worldwide, the Fund could be adversely affected if computer
systems on which the Fund relies, which primarily include those used by the
Adviser, its affiliates or other service providers, are unable to process
correctly date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to address successfully the Year
2000 Issue could result in interruptions to and other material adverse effects
on the Fund's business and operations. The Adviser has commenced a review of the
Year 2000 Issue as it may affect the Fund and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
companies whose securities are held by the Fund or on global markets or
economies generally.
Euro Conversion. The planned introduction of a new European currency,
the Euro, may result in uncertainties for European securities in the markets in
which they trade and with respect to the operation of the Fund's portfolio.
Currently, the Euro is expected to be introduced on January 1, 1999 by eleven
European countries that are members of the European Economic and Monetary Union
(EMU), including Spain and Portugal. The introduction of the Euro will require
the redenomination of European debt and equity securities over a period of time,
which may result in various accounting differences and/or tax treatments that
otherwise would not likely occur. Additional questions are raised by the fact
that certain European Union (EU) members, including the United Kingdom, will not
officially be implementing the Euro on January 1, 1999. If the introduction of
the Euro does not take place as planned, there could be negative effects, such
as severe currency fluctuations and market disruptions.
The Adviser is actively working to address Euro-related issues and
understands that other key service providers are taking similar steps. At this
time, however, no one knows precisely what the degree of impact will be. To the
extent that the market impact or effect on a portfolio holding is negative, it
could hurt the portfolio's performance.
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 the
Fund's shares and acts as agent of the 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 the 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 Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays out a
portion of this sales charge or allows concessions or discounts to firms for the
sale of the Fund's Class A shares.
Rule 12b-1 Plans. Separate distribution plans have been adopted for the
Fund's Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act
(each a "Plan"). Each Plan provides for fees payable as an expense of the Class
B shares or the Class C shares, as applicable, that are used by KDI to pay for
distribution services for that class. The Plans are 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 Plan for a class is terminated in accordance with its terms, the
obligation of the 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 the Fund to pay any expenses
incurred by KDI in excess of its fees under a Plan, if for any reason the Plan
is terminated in accordance with its terms. Future fees under a Plan may or may
not be sufficient to reimburse KDI for its expenses incurred. (See "Principal
Underwriter" for more information.)
Class B Shares. For its services under the Class B Plan, KDI receives a
fee from the Fund, payable monthly, at the annual rate of 0.75% of average daily
net assets of the 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%.
Class C Shares. For its services under the Class C Plan, KDI receives a
fee from the Fund, payable monthly, at the annual rate of 0.75% of average daily
net assets of the 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 the Fund. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of
Shares-Contingent Deferred Sales Charges-Class C Shares" below.
Administrative Services. KDI also provides information and administrative
services for shareholders of the Fund pursuant to an administrative services
agreement with the Corporation (the "administrative agreement"). KDI may enter
into related arrangements with broker-dealer firms or other service or
administrative firms ("firms"), that provide services and facilities for their
customers or clients who are investors in the Fund. 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 the 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, the 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 the
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 the 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.
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 the Fund.
Currently, the administrative services fee payable to KDI is based only upon
Fund assets in accounts for which there is a firm listed on the Fund's records
and it is intended that KDI will pay all of the administrative services fee that
it receives from the Fund to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of the Fund
while this procedure is in effect will depend upon the proportion of Fund assets
that is in accounts for which there is a firm of record. 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 Fund.
Custodian, Transfer Agent and Shareholder Service Agent. The Chase
Manhattan Bank, Chase MetroTech Center, Brooklyn, New York 11245, as custodian,
has custody of all securities and cash of the Fund held outside the United
States. Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue,
Kansas City, Missouri 64105, as custodian, and State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110, as sub-custodian,
have custody of all securities and cash held in the United States. Kemper
Service Company, 811 Main Street, Kansas City, Missouri 64105, a subsidiary of
the Adviser, is the Fund's transfer agent and dividend-paying agent and, as
such, generally serves as "Shareholder Service Agent" of the Fund. For a
description of transfer agent and shareholder service agent fees, 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 the Fund. The Fund pays Scudder Fund
Accounting Corporation an annual fee.
Portfolio Transactions. The Adviser places all orders for purchases and
sales of the Fund's securities. Subject to seeking best execution of orders, it
may consider sales of shares of the 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. The Fund normally distributes annual
dividends of net investment income and any net realized short-term and long-term
capital gains at least annually. The Fund intends to distribute net realized
capital gains after utilization of capital loss carryforwards, if any, on or
prior to December 31. Additional distributions may be made at a later date, if
necessary.
According to preference, shareholders may receive distributions in cash
or have them reinvested in additional shares of the Fund. If an investment is in
the form of a retirement plan, all dividends and capital gains distributions
must be reinvested in the shareholder's account.
Dividends paid by the 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 the Fund will be credited
to shareholder accounts in full and fractional shares of the same class of the
Fund at net asset value on the reinvestment date, 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 the Fund that are reinvested normally will be
reinvested in shares of the same class of the Fund. However, upon written
request to the Shareholder Service Agent, a shareholder may elect to have
dividends of the 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 the Fund in shares of
another Kemper Fund, shareholders must maintain a minimum account value of
$1,000 in the Fund distributing the dividends. The Fund will reinvest dividend
checks (and future dividends) in shares of the same Fund and class if checks are
returned as undeliverable. Dividends and other distributions of the 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.
U.S. Federal Income Taxes. The Fund intends to continue 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 as long-term capital gains, 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 Fund 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 will be long-term or short-term, depending upon the
shareholder's holding period for the shares (including an in-kind redemption).
As an open-end fund, the Fund is required to redeem its securities if
so requested by shareholders. To the extent the Fund is required to sell
appreciated portfolio securities to pay redemptions, the Fund will realize
capital gains which must be distributed along with all of the Fund's other
income and gains to its shareholders each year and will be taxable to
shareholders. A significant portion of the value of the Fund's portfolio is
represented by unrealized capital gains. To minimize realization of capital
gains on disposition of portfolio securities in connection with redemptions, the
Fund has instituted a policy requiring that certain large-scale redemptions be
paid in-kind in an attempt to avoid the imposition of adverse tax consequences
on remaining shareholders. See "Redemption or Repurchase of Shares-Redemption
in-Kind". This policy will not, however, lessen the tax effect of other
redemptions. The Fund anticipates that there may be significant redemptions as a
result of its conversion to an open-end fund. If so, the Fund may realize
significant capital gains.
The Fund is required by law to withhold 31% of taxable dividends and
redemption proceeds paid to certain shareholders who do not furnish a correct
taxpayer identification number (in the case of individuals, a social security
number) and in certain other circumstances. Any amounts so withheld are not an
additional tax, and may be applied against the affected shareholder's U.S.
federal income tax liability.
The Fund's investment income derived from foreign securities may be
subject to foreign income taxes withheld at the source. Because the amount of
the Fund's investments in various countries will change from time to time, it is
not possible to determine the effective rate of such taxes in advance. The Fund
may 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.
Further information relating to tax consequences is contained in the
Statement of Additional Information. Shareholders of the 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 the Fund.
Spanish Taxes. The following description of certain Spanish tax matters
represents the opinion of the Fund's Spanish counsel based upon current law and
interpretations thereof. No advance rulings have been obtained from the Spanish
tax authorities and an opinion of counsel is not binding on the Spanish tax
authorities. No assurance can be given that applicable tax laws and
interpretations thereof will not change in the future.
Neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated as residents of Spain or as carrying
on a business in Spain. No Spanish tax, other than tax on dividends, interest,
and capital gains as discussed below, will be applicable to the Fund or the
Fund's shareholders, other than shareholders who are residents of Spain or who
are subject to tax in Spain for reasons other than their status as shareholders
of the Fund.
Under Spanish law, dividends and interest income paid by Spanish
resident entities to holders of shares or securities who are non-residents of
Spain are subject to income tax withheld at source at a rate of 25% of the gross
amount of the income. However, under the Convention for the Avoidance of Double
Taxation signed by Spain and the United States on February 22, 1990 (the
"Convention"), a holder of shares that is resident of the United States for
purposes of the Convention (and who does not have a fixed base in Spain from
which such holder performs or has performed independent personal services and
whose holding is not effectively connected with a permanent establishment in
Spain through which such holder carries on or has carried on a business) (a
"United States resident") who obtains dividends from a Spanish resident entity
generally is subject to the Convention's reduced rate of 15% of the gross amount
of income. If the United States resident is a corporation and owns at least 25%
of the voting stock of the Spanish resident entity, tax will be levied at a 10%
rate. Also under the Convention, a United States resident that receives interest
from a Spanish resident entity is subject to the Convention reduced rate of 10%
of the gross amount of income.
If the normal 25% rate is initially applied to a United States
resident, a refund for the amount withheld in excess of the Convention-reduced
rates can generally be obtained, subject to applicable procedures.
Under Spanish law, capital gains derived from the disposal of shares or
securities issued by Spanish resident entities are considered to be Spanish
sourced income subject to income tax at a 35% rate. However, by virtue of the
Convention, no Spanish tax would be levied on capital gains upon the disposal of
shares or securities issued by Spanish resident entities by a United States
resident, provided that such United States resident has not maintained a direct
or indirect holding of 25% or more of the share capital of the Spanish resident
entity during the twelve months preceding the disposition of the securities.
Capital borrowed by the State of Spain or its autonomous entities is
deemed Public Debt under Spanish Law. Interest paid on Public Debt to
non-residents of Spain who are not acting through a permanent establishment in
Spain is generally exempt from taxation in Spain. In addition, capital gains
realized by non-residents not acting through a permanent establishment in Spain
on the sale or disposition of Public Debt is generally exempt from taxation in
Spain.
Under Spanish law, transfers of shares are exempt from the stamp duty,
value added tax, and transfer tax. However, the transfer tax exemption will not
apply and the transfer of shares will be subject to transfer tax when (i) at
least 50% of the total assets of the company whose shares are transferred
consist of real estate located in Spain, and (ii) as a result of the transfer,
the acquiror obtains a control position over the company.
Generally, the Spanish taxes described above will be imposed on, and
paid by, the Fund (and not its shareholders). Under U.S. tax law, the Fund may
be able to pass through to its shareholders a credit for such taxes.
Portuguese Taxes. The following description of certain Portuguese tax
matters represents the opinion of the Fund's Portuguese tax counsel based upon
current law and interpretations thereof. No advance ruling has been obtained
from the Portuguese tax authorities and an opinion of counsel is not binding on
the Portuguese tax authorities. No assurance can be given that applicable tax
laws and interpretation thereof will not change in the future.
Neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated as residents of Portugal or as
carrying on a business in Portugal. No Portuguese tax other than those described
below, will apply to the Fund or its shareholders, other than shareholders who
are residents of Portugal or who are subject to tax in Portugal for reasons
other than their status as shareholders of the Fund.
The tax regime applicable to Portuguese income obtained by the Fund is
provided by (i) the Portuguese Corporate Income Tax Code; (ii) the Portuguese
Gift and Inheritance Tax Code; and (iii) the Treaty for the avoidance of Double
Taxation and Prevention of Fiscal Evasion signed by Portugal and the United
States on September 6, 1994 and in force since January 1996 (the "Treaty").
Under Portuguese law, dividends paid by Portuguese entities to holders
of shares who are non-residents of Portugal are subject to income tax withheld
at the source at the general rate of 25% on the gross amount of income. In
addition a further withholding of substitute gift and inheritance tax at the
rate of 5% is levied. However, according to the provisions of the Portuguese
Statute of Fiscal Incentives, 50% of the gross income or dividends paid on
shares listed on the Lisbon Stock Exchange is exempt from withholding tax,
resulting in an effective tax rate of 12.5%. Further, under the Treaty, the rate
of withholding tax on dividends will not exceed 15%, and the rate of withholding
with respect to the substitute gift and inheritance tax on dividends distributed
to a United States resident will not exceed 5%.
However, if a United States resident company for purposes of the Treaty
owns 25% or more of the share capital of a Portuguese resident company for an
uninterrupted period of 2 years prior to the payment of the dividend, the rate
applicable under the Treaty is:
(a) for dividends paid until December 31, 1999, a rate
of 10%;
(b) after December 31, 1999, the same rate applicable to
the dividends of a similar nature paid to residents
of European Union member States, provided that in no
event shall the applicable rate be lower than 5%.
Interest payments to non-residents of Portugal are subject to a general
20% withholding tax rate. However, the Treaty provides a reduction to a 10% rate
for United States residents or an exemption if it is a long term loan granted by
a bank or another financial entity that is resident in the United States.
The limitation of Portuguese tax provided by the Treaty can be obtained
either through the refund system or through the reduction at the source, subject
to applicable procedures.
Capital gains derived by a corporate non-resident holder, such as the
Fund, from the disposal of shares or securities issued by Portuguese resident
entities are not subject to Portuguese capital gains tax unless such gains are
effectively connected with a permanent establishment in Portugal. As noted
above, neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated either as residents of Portugal or as
carrying on a business in Portugal.
Interest paid on treasury securities issued by the Portuguese
government and designated as Public Debt Securities by the Ministry of Finance
and held by entities that do not have a residence, place of administration or
permanent establishment in Portugal is generally exempt from taxation in
Portugal. In addition, capital gains realized on the sale or disposition of such
Public Debt Securities by the Fund (as an entity that does not have a residence,
place of administration or permanent establishment in Portugal) are generally
exempt from Portuguese taxation.
Generally, the Portuguese taxes described above will be imposed upon,
and paid by the Fund (and not its shareholders). Under U.S. tax law, the Fund
may be able to pass through to its shareholders a credit for such taxes.
No Portuguese transfer or stamp tax shall be due upon the transfer of
portfolio securities, except for a 4% stamp duty on brokerage fees, bank
settlement fees and commissions, if any, paid on the transfer of securities.
Qualification for Spanish and Portuguese Treaty Benefits. The Fund has
qualified for treatment as a "United States resident" under the Convention and
the Treaty.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and
is determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
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 the Fund are sold
to investors subject to an initial sales charge. Class B shares are sold without
an initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. Upon the redemption
or exchange of any class of shares held for less than one year, a fee of 2% of
the current net asset value of the shares will be assessed and retained by the
Fund for the benefit of the remaining shareholders, with limited exceptions (see
"Redemption or Repurchase of Shares-Redemption Fee" below). When placing
purchase orders, investors must specify whether the order is for Class A, Class
B or Class C shares.
The primary distinctions among the classes of the Fund's shares lie in
their initial and contingent deferred sales charge structures and in their
ongoing expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
Annual 12b-1
Fees (as a
% of average
daily net
Sales Charge assets) Other Information
Class A Maximum initial sales charge None Initial sales charge waived
of 5.75% of the public or reduced for certain
offering price purchases
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of shares six years after
redemption proceeds; issuance
declines to zero after
six years
Class C Contingent deferred sales 0.75% No conversion feature
charge of 1% of redemption
proceeds for redemptions
made during first year
after purchase
The minimum initial investment for each class of the 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.
Sales Charge
As a As a Allowed to Dealers
Percentage Percentage as a
Amount of Purchase of Offering of Net Asset Percentage of
Price 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.
The Fund receives the entire net asset value of all its shares sold.
KDI, the Fund's principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may 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, as amended.
Class A shares of the Fund may be purchased at net asset value by: (a)
any purchaser provided that the amount invested in the Fund or other Kemper
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 the
Fund at net asset value in accordance with the Large Order NAV Purchase
Privilege up to the following amounts: 1.00% of the net asset value of shares
sold on amounts up to $5 million, 0.50% on the next $45 million and 0.25% on
amounts over $50 million. The commission schedule will be reset on a calendar
year basis for sales of shares pursuant to the Large Order NAV Purchase
Privilege to employer sponsored employee benefit plans using the subaccount
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 the 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 the 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 the 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 plaintiff class in
the proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is
generally non-transferable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
the Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.
Class A shares of the Fund may be purchased at net asset value in any
amount by certain professionals who assist in the promotion of Kemper Funds
pursuant to personal services contracts with KDI, for themselves or members of
their families. KDI in its discretion may compensate financial services firms
for sales of Class A shares under this privilege at a commission rate of 0.50%
of the amount of Class A shares purchased.
Class A shares may be sold at net asset value in any amount to: (a)
officers, trustees, directors, employees (including retirees) and sales
representatives of the Fund, its investment manager, its principal underwriter
or certain affiliated companies, for themselves or members of their families;
(b) registered representatives and employees of broker-dealers having selling
group agreements with KDI and officers, directors and employees of service
agents of the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on September
8, 1995, and have continuously owned shares of KVS (or a Kemper Fund acquired by
exchange of KVS shares) since that date, for themselves or members of their
families; (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 Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may 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 the 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 the Fund may be sold at net asset value by certain investment
advisers registered under the 1940 Act and other financial services firms,
acting solely as agents for their clients, that adhere to certain standards
established by KDI, including a requirement that such shares be sold for the
benefit of their clients participating in an investment advisory program or
agency commission program under which such clients pay a fee to the investment
adviser or other firm for portfolio management or agency brokerage services.
Such shares are sold for investment purposes and on the condition that they will
not be resold except through redemption or repurchase by the Fund. The Fund may
also issue Class A shares at net asset value in connection with the acquisition
of the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
The sales charge scale is applicable to purchases made at one time by
any "purchaser" which includes: an individual; or an individual, his or her
spouse and children under the age of 21; or a trustee or other fiduciary of a
single trust estate or single fiduciary account; or an organization exempt from
federal income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative-Class B Shares. Investors choosing
the deferred sales charge alternative may purchase Class B shares at net asset
value per share without any sales charge at the time of purchase. Since Class B
shares are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares-Contingent Deferred
Sales Charge-Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale
at a commission rate of up to 3.75% of the amount of Class B shares purchased.
KDI is compensated by the Fund for services as distributor and principal
underwriter for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares
of the Fund six years after issuance on the basis of the relative net asset
value per share 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 the Fund is the next determined net asset value. No initial sales
charge is imposed. Since Class C shares are sold without an initial sales
charge, the full amount of the investor's purchase payment will be invested in
Class C shares for his or her account. A contingent deferred sales charge may be
imposed upon the redemption of Class C shares if they are redeemed within one
year of purchase. See "Redemption or Repurchase of Shares-Contingent Deferred
Sales Charge-Class C Shares." KDI currently advances to firms the first year
distribution fee at 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 the 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 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 the 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 the Fund for their clients, and KDI may pay them a
transaction fee up to the level of the discount or commission allowable or
payable to dealers, as described above. Banks 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 the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on
the amount of shares of the Fund sold 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 compensation, to firms that sell shares of the
Fund. In some instances, such discounts, commissions or other incentives will be
offered only to certain firms that sell or are expected to sell during specified
time periods certain minimum amounts of shares of the Fund, or other funds
underwritten by KDI.
Orders for the purchase of shares of the Fund will be confirmed at a
price based on the net asset value of the Fund next determined after receipt 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"). The Fund reserves the right to
determine the net asset value more frequently than once a day if deemed
desirable. Dealers and other financial services firms are obligated to transmit
orders promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. 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 Fund's shares. Some may establish
higher minimum investment requirements than set forth above. Firms may arrange
with their clients for other investment or administrative services. Such firms
may independently establish and charge additional amounts to their clients for
such services, which charges would reduce the clients' return. Firms also may
hold the Fund's shares in nominee or street name as agent for and on behalf of
their customers. In such instances, the Fund's transfer agent will have no
information with respect to or control over 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 Fund through the Shareholder Service Agent for
recordkeeping and other expenses relating to these nominee accounts. In
addition, certain privileges with respect to the purchase and redemption of
shares or the reinvestment of dividends may not be available through such firms.
Some firms may participate in a program allowing them access to their clients'
accounts for servicing, including, without limitation, transfers of registration
and dividend payee changes; and may perform functions such as generation of
confirmation statements and disbursement of cash dividends. Such firms,
including affiliates of KDI, may receive compensation from the Fund through the
Shareholder Service Agent for these services. This prospectus should be read in
connection with such firms' materials regarding their fees and services.
The 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, the Fund may temporarily suspend the offering of any class of its
shares to new investors. During the period of such suspension, persons who are
already shareholders of such class of the Fund normally are permitted to
continue to purchase additional shares of such class and to have dividends
reinvested.
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 the 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. The 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 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 request that the Fund to redeem his or her shares.
When shares are held for the account of a shareholder by the Fund's transfer
agent, the shareholder may redeem 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.
Any shareholder requesting that the Fund redeem shares with an
aggregate value in excess of the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90 day period will be required to provide the Fund with
details of valid custodial arrangements in Spain, Portugal and the U.S., in
addition to other important information, in order for the redemption request to
be deemed in good order. Failure to provide the required information will result
in the rejection of the redemption request as being invalid. See "Redemption
in-Kind" below.
The redemption price for shares of a class of the Fund will be the net
asset value per share of that class of the Fund next determined following
receipt by the Shareholder Service Agent of a properly executed request with any
required documents as described above. Except with respect to redemptions
effected in-kind pursuant to the Fund's redemption policy set forth below under
"Redemption in-Kind," payment for shares redeemed will be made in cash as
promptly as practicable but in no event later than seven days after receipt of a
properly executed request accompanied by any outstanding share certificates in
proper form for transfer. When the Fund is asked to redeem shares for which it
may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. Upon the redemption or exchange of any class of shares held
less than one year, with limited exceptions, a fee of 2% of the current net
asset value of the shares will be assessed and retained by the Fund for the
benefit of the remaining shareholders (see "Redemption Fee" below). The
redemption within two years of Class A shares purchased at net asset value under
the Large Order NAV Purchase Privilege may also 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. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
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, guardian and custodian account
holders, provided the trustee, executor, guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value 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 the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value 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, subject to the Fund's redemption
policy set forth below under "Redemption in-Kind." Once authorization is on
file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048 or in writing, subject to the limitations on liability described
under "General" above. The Fund is not responsible for the efficiency of the
federal wire system or the account holder's financial services firm or bank. The
Fund currently does not charge the account holder for wire transfers. The
account holder is responsible for any charges imposed by the account holder's
firm or bank. There is a $1,000 wire redemption minimum (including any
contingent deferred sales charge). To change the designated account to receive
wire redemption proceeds, send a written request to the Shareholder Service
Agent with signatures guaranteed as described above or contact the firm through
which shares of the Fund were purchased. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this privilege to redeem shares held in certificated form. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the expedited wire transfer redemption privilege. The
Fund reserves the right to terminate or modify this privilege at any time.
Contingent Deferred Sales Charge-Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the 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.
Year of Redemption After Purchase Contingent Deferred
Sales Charge
First................................................. 4%
Second................................................ 3%
Third................................................. 3%
Fourth................................................ 2%
Fifth................................................. 2%
Sixth................................................. 1%
The contingent deferred sales charge will be waived: (a) in the event
of the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features-Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested the Fund), (c) redemptions in connection with distributions qualifying
under the hardship provisions of the Code and (d) redemptions representing
returns of excess contributions to such plans.
Contingent Deferred Sales Charge-Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features-Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Code
Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to satisfy
required minimum distributions after age 70 1/2 from an IRA account (with the
maximum amount subject to this waiver being based only upon the shareholder's
Kemper IRA accounts), (f) for any participant-directed redemption of shares held
by employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent, and (g) 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 the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 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, 1998 will be eligible for the second year's charge if redeemed on
or after December 1, 1999. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
Redemption Fee. Upon the redemption or exchange of any class of shares held for
less than one year, a fee of 2% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The fee is waived for all shares purchased through certain
retirement plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh
accounts, and other pension, profit-sharing and employee benefit plans. However,
if such shares are purchased through a broker, financial institution or
recordkeeper maintaining an omnibus account for the shares, such waiver may not
apply. (Before purchasing shares, please check with your account representative
concerning the availability of the fee waiver.) In addition, this waiver does
not apply to any IRA or SEP-IRA accounts. This fee is intended to encourage
long-term investment in the Fund, to avoid transaction and other expenses caused
by early redemptions, and to facilitate portfolio management. The fee is not a
deferred sales charge, is not a commission paid to the Adviser or its
subsidiaries, and does not benefit the Adviser in any way. The Fund reserves the
right to modify the terms of or terminate this fee at any time.
The fee applies to redemptions from the Fund and exchanges to other
Kemper Funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased. In the event
that a shareholder has acquired shares of the Fund in connection with the Fund's
acquisition of the assets of or merger or consolidation with another investment
company (an "acquired fund"), the shareholder will generally be permitted to add
the period he or she held shares of the acquired fund to the time he or she has
held Class A shares of the Fund in determining the applicability of the
redemption fee. In such a case, the shareholder bears the burden of
demonstrating to the Fund the period of ownership of the acquired fund. Proof of
ownership for the required period may be demonstrated by providing copies of
brokerage account statements or other appropriate share records in connection
with a redemption under cover of the redemption and certification form attached
to this prospectus as Appendix A. See "Purchase and Redemption of Shares-Special
Redemption and Exchange Information" in the Fund's Statement of Additional
Information for a more detailed description of the redemption fee.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
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
the Fund or of the other listed Kemper Funds. A shareholder of the 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 the 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 the 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 the Fund, the reinvestment in shares of
the Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. In addition, upon a reinvestment, the shareholder
may not be permitted to take into account sales charges incurred on the original
purchase of shares in computing their taxable gain or loss. The reinvestment
privilege may be terminated or modified at any time.
Redemption in-Kind. The Fund has adopted the following redemption policy in an
attempt to avoid the imposition of adverse tax consequences on remaining
shareholders that may be caused by certain large-scale redemptions. In
conformity with Rule 18f-1 under the 1940 Act, it is the Fund's policy to redeem
its shares, with respect to any one shareholder during any 90 day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period. As an operating policy, the Fund will satisfy
redemption requests in excess of such amount by distributing portfolio
securities in lieu of cash. This policy may be modified or terminated at any
time by the Board of Directors. Any securities distributed in-kind would be
valued in accordance with the Fund's policies used to determine net asset value,
and would be selected pursuant to procedures adopted by the Board of Directors
to help ensure that such redemptions are effected in a manner that is fair and
equitable to all shareholders. The redeeming shareholder will bear the risk of
fluctuation in value of the in-kind redemption proceeds after the trade date for
the redemption. Shareholders who receive portfolio securities in redemption of
Fund shares will be required to make arrangements for the transfer of custody of
such securities to the shareholder's account and must communicate relevant
custody information to the Fund prior to the effectiveness of a redemption
request. Redemption requests subject to the Fund's redemption in-kind policy
will not be considered in good order unless such information is provided. As
discussed below, a redeeming shareholder will bear all costs associated with the
in-kind distribution of portfolio securities. Shareholders receiving securities
in-kind may, when selling them, receive less than the redemption value of such
securities and would also incur certain transaction costs. Such a redemption
would not be as liquid as a redemption entirely in cash.
Redeeming shareholders will bear any costs of delivery and transfer of
the portfolio securities received in an in-kind redemption (generally, certain
transfer taxes and custodial expenses), and such costs will be deducted from
their redemption proceeds. Redeeming shareholders will also bear the costs of
re-registering the securities, as the securities delivered will be registered in
the Fund's name or the nominee names of the Fund's custodians. The actual per
share expenses for redeeming shareholders of effecting an in-kind redemption and
of any subsequent liquidation by the shareholder of the portfolio securities
received will depend on a number of factors, including the number of shares
redeemed, the Fund's portfolio composition at the time and market conditions
prevailing during the liquidation process. The Fund gives no assurances of such
expenses, and shareholders whose redemptions are effected in-kind may bear
expenses in excess of 1% of the net asset value of the shares of the Fund
redeemed. These expenses are in addition to any applicable redemption fee or
contingent deferred sales charge, as described above.
As noted under "Redemption or Repurchase of Shares--General" above,
shareholders redeeming in excess of the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90 day period must provide details of their
valid custodial arrangements in Spain, Portugal and the U.S. in order to
facilitate the transfer and settlement of securities to be distributed to them
in-kind. Unless a shareholder establishes such custodial arrangements and
properly notifies the Fund of those arrangements, that shareholder will
effectively be limited to redeeming the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90 day period. In the event that the
shareholder wishes to redeem additional amounts in cash, that shareholder will
have to re-submit such a redemption request after the expiration of each 90 day
period (i.e., redemption requests for amounts in excess of the permitted amount
will not be automatically carried forward to the next 90 day period).
The Fund has applied for an exemptive order from the SEC to permit
in-kind redemption transactions to be effected by shareholders who may be deemed
to be affiliated with the Fund because they own 5% or more of the Fund's
outstanding voting securities ("5% shareholders"). A 5% shareholder receiving an
in-kind redemption prior to receipt of such relief (receipt of which cannot be
guaranteed) could be deemed to be in violation of Section 17(a) of the 1940 Act.
The SEC issued notice of the application on November 17, 1998, which indicates
that an order granting the application would be issued unless the SEC calls for
a hearing; however, until such an order has been issued, the Fund can provide no
assurance to shareholders that with respect to such redemptions in-kind they
will be in compliance with the 1940 Act. Shares of the Fund received by
shareholders in exchange for shares of GSP originally purchased in GSP's initial
public offering are not subject to being redeemed in-kind, contingent upon proof
of such purchase by the shareholder.
For redemptions in excess of the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90 day period, a redemption request will be
considered valid only if accompanied by a properly completed redemption and
certification form (attached to this prospectus as Appendix A), which details,
among other things, the shareholder's valid custodial arrangements in Spain,
Portugal and the U.S. No redemption requests subject to in-kind redemption may
be made other than by a written request accompanied by a properly completed
redemption and certification form.
For more information about redemptions in-kind, see "Purchase and
Redemption of Shares--Redemption in-Kind" in the Statement of Additional
Information. See also "Dividends, Distributions and Taxes--U.S. Federal Income
Taxes" in this prospectus.
SPECIAL FEATURES
Class A Shares-Combined Purchases. The 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 Series, Inc., Kemper Quantitative Equity Fund, Kemper Horizon Fund, Kemper
Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive Growth Fund, Kemper
Global/International Series, Inc., Kemper U.S. Growth and Income Fund, Kemper
Small Cap Relative Value Fund, Kemper-Dreman Financial Services Fund, Kemper
Value Fund, Kemper Global Discovery Fund, Kemper Classic Growth Fund and Kemper
High Yield Fund II ("Kemper Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Zurich
YieldWise 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 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 the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of 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. Upon the exchange of any class of
shares held for less than one year, a fee of 2% of the current net asset value
of the shares will be assessed and retained by the Fund for the benefit of the
remaining shareholders (see "Redemption or Repurchase of Shares-Redemption Fee"
above). Redemptions with respect to any one shareholder during any 90-day period
in excess of the lesser of $250,000 or 1% of the net asset value at the
beginning of the period are not eligible for the exchange privilege, and will be
effected pursuant to the Fund's redemption policies described above under
"Redemption in-Kind."
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,
subject to the redemption fee, if applicable. 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 the 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 the 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, subject to
the redemption fee, if applicable. 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 the 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, subject to
the redemption fee, if applicable. Class C shares may be exchanged without a
contingent deferred sales charge being imposed at the time of exchange. For
determining whether there is a contingent deferred sales charge that may be
imposed upon the redemption of the Class C shares received by exchange, they
retain the cost and purchase date of the shares that were originally purchased
and exchanged.
General. Shares of a Kemper 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 of the Fund for
shares of another Kemper Fund are subject to a 2% redemption fee if the
shareholder has held the Fund shares for less than one year (see "Redemption or
Repurchase of Shares-Redemption Fee"). 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 certain states.
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, subject to the redemption fee, if
applicable. 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 the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares-General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to 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 the 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.
The Fund may immediately terminate a shareholder's Plan in the event that any
item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify this privilege at any time.
Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to IRAs. The minimum periodic payment is $100. The
maximum annual rate at which Class B shares may be redeemed (and Class A shares
purchased under the Large Order NAV Purchase Privilege and Class C shares in
their first year following the purchase) under a systematic withdrawal plan is
10% of the net asset value of the account. Shares are redeemed so that the payee
will receive payment approximately the first of the month. Any income and
capital gain dividends will be automatically reinvested at net asset value. A
sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic
withdrawal plan 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, the 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 Fund.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts
("IRAs"). This includes Simplified Employee Pension Plan
("SEP") IRA accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is
available to employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may
be adopted by employers. The maximum annual contribution per
participant is the lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit
plans, target benefit plans, 457 plans, 401(k) plans 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
The Fund may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for 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 the 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 the Fund's portfolio for the period referenced, assuming the
reinvestment of all dividends. Thus, these figures reflect the change in the
value of an investment in the Fund during a specified period. Average annual
total return will be quoted for at least the one, five and ten year periods
ending on a recent calendar quarter (or if 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.
The Fund's performance may be compared to that of the Consumer Price
Index or various unmanaged indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's Composite Stock Price 500 Index, the
Russell 1000(R) Index, the Russell 1000(R) Growth Index, the Wilshire Large
Company Growth Index, the Wilshire 750 Mid Cap Company Growth Index, the
Standard & Poor's/Barra Value Index, Standard & Poor's/Barra Growth Index, the
Russell 1000(R) Value Index, the Europe/Australia/Far East Index, the BVL (Bolsa
de Valores de Lisboa) Index, Madrid Stock Exchange (MSE) General 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 the Fund may also be compared to the performance of other mutual
funds or mutual fund indices with similar objectives and policies as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charges.
Information may be quoted from publications such as Morningstar, Inc.,
The Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago
Tribune, USA Today, Institutional Investor and Registered Representative. Also,
investors may want to compare the historical returns of various investments,
performance indexes of those investments or economic indicators, including but
not limited to stocks, bonds, certificates of deposit, money market funds and
U.S. Treasury obligations. Bank product performance may be based upon, among
other things, the BANK RATE MONITOR National Index(TM) or various certificate of
deposit indexes. Money market fund performance may be based upon, among other
things, the IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R),
reporting services on money market funds. Performance of U.S. 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.
The Fund may depict the historical performance of the securities in
which the Fund may invest over periods reflecting a variety of market or
economic conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund. The relative performance of
growth stocks versus value stocks may also be discussed.
Because some or all of the Fund's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar 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 Fund. 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 the Fund invests, 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.
The 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. Performance figures for each class of the Fund's
shares do not reflect the effect of the 2% redemption fee on shares held for
less than one year.
The Fund's returns and net asset value will fluctuate. Shares of a
class of the Fund are redeemable by an investor at the class' then current net
asset value, which may be more or less than original cost, subject to a 2%
redemption fee for redemption of shares held for less than one year. Redemption
of Class A shares, Class B shares and Class C shares may be subject to a
contingent deferred sales charge as described above. Additional information
concerning the Fund's performance appears in the Statement of Additional
Information. Additional information about the Fund's performance also appears in
its Annual Report to Shareholders and Semiannual Report to Shareholders, each of
which is available without charge from the Fund.
FUND ORGANIZATION AND CAPITAL STRUCTURE
The Fund is a 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. 100,000,000 shares have been classified for
each of the Corporation's six series. Currently, each series 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
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.
The Growth Fund of Spain, Inc. ("GSP"), the predecessor of the Fund,
commenced investment operations in 1990 as a closed-end management investment
company organized as a Maryland corporation. At a meeting of the shareholders of
GSP held October 28, 1998, the shareholders voted to approve the conversion of
the Fund to an open-end investment company and the reorganization of GSP as a
new series of the Corporation. Pursuant to the reorganization agreement between
GSP and the Corporation, GSP transferred all of its assets to the Fund in
exchange for Class A shares of the Fund and the assumption by the Fund of the
liabilities of GSP. GSP then distributed the Class A shares of the Fund received
in the reorganization to its shareholders.
<PAGE>
APPENDIX A
REDEMPTION AND CERTIFICATION FORM
[KEMPER FUNDS LOGO]
Certificates
Any shares held in certificate form
cannot be redeemed until the certificates
are returned. Please return your certificates by certified mail to:
Kemper Service Company
811 Main Street
Kansas City, MO 64105-2005
Name and Address
[ ] Please check here if the address listed below is a new address (a
signature guarantee will be required to complete this redemption
request.)
Name Date
Name
Address
City State Zip
Daytime Phone Number Social Security/Tax I.D. Number
Fund Currently Invested In Account Number
PLEASE REDEEM (check one):
Kemper Class A Shares or Kemper Class B and C Shares
[ ] $ [ ] $
Amount in Dollars Net Amount (see back of form)
[ ] [ ] $
Number of Shares Gross Amount (see back of form)
[ ] All shares to close my account [ ] Number of Shares
[ ] All shares to close my account
ALTERNATE PAYEE/ADDRESS (signature guarantee required)
This is your authorization to have the redemption check sent to a special payee
and or address different from the account registration as designated below.
Name
Address
City State Zip
SIGNATURE OF OWNERS (required)
All account owners must sign this request. If acting in a special capacity
(executor, administrator, custodian, trustee, corporate officer, etc.) the
capacity (title) must be indicated.
Signature Signature
Title Title
SIGNATURE GUARANTEE (See Reverse Side for Signature Guarantee Provisions)
Signature Guaranteed By Affix Signature Guarantee Stamp
Name of Bank or Firm
Signature of Officer Title
A signature guarantee is required:
- - if the redemption check is to be mad payable to a special payee and or sent
to an address different from the address of record;
- - if the redemption proceeds for an individual or joint account exceed $50,000;
- - if you are signing on behalf of a corporation, or as a custodian, executor,
administrator, trustee or guardian;
- - address changed within last 30 days.
A signature guarantee must be supplied by a commercial bank, trust company,
savings and loan association, federal savings bank, member of a national
securities exchange, or other eligible financial institution.
Provisions
For Kemper Class B and C Shares
"Net" dollar amount:
This option is not available if you are choosing your account.) The check sent
will be for the exact dollar amount or net asset value of shares requested. Any
applicable contingent deferred sales charge and/or redemption fee will be
assessed over and above the amount received and will be paid by redemption of
sufficient shares from your account.
"Gross" dollar amounts:
The check sent will be for the dollar amount of shares requested minus any
applicable contingent deferred sales charge and/or redemption fee.
Documentation required--For business/fiduciary accounts, i.e. corporations,
trusts, custodians, associations, partnerships, fiduciaries, guardians,
representatives, executors and administrators, further documentation may be
required. Please contact Shareholder Services at (800) 621-1048 for additional
information.
IRA Accounts with IFTC as custodian should contact Shareholder Services for the
distribution form.
CERTIFICATIONS
Mailing Address: Kemper Service Company
811 Main Street
Kansas City, MO 64105-2005
For Further Information call: (800) 621-1048
PART A: APPLICABILITY OF REDEMPTION FEE
PLEASE COMPLETE AND MAIL THIS CERTIFICATION FORM ALONG WITH A COMPLETED
REDEMPTION REQUEST FORM, AS WELL AS PROOF OF OWNERSHIP OF FUND SHARES FOR A
PERIOD OF ONE YEAR OR MORE (I.E. BROKERAGE STATEMENTS), TO THE TRANSFER AGENT AT
THE ADDRESS INDICATED ABOVE IN ORDER TO AVOID BEING ASSESSED THE 2% REDEMPTION
FEE AS DESCRIBED UNDER "REPURCHASE OR REDEMPTION OF SHARES - REDEMPTIONFEE" IN
THE FUND'S PROSPECTUS.
Certification: The undersigned certifies that the shares being presented for
redemption have been held by the same beneficial owner for a period of one year
or more. The undersigned further certifies the authenticity of the documents
provided under cover of this form as proof of historical ownership.
Signature: _____________________________________________________________________
PART B: CERTIFICATION OF INAPPLICABILITY OF IN-KIND REDEMPTION POLICY
Please certify under the appropriate section that this transaction is not
subject to the Fund's in-kind redemption policy. For information concerning this
policy, please refer to "Repurchase or Redemption of Shares - Redemption
in-kind" in the Fund's Prospectus.
(1) FOR INDIVIDUALS: The undersigned certifies that the aggregate value of
this redemption request and all prior redemption requests made within
the past 90 days, including the date of this request, amount to no more
than the lesser of $250,000 or 1% of the Fund's net asset value.
Signature: ____________________________________________________________
(2) FOR BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER
NOMINEES: The undersigned certifies that the shares being presented for
redemption do not exceed the lesser of $250,000 or 1% of the Fund's net
asset value when aggregated with all other redemption requests made on
behalf of the same beneficial owner within the past 90 days, including
the date of this request. The undersigned further certifies the
authenticity of all documents provided under cover of this form as
proof of the foregoing statement.
Signature: ____________________________________________________________
IF YOU ARE UNABLE TO MAKE THE APPLICABLE CERTIFICATION REQUIRED BY PART B ABOVE,
PLEASE COMPLETE PART C.
PART C: TRANSACTIONS SUBJECT TO IN-KIND REDEMPTION
IF YOU ARE REDEEMING SHARES FOR AN INDIVIDUAL BENEFICIAL OWNER, WHICH WHEN
AGGREGATED WITH SHARES REDEEMED FOR THE SAME BENEFICIAL OWNER OVER THE PAST 90
DAYS, INCLUDING THE DATE OF THIS REQUEST, ARE VALUED IN EXCESS OF THE LESSER OF
$250,000 OR 1% OF THE FUND'S NET ASSET VALUE, THAT PORTION OF THE REDEMPTION
REQUEST IN EXCESS OF SUCH AMOUNT WILL BE SATISFIED THROUGH THE DISTRIBUTION OF
PORTFOLIO SECURITIES IN LIEU OF CASH. PART C OF THIS FORM MUST BE COMPLETED AND
SUBMITTED WITH ANY SUCH REDEMPTION REQUEST BEFORE THE REQUEST WILL BE CONSIDERED
IN GOOD ORDER.
In order to facilitate settlement, please provide details on the individual or
individuals at your firm who will be responsible for settlement of foreign
securities transactions. The contact(s) listed here will receive instructions
regarding the securities that will be delivered.
Contact(s) Name and Firm: ______________________________________________________
Phone Number(s) at Brokerage Firm: _____________________________________________
Facsimile Number: _____________________________________________________________
Please provide details of valid custodial arrangements
established in Spain, Portugal and the United States.
SPAIN: Please provide the details of valid custodial arrangements in
Spain. The institution listed below must have an account in
the central securities depository.
Name of Account: _______________________________________________________________
Bank Name: ______________________________________________________________
Bank Address: ______________________________________________________________
Securities Account Number at Bank: _____________________________________________
PORTUGAL: Please provide the following details of valid custodial
arrangements in Portugal. The institution listed below must
have an account in the central securities depository.
Name of Account (if different): ________________________________________________
Bank Name: ______________________________________________________________
Bank Address: ______________________________________________________________
--------------------------------------------------------------
Securities Account Number at Bank: _____________________________________________
United States - Depository Trust Co. (DTC)
Participant Name: ______________________________________________________________
DTC Participant Number: ________________________________________________________
PORTFOLIO SECURITIES RECEIVED IN SATISFACTION OF THIS REDEMPTION REQUEST WILL BE
REGISTERED IN EITHER THE NAME OF THE FUND OR IN THE NOMINEE NAMES OF THE FUND'S
CUSTODIANS. THE REDEEMING SHAREHOLDER, IN CONJUNCTION WITH THE LOCAL
BANK/BROKER, WILL BE RESPONSIBLE FOR RE-REGISTERING THE PORTFOLIO SECURITIES AND
FOR ALL COSTS ASSOCIATED WITH RE-REGISTRATION.
SIGNATURE GUARANTEE APPLICABLE TO CERTIFICATIONS
Signature Guaranteed By Affix Signature Guarantee Stamp
Name of Bank or Firm
Signature of Officer Title
Principal Underwriter 120 South LaSalle Street Chicago, IL 60603
Kemper Distributors, Inc. Tel (800) 621-1048 E-mail [email protected]
Investment Manager http://www.kemper.com
Scudder Kemper Investments, Inc.
<PAGE>
GROWTH FUND OF SPAIN
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1998
Kemper Global/International Series, Inc.
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for the Growth Fund of Spain (the "Fund"), a
series of Kemper Global/International Series, Inc. (the "Corporation"), an
open-end management investment company. It should be read in conjunction with
the prospectus of the Fund dated December 1, 1998. A prospectus may be obtained
without charge from the Fund. The Fund is the successor entity to The Growth
Fund of Spain, Inc., a closed-end fund whose shares were listed on the New York
Stock Exchange, Inc. before its shareholders approved a proposal to open-end the
fund and reorganize it as a series of the Corporation.
---------
TABLE OF CONTENTS
Page
INVESTMENT RESTRICTIONS...........................................2
INVESTMENT POLICIES AND TECHNIQUES................................3
PORTFOLIO TRANSACTIONS...........................................13
INVESTMENT MANAGER AND UNDERWRITER...............................14
PURCHASE AND REDEMPTION OF SHARES................................18
NET ASSET VALUE..................................................20
DIVIDENDS, DISTRIBUTIONS AND TAXES...............................20
PERFORMANCE......................................................25
OFFICERS AND DIRECTORS...........................................27
SHAREHOLDER RIGHTS...............................................29
FINANCIAL STATEMENTS.............................................30
ADDITIONAL INFORMATION...........................................30
APPENDIX A - RATINGS OF FIXED INCOME INVESTMENTS.................31
APPENDIX B - INFORMATION ABOUT SPAIN AND PORTUGAL................32
Scudder Kemper Investments, Inc. (the "Adviser") serves as the Fund's
investment manager.
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a majority of its outstanding voting shares, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). This
means the lesser of the vote of (a) 67% of the shares of the Fund present at a
meeting where more than 50% of the outstanding shares are present in person or
by proxy or (b) more than 50% of the outstanding shares of the Fund.
.........As a matter of fundamental policy, the Fund will not:
(a) make loans except to the extent that the purchase of portfolio
securities consistent with the Fund's investment objective and
policies or the acquisition of securities subject to
repurchase agreements may be deemed to be loans;
(b) borrow money or issue senior securities, except as permitted
under the 1940 Act and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(c) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings or in connection
with hedging and risk management strategies as described under
"Investment Objective, Policies and Risk Factors" in the
prospectus;
(d) invest in companies for the purpose of exercising control or
participation in management;
(e) make short sales of securities or maintain a short position in
any security except as described under "Investment Objective,
Policies and Risk Factors" in the prospectus;
(f) (i) purchase or sell real estate, except that it may purchase and
sell securities of companies which deal in real estate or
interests therein, (ii) purchase or sell commodities or
commodity contracts except that the Fund may enter into
foreign currency and stock index futures contracts and
options thereon and may buy or sell forward currency
contracts and options on foreign currencies, (iii) invest in
interests in oil, gas, or other mineral exploration or
development programs, except that it may purchase and sell
securities of companies which deal in oil, gas or other
mineral exploration or development programs, (iv) purchase
securities on margin, except for such short-term credits
as may be necessary for the clearance of transactions
as described under the heading "Investment Objective,
Policies and Risk Factors" in the prospectus, and (v) act as
an underwriter of securities, except that the Fund may acquire
securities in private placements in circumstances in which,
if such securities were sold, the Fund might be deemed to be
an underwriter within the meaning of the Securities Act of
1933, as amended; and
(g) invest in securities of other investment companies, except as
part of a merger, consolidation or other acquisition, if more
than 3% of the outstanding voting stock of any such investment
company would be held by the Fund, if more than 5% of the
total assets of the Fund would be invested in any such
investment company, or if the Fund would own, in the
aggregate, securities of investment companies representing
more than 10% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond that specified limit resulting
from a change in values or net assets will not be considered a violation.
As a matter of nonfundamental policy, the Fund will not:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements or other investments
or transactions described in the Fund's registration statement
which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin, except (i) for margin deposits
in connection with futures contracts, options or other
permitted investments, and (ii) that the Fund may obtain such
short-term credits as may be necessary for the clearance of
securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit; and
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value).
INVESTMENT POLICIES AND TECHNIQUES
General. The Growth Fund of Spain seeks long-term capital appreciation by
investing primarily in equity securities of Spanish companies. The Fund may also
invest up to 35% of its total assets in the securities of non-Spanish companies,
which investments may be concentrated in whole or in part in the equity
securities of Portuguese companies.
The Fund may engage in futures, options and other derivative
transactions ("Strategic Transactions and Derivatives") in accordance with its
investment objective and policies. The Fund intends to engage in such
transactions if it appears to the Adviser to be advantageous for the Fund to do
so in order to pursue its investment objective, to hedge against the effects of
fluctuation in interest rates, and also to hedge against the effects of market
risks, but not for leveraging purposes. The use of futures and options, and
possible benefits and attendant risks, are discussed below, along with
information concerning other investment policies and techniques.
Foreign Securities, in General. The Fund is designed for investors who can
accept currency and other forms of international investment risk. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign
securities exchanges and bid-to-asked spreads in foreign bond markets are
generally higher than commissions or bid-to-asked spreads on U.S. markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less government supervision and regulation of securities exchanges,
brokers and listed companies than in the U.S. It may be more difficult for the
Fund's agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. Communications between the U.S. and
foreign countries may be less reliable than within the U.S., thus increasing the
risk of delayed settlements of portfolio transactions or loss of certificates
for portfolio securities. In addition, with respect to certain foreign
countries, there is the possibility of nationalization, expropriation, the
imposition of withholding or confiscatory taxes, political, social, or economic
instability, or diplomatic developments which could affect United States
investments in those countries. Investments in foreign securities may also
entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Trading in securities on European securities exchanges is normally
completed before the close of regular trading on the New York Stock Exchange
(the "Exchange"). Trading on these foreign exchanges may not take place on a day
on which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange. Events materially affecting
the value of the Fund's portfolio securities may occur between the time when
these foreign exchanges close and the time when the Fund's net asset value is
calculated.
See Appendix B for a detailed discussion of Spanish and Portuguese
market and economic characteristics.
Depositary Receipts. The Fund may invest directly in securities of foreign
issuers through sponsored or unsponsored American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs")
and other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs
are hereinafter referred to as "Depositary Receipts"). Depositary Receipts may
not necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depositary Receipts. ADRs
are Depositary Receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
GDRs, IDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by United
States banks or trust companies, and evidence ownership of underlying securities
issued by either a foreign or a United States corporation. Generally, Depositary
Receipts in registered form are designed for use in the United States securities
markets and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. For purposes of the Fund's
investment policies, the Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts may be subject to foreign currency exchange rate
risk. Certain Depositary Receipts may not be listed on an exchange and therefore
may be illiquid securities.
Foreign Currencies. The Fund has foreign currency exposure. Because investments
in foreign securities usually will involve currencies of foreign countries, and
because the Fund may hold funds in bank deposits in foreign currencies during
the completion of investment programs and may purchase foreign currency, foreign
currency futures contracts, and options on foreign currencies and foreign
currency futures contracts, the value of the assets of the Fund as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies. Although the
Fund values its assets daily in terms of U.S. dollars, it does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
It will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into options or
forward or futures contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in foreign securities
markets, changes in the Fund's share price may have a low correlation with
movements in the U.S. markets. The Fund's share price will reflect the movements
of both the different stock and bond markets in which it is invested and of 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. U.S. and foreign securities markets do not always move
in step with each other, and the total returns from different markets may vary
significantly.
Debt Securities. The Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA,
AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or, if unrated, judged
to be of equivalent quality as determined by the Adviser. Bonds rated Baa or BBB
may have speculative elements as well as investment-grade characteristics. (See
"Appendix A.")
Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities, including
fixed-income and zero coupon debt securities, which are convertible into common
stock. Investments in convertible securities can provide an opportunity for
capital appreciation and/or income through interest and dividend payments by
virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest 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.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes ("LYONs(TM)"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS(TM)") and Certificate of Accrual on Treasuries
("CATS(TM)"). The underlying U.S. Treasury bonds and notes themselves are held
in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof. Counsel to
the underwriters of these certificates or other evidences of ownership of the
U.S. Treasury securities have stated that, for federal tax and securities
purposes, in their opinion purchasers of such certificates, such as the Fund,
most likely will be deemed the beneficial holder of the underlying U.S.
Government securities.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Sovereign Debt. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
When-Issued Securities. The Fund may, from time to time, purchase securities on
a "when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. To the extent that
assets of the Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Fund's intention
to be fully invested to the extent practicable and subject to the policies
stated above. While when-issued or forward delivery securities may be sold prior
to the settlement date, the Fund intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
security on a when-issued or forward delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. At the time of settlement, the market value of the when-issued or forward
delivery securities may be more or less than the purchase price. The Fund does
not believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis.
Warrants. Subject to nonfundamental investment policy (6), the Fund may invest
in warrants, which are securities permitting, but not obligating, their holders
to subscribe for other securities or commodities. The Fund may invest in
warrants for debt securities or warrants for equity securities that are acquired
as units with debt instruments. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants may be considered to be more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying securities
or commodities and a warrant ceases to have value if it is not exercised prior
to its expiration date. Consistent with the Fund's investment policies as
described above, the Fund may retain in its portfolio any securities received
upon the exercise of a warrant and may also retain in its portfolio any warrant
acquired as a unit with a debt instrument if the warrant begins to trade
separately from the related debt instrument.
Borrowing. The Fund may borrow to the maximum extent permitted under the 1940
Act; however, as a matter of nonfundamental policy, the Fund will not borrow in
an amount exceeding 5% of the value of the total assets of the Fund except for
temporary or emergency purposes and by engaging in reverse repurchase agreements
or other investments or transactions which may be deemed to be borrowings. Such
borrowings are not subject to the asset coverage restrictions set forth below.
The 1940 Act requires the Fund to maintain "asset coverage" of not less than
300% of its "senior securities representing indebtedness" as those terms are
defined and used in the 1940 Act. In addition, the Fund may not pay any cash
dividends or make any cash distributions to shareholders if, after the
distribution, there would be less than 300% asset coverage of a senior security
representing indebtedness for borrowing (excluding for this purpose certain
evidences of indebtedness made by a bank or other entity and privately arranged,
and not intended to be publicly distributed). If, as a result of the foregoing
restriction or otherwise, the Fund was unable to distribute at least 90% of its
investment company taxable income in any year, it would lose its status as a
regulated investment company for such year and become liable at the corporate
level for U.S. federal income taxes on its income for such year. See "Dividends,
Distributions and Taxes" in the Fund's prospectus.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to its U.S. dollar-denominated debt securities with member banks of the
Federal Reserve System or with any domestic broker/dealer which is recognized as
a reporting government securities dealer, if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations the Fund may purchase.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a debt security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities is kept at least equal to
the repurchase price on a daily basis. The repurchase price may be higher than
the purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund, together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Obligation itself.
Obligations will be physically held by the Fund's custodian or in the Federal
Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation, subject to the repurchase
agreement and is therefore subject to the Fund's investment restrictions
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for the loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt instrument purchased for the
Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation, in which case the Fund may incur a loss if the
proceeds to the Fund of the sale to a third party are less than the repurchase
price. Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, if
the market value of the Obligation subject to the repurchase agreement becomes
less than the repurchase price (including interest), the Fund will direct the
seller of the Obligation to deliver additional securities so that the market
value of all securities subject to the repurchase agreement will equal or exceed
the repurchase price. It is possible that the Fund will be unsuccessful in
seeking to enforce the seller's contractual obligation to deliver additional
securities.
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities," "not readily marketable," or
"illiquid" restricted securities, i.e., which cannot be sold to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"), or the availability of an exemption from registration (such as Rules 144
or 144A) or because they are subject to other legal or contractual delays in or
restrictions on resale.
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 the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
illiquid securities.
Generally speaking, restricted securities may be sold in the U.S. only
to qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
Indexed Securities. 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"). Most indexed securities have
maturities of three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar-denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
Synthetic Investments. In certain circumstances, the 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.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the 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, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the fixed-income
securities in the 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 the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions 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 the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions and
certain short sale transactions, in addition to other requirements, require that
the Fund segregate cash or liquid assets with its custodian to the extent Fund
obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. In general, either the full amount
of any obligation by the Fund to pay or deliver securities or assets must be
covered at all times by the securities, instruments or currency required to be
delivered, or, subject to any regulatory restrictions, an amount of cash or
liquid assets at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or
securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid assets sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate cash or liquid assets equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate cash or liquid assets equal to the
exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage may be placed by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results taking into account such factors as price, commission (negotiable in
the case of U.S. national securities exchange transactions) where applicable,
size of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through its familiarity
with commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes or who supply research, market and
statistical information to the Fund. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Adviser is authorized when placing
portfolio transactions for the Fund to pay a brokerage commission in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a
particular transaction, the Adviser may give consideration to those firms that
have sold or are selling shares of the Fund managed by the Adviser.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Directors for the Fund review from time to time whether the
recapture for the benefit of the Fund of some portion of the brokerage
commissions or similar fees paid by the Fund on portfolio transactions is
legally permissible and advisable.
For the fiscal years ended November 30, 1997, 1996 and 1995, the Fund
paid BSN Sociedad de Valores y Bolsa, an affiliate of the Fund's former
sub-adviser, brokerage commissions of $94,000, $251,000 and 324,000,
respectively. Transactions in which the Fund used BSN Sociedad de Valores y
Bolsa as broker comprised 21.56% of the aggregate dollar amount involving
payment of commissions, and 24.1% of the aggregate brokerage commissions paid by
it during the fiscal year ended November 30, 1997.
The Fund's average portfolio turnover rate is the ratio of the lesser
of sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. Under normal
investment conditions, it is anticipated that the Fund's portfolio turnover rate
will not exceed 100%.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. Scudder Kemper Investments, Inc. (the "Adviser"), an
investment counsel firm, 345 Park Avenue, New York, New York, is the Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. The predecessor firm reorganized from a partnership to a
corporation on June 28, 1985. On June 26, 1997, 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").
On September 7, 1998, the financial services business of Zurich
(including Zurich's 70% interest in the Adviser) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") formed a new global insurance
and financial services group known as Zurich Financial Services. By way of a
dual holding company structure, current Zurich Shareholders own approximately
57% of the new organization, with the balance owned by B.A.T's shareholders.
Pursuant to the investment management agreement, the Adviser acts as
the Fund's investment adviser, manages its investments, administers its business
affairs, furnishes office facilities and equipment, provides clerical,
bookkeeping and administrative services and permits any of its officers or
employees to serve without compensation as directors or officers of the Fund if
elected to such positions. The investment management agreement provides that the
Fund shall pay the charges and expenses of its operations, including the fees
and expenses of the directors (except those who are affiliates of the Adviser),
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value, taxes and membership
dues. The Fund bears the expenses of registration of its shares with the SEC
while Kemper Distributors, Inc. ("KDI"), as principal underwriter, pays the cost
of qualifying and maintaining the qualification of the Fund's shares for sale
under the securities laws of the various states.
The Adviser maintains a large research department, which conducts
ongoing studies of the factors that affect the position of various industries,
companies and individual securities. In this work, the Adviser utilizes certain
reports and statistics from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Fund and for clients of
the Adviser, but conclusions are based primarily on investigations and critical
analyses by its own research specialists.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
The Investment Management Agreement (the "Agreement") between the
Corporation, on behalf of the Fund, and the Adviser continues from year to year
only if its continuance is approved annually by the vote of a majority of those
Directors who are not parties to such Agreement or interested persons of the
Adviser or the Fund, cast in person at a meeting called for the purpose of
voting on such approval, and by a majority vote either of the Fund's Directors
or of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice, and automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Fund's Articles of
Incorporation and By-Laws, the 1940 Act and the Internal Revenue Code of 1986,
as amended (the "Code"), and to the Fund's investment objective, policies and
restrictions and subject, further, to such policies and instructions as the
Directors of the Corporation may from time to time establish. The Adviser also
advises and assists the officers of the Corporation in taking such steps as are
necessary or appropriate to carry out the decisions of its Directors and the
appropriate committees of the Directors regarding the conduct of the business of
the Fund.
The Adviser also renders significant administrative services (not
otherwise provided by third parties) necessary for the Fund's operations as an
open-end investment company including, but not limited to, preparing reports and
notices to the Directors and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of the Fund under applicable federal and state securities
laws; maintaining the Fund's books and records to the extent not otherwise
maintained by a third party; assisting in establishing accounting policies of
the Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring the Fund's operating budget; processing the payment
of the Fund's bills; assisting the Fund in, and otherwise arranging for, the
payment of distributions and dividends; and otherwise assisting the Fund in the
conduct of its business, subject to the direction and control of the Directors.
The Adviser pays the compensation and expenses of all Directors,
officers and executive employees of the Corporation affiliated with the Adviser
and makes available, without expense to the Corporation, the services of such
Directors, officers and employees of the Adviser as may duly be elected officers
or Directors of the Corporation, subject to their individual consent to serve
and to any limitations imposed by law, and provides the Corporation's office
space and facilities.
Under the Agreement the Fund is responsible for all of its other
expenses including organizational costs, fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; the calculation of net
asset value; taxes and governmental fees; the fees and expenses of the transfer
agent; the cost of preparing stock certificates and any other expenses including
clerical expenses of issue, redemption or repurchase of shares; the expenses of
and the fees for registering or qualifying securities for sale; the fees and
expenses of Directors, officers and employees of the Corporation who are not
affiliated with the Adviser; the cost of printing and distributing reports and
notices to shareholders; and the fees and disbursements of custodians. The Fund
may arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Directors with respect thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Corporation have been represented by Vedder, Price,
Kaufman & Kammholz, as independent counsel at the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Directors of the Corporation may have dealings
with the Corporation as principals in the purchase or sale of securities, except
as individual subscribers or holders of shares of the Corporation.
Employees of the Adviser and certain of its subsidiaries are permitted
to make personal securities transactions, subject to requirements and
restrictions set forth in the Adviser's Code of Ethics. The Code of Ethics
contains provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the interests
of investment advisory clients such as those of the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, imposes time periods during
which personal transactions may not be made in certain securities, and requires
the submission of duplicate broker confirmations and monthly reporting of
securities transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment advisory
process. Exceptions to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate personnel.
For its services, the Fund pays the Adviser a fee, payable monthly,
equal to an annual rate of 0.75% of the Fund's first $250 million of average
daily net assets, 0.72% of the next $750 million of such net assets, 0.70% of
the next $1.5 billion of such net assets, 0.68% of the next $2.5 billion of such
net assets, 0.65% of the next $2.5 billion of such net assets, 0.64% of the next
$2.5 billion of such net assets, 0.63% of the next $2.5 billion of such net
assets, and 0.62% on such net assets in excess of $12.5 billion. For the fiscal
years ended November 30, 1997, 1996 and 1995, the investment management fee
payable to the Adviser for its services under the previous investment management
agreement with the Fund amounted to $2,846,000, $2,374,000 and $2,139,000,
respectively. During those periods, the Adviser paid BSN Gestion de Patrimonios,
S.A., S.G.C. ("BSN Gestion") a monthly fee of 0.35% of the Fund's average weekly
net assets for investment management services pursuant to a now terminated
sub-advisory agreement between the Adviser and BSN Gestion. The sub-advisory
arrangements with BSN Gestion were discontinued in connection with the Fund's
reorganization transaction.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee of
0.065% on the first $150 million, 0.04% on the next $850 million, and 0.02% over
$1 billion, plus holding charges and transaction fees for this service. The Fund
is subject to a monthly minimum fee of $4,167. In addition, there is a 33%
multiclass surcharge imposed on the annual fee for the Fund.
The Adviser may serve as adviser to other funds with similar investment
objectives and policies to those of the Fund that may have different
distribution arrangements or expenses, which may affect performance.
Principal Underwriter. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc., a subsidiary of
the Adviser, is the principal underwriter and distributor for the shares of the
Fund and acts as agent of the Fund in the continuous offering of its shares. KDI
bears all of its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. The Fund pays the cost for
the prospectus and shareholder reports to be set in type and printed for
existing shareholders, and KDI pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective investors.
KDI also pays for supplementary sales literature and advertising costs.
The distribution agreement continues in effect from year to year so
long as such continuance is approved for each class at least annually by a vote
of the Board of Directors of the Fund, including the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement. The distribution agreement automatically terminates
in the event of its assignment and may be terminated for a class at any time
without penalty by the Fund or by KDI upon 60 days' notice. Termination by the
Fund with respect to a class may be by vote of a majority of the Board of
Directors, and a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the distribution
agreement, the Fund's Rule 12b-1 distribution plans, or any other agreement
related to the Fund's Rule 12b-1 distribution plans, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act.
Rule 12b-1 Plans. The Corporation has adopted on behalf of the Fund, in
accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution
plans pertaining to the Fund's Class B and Class C shares (each a "Plan"). Under
each Plan, the Fund pays KDI a distribution fee, payable monthly, at the annual
rate of 0.75% of the average daily net assets attributable to its Class B or
Class C shares. Under each Plan, KDI may compensate various financial services
firms ("Firms") for sales of Fund shares and may pay other commissions, fees and
concessions to such Firms. The distribution fee compensates KDI for expenses
incurred in connection with activities primarily intended to result in the sale
of the Fund's Class B or Class C shares, including the printing of prospectuses
and reports for persons other than existing shareholders and the preparation,
printing and distribution of sales literature and advertising materials.
Among other things, each Plan provides that KDI will prepare reports
for the Board on a quarterly basis for each class showing amounts paid to the
various Firms and such other information as the Board may reasonably request.
Each Plan will continue in effect indefinitely, provided that such continuance
is approved at least annually by vote of a majority of the Board of Directors,
and a majority of the Directors who are not "interested persons" (as defined in
the 1940 Act) of the Fund and who have no direct or indirect financial interest
in the operation of the Plan ("Qualified Board Members"), cast at an in-person
meeting called for such purpose, or by vote of at least a majority of the
outstanding voting securities of the applicable class. Any material amendment to
a Plan must be approved by vote of a majority of the Board of Directors, and of
the Qualified Board Members. An amendment to a Plan to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the applicable class must be approved by a majority of the outstanding voting
securities of that class. While each Plan is in effect, the selection and
nomination of Directors who are not "interested persons" of the Corporation
shall be committed to the discretion of the Directors who are not themselves
"interested persons" of the Corporation. If a Plan is terminated (or not
renewed) with respect to either class, the Plan with respect to the other class
may continue in effect unless it also has been terminated (or not renewed).
As of the date of this SAI, no payments had been made under the Plans
with respect to the Fund.
Administrative Services. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of the Fund.
KDI enters into related arrangements with various broker-dealer firms
and other service or administrative firms ("firms") that provide services and
facilities for their customers or clients who are investors in the Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, KDI pays each firm a service fee,
payable quarterly, at an annual rate of up to 0.25% of the net assets in Fund
accounts that it maintains and services attributable to Class A shares,
commencing with the month after investment. With respect to Class B and Class C
shares, KDI currently advances to firms the first-year service fee at a rate of
up to 0.25% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms a service fee at a rate of up to 0.25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C shares maintained and serviced by the firm. After the first year,
a firm becomes eligible for the quarterly service fee and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid may
include affiliates of KDI.
KDI also may provide some of the above services and may retain any
portion of the fee under the administrative agreement not paid to firms to
compensate itself for administrative functions performed for the Fund.
Currently, the administrative services fee payable to KDI is based only upon
Fund assets in accounts for which a firm provides administrative services listed
on the Fund's records and it is intended that KDI will pay all the
administrative services fee that it receives from the Fund to firms in the form
of service fees. The effective administrative services fee rate to be charged
against all assets of the Fund while this procedure is in effect will depend
upon the proportion of Fund assets that is in accounts for which there is a firm
of record. The Board of Directors of the Fund, in its discretion, may approve
basing the fee to KDI on all Fund assets in the future.
Certain directors or officers of the Fund are also directors or
officers of the Adviser or KDI, as indicated under "Officers and Directors."
Custodian, Transfer Agent and Shareholder Service Agent. The Chase Manhattan
Bank, Chase MetroTech Center, Brooklyn, New York 11245, as custodian, has
custody of all securities and cash of the Fund held outside the United States.
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas
City, Missouri 64105, as custodian, and State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as sub-custodian, have custody of
all securities and cash held in the United States. Kemper Service Company, a
subsidiary of the Adviser, is the Fund's transfer agent and dividend-paying
agent and, as such, generally serves as "Shareholder Service Agent" of the Fund.
Kemper Service Company receives as transfer agent annual account fees of $6 per
account plus account set up, transaction, maintenance charges, annual fees
associated with the contingent deferred sales charge (Class B only) and
out-of-pocket expense reimbursement. Kemper Service Company's fee is reduced by
certain earnings credits in favor of each Fund. Effective January 1, 1999, the
Fund will pay to KSC annual account fees of $10 per account ($18 for retirement
accounts) plus set up charges and annual fees associated with the contingent
deferred sales charge (Class B only) and an asset-based fee of .08% plus
out-of-pocket expense reimbursement.
Independent Auditors and Reports To Shareholders. The Fund's independent
auditors, Ernst & Young LLP, audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's federal income tax
return, and perform other professional accounting, auditing, tax and advisory
services when engaged to do so by the Fund. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial statements.
PURCHASE AND REDEMPTION OF SHARES
As described in the prospectus, Fund shares are sold at their public offering
price, which is the net asset value next determined after an order is received
in proper form plus, with respect to Class A shares, an initial sales charge.
The minimum initial investment for each class of the Fund is $1,000 and the
minimum subsequent investment is $100 but such minimum amounts may be changed at
any time. See the prospectus for certain exceptions to these minimums. The Fund
may waive the minimum for purchases by directors, officers or employees of the
Fund or the Adviser and its affiliates. An order for the purchase of shares that
is accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such a determination
will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for
redemption, shares of the Fund will be redeemed by the Fund at the applicable
net asset value per share of the particular class of the Fund as described in
the Fund's prospectus.
Scheduled variations in or the elimination of the initial sales charge
for purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares by certain classes of persons or
through certain types of transactions as described in the prospectus are
provided because of anticipated economies of scale in sales and sales-related
efforts.
The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange ("Exchange")
is closed other than customary weekend and holiday closings or during any period
in which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the SEC may by order permit for the protection of the Fund's shareholders.
Redemption in-Kind. Shareholders who receive Fund portfolio securities in lieu
of cash in redemption of Fund shares pursuant to the Fund's policy on in-kind
redemptions as set forth in the prospectus will be required to receive the
portfolio securities in their own account, all at the shareholders' expense and
risk. In order to retain the portfolio securities distributed in-kind, a
redeeming shareholder must establish cash and securities accounts on his or her
behalf with a bank or broker in Spain and Portugal so that such bank or broker
can re-register the portfolio securities received, and must provide such
information to the Shareholder Service Agent at the time of the redemption
request. Certain information for a U.S. bank or broker will also need to be
provided so that such bank or broker can receive any American Depository
Receipts constituting part of the portfolio securities to be retained by the
shareholders. Redemption requests subject to the Fund's redemption in-kind
policy will not be considered in good order unless such information is provided.
Redeeming shareholders who receive portfolio securities in-kind will
bear the risks associated with market fluctuations that may affect the price of
the portfolio securities they receive. Accordingly, redeeming shareholders who
receive portfolio securities in-kind may, when they sell such securities,
realize cash equal to a lesser or greater amount than the total value of the
portfolio securities received in redemption of their shares of the Fund. See
"Redemption or Repurchase of Shares--Redemption in-Kind" in the prospectus.
Special Redemption and Exchange Information. Shares of any class of the Fund
held for less than one year are redeemable at a price equal to 98% of the then
current net asset value per share, with limited exceptions. This 2% discount,
referred to in the prospectus and this Statement of Additional Information as a
redemption fee, directly affects the amount a shareholder who is subject to the
fee receives upon exchange or redemption. It is intended to encourage long-term
investment in the Fund, to avoid transaction and other expenses caused by early
redemptions and to facilitate portfolio management. The fee is not a deferred
sales charge, is not a commission paid to the Adviser or its subsidiaries, and
does not benefit the Adviser in any way. The Fund reserves the right to modify
the terms of or terminate this fee at any time.
This redemption fee will not be applied to (a) a redemption of shares
held in certain retirement plans, including 401(k) plans, 403(b) plans, Keogh
accounts, and other pension, profit-sharing and employee benefit plans (however,
this fee waiver does not apply to IRA and SEP-IRA accounts), (b) a redemption of
any shares purchased through the reinvestment of dividends or capital gains
distributions paid by the Fund), or (d) a redemption of shares by the Fund upon
exercise of its right to liquidate accounts (i) falling below the minimum
account size by reason of shareholder redemptions or (ii) when the shareholder
has failed to provide tax identification information. However, if shares are
purchased for a retirement plan account through a broker, financial institution
or recordkeeper maintaining an omnibus account for the shares, such waiver may
not apply.
For this purpose and without regard to the shares actually redeemed,
shares will be redeemed as follows: first, reinvestment shares; second,
purchased shares held one year or more: and third, purchased shares held for
less than one year. Finally, if a shareholder enters into a transaction in Fund
shares which, although it may technically be treated as a redemption and
purchase for recordkeeping purposes, does not involve the termination of
economic interest in the Fund, no redemption fee will apply and applicability of
the redemption fee, if any, on any subsequent redemption or exchange will be
determined by reference to the date the shares were originally purchased, and
not the date of the transaction.
The conversion of Class B shares of the Fund to Class A shares of the
Fund may be subject to the continuing availability of an opinion of counsel,
ruling by the Internal Revenue Service ("IRS") or other assurance acceptable to
the Fund to the effect that (a) the assessment of the distribution services fee
with respect to Class B shares and not Class A shares does not result in the
Fund's dividends constituting "preferential dividends" under the Code, and (b)
that the conversion of Class B shares to Class A shares does not constitute a
taxable event under the Code. The conversion of Class B shares to Class A shares
may be suspended if such assurance is not available. In that event, no further
conversions of Class B shares would occur, and shares might continue to be
subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the Exchange on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at its most recent sale price. Lacking
any sales, the security is valued at the most recent bid quotation. The value of
an equity security not quoted on Nasdaq, but traded in another over-the-counter
market, is its most recent sale price. Lacking any sales, the security is valued
at the Calculated Mean. Lacking a Calculated Mean, the security is valued at the
most recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing
agent(s) which reflect broker/dealer supplied valuations and electronic data
processing techniques. Money market instruments purchased with an original
maturity of sixty days or less, maturing at par, shall be valued at amortized
cost, which the Board believes approximates market value. If it is not possible
to value a particular debt security pursuant to these valuation methods, the
value of such security is the most recent bid quotation supplied by a bona fide
marketmaker. If it is not possible to value a particular debt security pursuant
to the above methods, the Adviser may calculate the price of that debt security,
subject to limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the- counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Corporation's
Board of Directors, the value of a portfolio asset as determined in accordance
with these procedures does not represent the fair market value of the portfolio
asset, the value of the portfolio asset is taken to be an amount which, in the
opinion of the Valuation Committee, represents fair market value on the basis of
all available information. The value of other portfolio holdings owned by the
Fund is determined in a manner which, in the discretion of the Valuation
Committee, most fairly reflects fair market value of the property on the
valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends. The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
The Fund normally distributes annual dividends of net investment
income. Any net realized short-term and long-term capital gains for the Fund are
distributed at least annually. Income and capital gain dividends of the Fund are
automatically reinvested in additional shares of the Fund, without a sales
charge, unless the investor makes an election otherwise. Distributions of net
capital gains realized during each fiscal year will be made at least annually
before the end of the Fund's fiscal year on October 31. Additional
distributions, including distributions of net short-term capital gains in excess
of net long-term capital losses, may be made, if necessary.
The level of income dividends per share (as a percentage of net asset
value) will be lower for Class B and Class C shares than for Class A shares
primarily as a result of the distribution services fee applicable to Class B and
Class C shares. Distributions of capital gains, if any, will be paid in the same
proportion for each class.
Dividends will be reinvested in shares of the Fund unless shareholders
indicate in writing that they wish to receive them in cash or in shares of other
Kemper Funds as provided in the prospectus.
Taxes. The Fund intends to continue 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 and asset diversification
requirements, and must distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain).
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for each calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, The Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long- term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
If shares are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Dividend and interest income received by the Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
The Fund may qualify for and make the election permitted under Section 853 of
the Code so that shareholders may (subject to limitations) be able to claim a
credit or deduction on their federal income tax return form, and may be required
to treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes related
primarily to investment income). The Fund may make an election under Section 853
of the Code, provided that more than 50% of the value of the total assets of the
Fund at the close of the taxable year consists of securities as foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code, except in the case of certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income. Furthermore, the
foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholders, as the case may be, for less than 16 days. (46
days in the case of preferred shares) during the 30-day period (90-day period
for preferred shares) beginning 15 days (45 days for preferred shares) before
the shares become ex-dividend. In addition, if the Fund fails to satisfy these
holding period requirements, it cannot elect under Section 853 to pass through
to shareholders the ability to claim a deduction for the related foreign taxes.
The Fund may invest in shares of certain foreign corporations which may
be classified under the Code as passive foreign investment companies ("PFICs").
If the Fund receives a so-called "excess distribution" with respect to PFIC
stock, the Fund itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Fund held the PFIC shares. The Fund will be
subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Excess
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark to market losses and any loss from an actual disposition of
shares would be deductible as ordinary loss to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to the Fund level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain its
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock)
written or purchased by the Fund will be subject to tax under Section 1234 of
the Code. In general, no loss is recognized by the Fund upon payment of a
premium in connection with the purchase of a put or call option. The character
of any gain or loss recognized (i.e., long-term or short-term) will generally
depend, in the case of a lapse or sale of the option, on the Fund's holding
period for the option and, in the case of an exercise of the option, on the
Fund's holding period for the underlying security. The purchase of a put option
may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or substantially
identical security in the Fund's portfolio. If the Fund writes a call option, no
gain is recognized upon its receipt of a premium. If the option lapses or is
closed out, any gain or loss is treated as a short-term capital gain or loss. If
a call option is exercised, any resulting gain or loss is short-term or
long-term capital gain or loss depending on the holding period of the underlying
security. The exercise of a put option written by the Fund is not a taxable
transaction for the Fund.
Many futures and forward contracts entered into by the Fund and all
listed nonequity options written or purchased by the Fund (including covered
call options written on debt securities and options purchased or written on
futures contracts) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position will be treated as 60% long-term and 40%
short-term, and on the last trading day of the Fund's fiscal year (and
generally, on October 31 for purposes of the 4% excise tax), all outstanding
Section 1256 positions will be marked-to-market (i.e., treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options and
similar financial instruments entered into or acquired by the Fund will be
treated as ordinary income or loss. Under certain circumstances, entry into a
futures contract to sell a security may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in the Fund's
portfolio.
Positions of the Fund consisting of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by the Fund.
Positions of the Fund consisting of at least one position not governed
by Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund will monitor its transactions in options
and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will be required to recognize gain at
that time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency, and on disposition of certain futures,
forward or options contracts, gains or losses attributable to fluctuations in
the value of foreign currency between the date of acquisition of the security or
contracts and the date of disposition are also treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "Section 988" gains or
losses, may increase or decrease the amount of the Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
If the Fund holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. In addition, if the Fund invest in certain high
yield original issue discount obligations issued by corporations, a portion of
the original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such an event, properly
designated dividends of investment company taxable income received from the Fund
by its corporate shareholders, to the extent attributable to such portion of the
accrued original issue discount, may be eligible for the deduction received by
corporations.
If the Fund acquires a debt instrument at a market discount, a portion
of the gain recognized (if any) on disposition of such instrument may be treated
as ordinary income.
The Fund will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
A shareholder who redeems shares of the Fund (including any in-kind
redemption) will recognize capital gain or loss for federal income tax purposes
measured by the difference between the value of the shares redeemed and the
adjusted cost basis of the shares. Any loss recognized on the redemption of Fund
shares held six months or less will be treated as long-term capital loss to the
extent that the shareholder has received any long-term capital gain dividends on
such shares. A shareholder who has redeemed shares of the Fund or any other
Kemper Mutual Fund listed in the prospectus under "Special Features-Class A
Shares-Combined Purchases" (other than shares of Kemper Cash Reserves Fund not
acquired by exchange from another Kemper Mutual Fund) may reinvest the amount
redeemed at net asset value at the time of the reinvestment in shares of the
Fund or in shares of the other Kemper Mutual Funds within six months of the
redemption as described in the prospectus under "Redemption or Repurchase of
Shares-Reinvestment Privilege." If redeemed shares were held less than 91 days,
then the lesser of (a) the sales charge waived on the reinvested shares, or (b)
the sales charge incurred on the redeemed shares, is included in the basis of
the reinvested shares and is not included in the basis of the redeemed shares.
If a shareholder realizes a loss on the redemption or exchange of the Fund's
shares and reinvests in shares of the Fund within 30 days before or after the
redemption or exchange, the transactions may be subject to the wash sale rules
resulting in a postponement of the recognition of such loss for federal income
tax purposes. An exchange of the Fund's shares for shares of another fund is
treated as a redemption and reinvestment for federal income tax purposes upon
which gain or loss may be recognized.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Retirement Plans. Shares of the Fund may be purchased as an investment
in a number of kinds of retirement plans, including qualified pension, profit
sharing, money purchase pension, and 401(k) plans, Code Section 403(b) custodial
accounts, and individual retirement accounts.
One of the tax-deferred retirement plan accounts that may hold Fund
shares is an individual retirement account ("IRA"). There are three kinds of
IRAs that an individual may establish: traditional IRAs, Roth IRAs and education
IRAs. With a traditional IRA, an individual may be able to make a deductible
contribution of up to $2,000 or, if less, the amount of the individual's earned
income for any taxable year prior to the year the individual reaches age 70 1/2
if neither the individual nor his or her spouse is an active participant in an
employer's retirement plan. An individual who is (or who has a spouse who is) an
active participant in an employer retirement plan also may be eligible to make
deductible IRA contributions; the amount, if any, of IRA contributions that are
deductible by such an individual is determined by the individual's (and
spouse's, if applicable) adjusted gross income for the year. Even if an
individual is not permitted to make a deductible contribution to an IRA for a
taxable year, however, the individual nonetheless may make nondeductible
contributions up to $2,000, or 100% of earned income if less, for that year. One
spouse also may contribute up to $2,000 per year to the other spouse's own IRA,
even if the other spouse has earned income of less than $2,000, as long as the
spouses' joint earned income is at least $4,000. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Lump sum
distributions from another qualified retirement plan, may be rolled over into a
traditional IRA, also. With a Roth IRA, an individual may make only
nondeductible contributions; contributions can be made of up to $2,000 or, if
less, the amount of the individual's earned income for any taxable year, but
only if the individual's (and spouse's, if applicable) adjusted gross income for
the year is less than $95,000 for single individuals or $150,000 for married
individuals. The maximum contribution amount phases out and falls to zero
between $95,000 and $110,000 for single persons and between $150,000 and
$160,000 for married persons. Contributions to a Roth IRA may be made even after
the individual attains age 70 1/2. Distributions from a Roth IRA that satisfy
certain requirements will not be taxable when taken; other distributions of
earnings will be taxable. An individual with adjusted gross income of $100,000
or less generally may elect to roll over amounts from a traditional IRA to a
Roth IRA. The full taxable amount held in the traditional IRA that is rolled
over to a Roth IRA will be taxable in the year of the rollover, except rollovers
made for 1998, which may be included in taxable income over a four year period.
An education IRA provides a method for saving for the higher education expenses
of a child; it is not designed for retirement savings. Generally, amounts held
in an education IRA may be used to pay for qualified higher education expenses
at an eligible (postsecondary) educational institution. An individual may
contribute to an education IRA for the benefit of a child under 18 years old if
the individual's income does not exceed certain limits. The maximum contribution
for the benefit of any one child is $500 per year. Contributions are not
deductible, but earnings accumulate tax-free until withdrawal, and withdrawals
used to pay qualified higher education expenses of the beneficiary (or
transferred to an education IRA of a qualified family member) will not be
taxable. Other withdrawals will be subject to tax.
In addition, there are special IRA programs available for employers
under which an employer may establish IRA accounts for its employees in lieu of
establishing more complicated retirement plans, such as qualified profit sharing
or 401(k) plans. Known as SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE
IRAs, they permit employers to maintain a retirement program for their employees
without being subject to a number of the recordkeeping and testing requirements
applicable to qualified plans.
Information regarding the establishment of IRAs or other retirement
plans is available from the Shareholder Service Agent upon request. A retirement
plan custodian may charge fees in connection with establishing and maintaining
the plan. An investor should consult with a competent adviser for specific
advice concerning his or her tax status and the possible benefits of
establishing one or more retirement plan accounts. The description above is only
very general; there are numerous other rules applicable to these plans to be
considered before establishing one.
Shareholders should consult their tax advisers about the application of
the provisions of tax law in light of their particular tax situations.
PERFORMANCE
As described in the prospectus, the Fund's historical performance or return for
a class of shares may be shown in the form of "average annual total return" and
"total return" figures. These measures of performance are described below.
Performance information will be computed separately for each class.
Average annual total return and total return measure both the net
investment income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio. The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for each class of the Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the class' shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. Average annual
return quotations will be determined to the nearest 1/100th of 1%. The
redeemable value in the case of Class B shares or Class C shares include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the nth root (n representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. Average annual return calculated in accordance
with this formula does not take into account any required payments for federal
of state income taxes. Average annual total return does not reflect the effect
of the 2% redemption fee on shares held for less than one year. Such quotations
for Class B shares of the Fund for periods over six years will reflect
conversion of such shares to Class A shares at the end of the sixth year. The
calculation assumes that all income and capital gains dividends paid by the Fund
have been reinvested at net asset value on the reinvestment dates during the
period. Average annual total return may also be calculated in a manner not
consistent with the standard formula described above, without deducting the
maximum sales charge or contingent deferred sales charge.
Average Annual Total Return = (ERV/P)1/n - 1
Where: P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements and prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of the Fund's Class B shares or Class C shares may
or may not include the effect of the applicable contingent deferred sales charge
that may be imposed at the end of the period. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at net
asset value on the reinvestment dates during the period. Total return may also
be shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge for the Fund's Class A shares or the contingent deferred sales charge for
Class B and Class C shares would be reduced if such charges were included. In
addition, total return does not reflect the effect of the 2% redemption fee on
shares held for less than one year.
The Fund's performance figures are based upon historical results and
are not necessarily representative of future performance. The Fund's Class A
shares are sold at net asset value plus a maximum sales charge of 5.75% of the
offering price. Class B and Class C shares are sold at net asset value.
Redemption of the Fund's Class B shares may be subject to a contingent deferred
sales charge that is 4% in the first year following the purchase, declines by a
specified percentage each year thereafter and becomes zero after six years.
Redemption of the Fund's Class C shares may be subject to a 1% contingent
deferred sales charge in the first year following the purchase. A 2% redemption
fee is assessed upon the redemption or exchange of any class of shares held for
less than one year. Returns and net asset value will fluctuate. Factors
affecting the Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services firm would reduce returns described in this section.
Shares of the Fund are redeemable at the then current net asset value, which may
be more or less than original cost.
There are differences and similarities between the investments which
the Fund may purchase and the investments measured by the indices which are
described herein. The Consumer Price Index is generally considered to be a
measure of inflation. The Dow Jones Industrial Average and the Standard & Poor's
500 Stock Index are indices of common stocks which are considered to be
generally representative of the U.S. stock market. The Financial Times/Standard
& Poor's Actuaries World Index-Europe(TM) is a managed index that is generally
representative of the equity securities of European markets. The foregoing
indices are unmanaged. The net asset value and returns of the Fund will
fluctuate.
Investors may want to compare the performance of the Fund to
certificates of deposit issued by banks and other depository institutions.
Certificates of deposit may offer fixed or variable interest rates and principal
is guaranteed and may be insured. Withdrawal of deposits prior to maturity will
normally be subject to a penalty. Rates offered by banks and other depository
institutions are subject to change at any time specified by the issuing
institution. Information regarding bank products may be based upon, among other
things, the BANK RATE MONITOR National Index(TM) for certificates of deposit,
which is an unmanaged index and is based on stated rates and the annual
effective yields of certificates of deposit in the ten largest banking markets
in the United States, or the CDA Investment Technologies, Inc. Certificate of
Deposit Index, which is an unmanaged index based on the average monthly yields
of certificates of deposit.
Investors also may want to compare the performance of the Fund to that
of U.S. Treasury bills, notes or bonds. Treasury obligations are issued in
selected denominations. Rates of Treasury obligations are fixed at the time of
issuance and payment of principal and interest is backed by the full faith and
credit of the U.S. Treasury. The market value of such instruments will generally
fluctuate inversely with interest rates prior to maturity and will equal par
value at maturity. Information regarding the performance of Treasury obligations
may be based upon, among other things, the Towers Data Systems U.S. Treasury
Bill index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Fund to that of
money market funds. Money market funds seek to maintain a stable net asset value
and yield fluctuates. Information regarding the performance of money market
funds may be based upon, among other things, IBC/Donoghue's Money Fund
Averages(R) (All Taxable). As reported by IBC/Donoghue's, all investment results
represent total return (annualized results for the period net of management fees
and expenses) and one year investment results are effective annual yields
assuming reinvestment of dividends.
As of the date of this Statement of Additional Information, it is
anticipated that on December 11, 1998, or as soon as practicable thereafter, The
Growth Fund of Spain, Inc. ("GSP") will be reorganized as an open-end series of
the Corporation consisting of Class A, Class B, and Class C shares (the
"Reorganization"). Currently, GSP consists of only one class of shares, which
has no Rule 12b-1 fees or sales charges; the shares of GSP outstanding as of
December 11, 1998 will be exchanged for Class A shares of the Fund, which class
will also have no Rule 12b-1 fees. The performance figures shown below reflect
the performance of the Fund prior to the Reorganization, restated to reflect the
sales charge of the Fund's Class A. Different fees and expenses applicable to
each of the classes, including Rule 12b-1 fees applicable to the Class B and C
shares (shares of which had not been issued as of the date of this Statement of
Additional Information), will affect the performance of those classes.
For purposes of the performance computations for the Fund, it is
assumed that all dividends and capital gains distributions made by the Fund are
reinvested at net asset value in additional shares of the same class during the
designated period. In calculating the ending redeemable value for Class A shares
and assuming complete redemption at the end of the applicable period, the
maximum 5.75% sales charge is deducted from the initial $1,000 payment (for
Class B shares and Class C shares, the applicable CDSC imposed upon redemption
of Class B shares or Class C shares held for the period would be deducted).
Standardized Return quotations for the Fund do not take into account any
applicable redemption fees or required payments for federal or state income
taxes. Standardized Return quotations are determined to the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Initial sales charges, CDSCs and redemption fees
are not taken into account in calculating Non-Standardized Return; a sales
charge or redemption fee, if deducted, would reduce the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A shares of the Fund based on performance
information for the periods indicated. During the periods covered by the tables,
the Fund was subadvised by BSN Gestion. This subadvisory relationship was
discontinued in connection with the reorganization transaction.
STANDARDIZED RETURN*
CLASS A
One year ended
May 31, 1998 39.05%
Five years ended
May 31, 1998 23.70%
Inception# to
May 31, 1998 12.57%
NON-STANDARDIZED RETURN**
CLASS A
One year ended
May 31, 1998 47.53%
Five years ended
May 31, 1998 25.18%
Inception# to
May 31, 1998 13.38%
- -------------------------
* The Standardized Return figures for Class A shares reflect the deduction of
the maximum initial sales charge of 5.75%, but do not reflect any
applicable redemption fees and have not been restated to reflect expected
differences in the Fund's expense structure as an open-end investment
company.
** The Non-Standardized Return figures do not reflect the deduction of any
initial sales charge or any applicable redemption fee, and have not been
restated to reflect expected differences in the Fund's expense structure as
an open-end investment company.
# The inception date for The Growth Fund of Spain, Inc. (and, consequently,
of the Fund's Class A shares) was February 14, 1990. As of the date of this
Statement of Additional Information, the Fund had not issued any Class B or
Class C shares.
OFFICERS AND DIRECTORS
The officers and directors of the Corporation, their birth dates, their
principal occupations and their affiliations, if any, with the Adviser, and KDI,
the principal underwriter, are as follows:
*DANIEL PIERCE, (3/18/34) Director and Chairman of the Board, Two
International Place, Boston, Massachusetts; Managing Director, Scudder Kemper
Investments, Inc.
*MARKS. CASADY (9/21/60) President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
JAMES E. AKINS (10/15/26) Director, 2904 Garfield Terrace, N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer, Energy Adviser for the
White House and United States Ambassador to Saudi Arabia, 1973-76.
ARTHUR R. GOTTSCHALK (2/13/25) Director, 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Illinois state Senator; Vice
President, The Reuben H. Donnelley Corp.
FREDERICK T. KELSEY (4/25/27) Director, 4010 Arbor Lane, Unit 102,
Northfield, Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds; Trustee of the Benchmark Funds, formerly, Trustee
of The Pilot Funds.
FRED B. RENWICK (2/1/30) Director, 3 Hanover Square, New York, New
York; Professor of Finance, New York University, Stern School of Business;
Director, TIFF Industrial Program, Inc., Director, the Wartburg Home Foundation;
Chairman Investment Committee of Morehouse College Board of Trustees; Chairman,
American Bible Society Investment Committee; formerly member of the Investment
Committee of Atlanta University Board of Trustees; formerly Director of Board of
Pensions, Evangelical Lutheran Church of America.
JOHN B. TINGLEFF (5/4/35) Director, 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33) Director, 311 Spring Lake, Hinsdale,
Illinois; Retired; formerly, Chairman of the Board and Chief Executive Officer,
Chicago Stock Exchange; Director, Federal Life Insurance Company, President of
the Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering, Inc.
*PHILIP J. COLLORA (11/15/45) Vice President and Secretary, 222 South
Riverside Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper
Investments, Inc.
*DIEGO ESPINOSA (6/30/62) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*JOAN R. GREGORY (8/4/45) Vice President, 345 Park Avenue, New York, New
York; Vice President, Scudder Kemper Investments, Inc.
*JOHN R. HEBBLE (6/27/58) Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*MAUREEN E. KANE (2/14/62) Assistant Secretary, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper Investments, Inc.;
formerly, Assistant Vice President of an unaffiliated investment management
firm; prior thereto, Associate Staff Attorney of an unaffiliated investment
management firm; Associate, Peabody & Arnold (law firm).
*THOMAS W. LITTAUER (4/26/55) Vice President, Two International Place,
Boston, Massachusetts; Managing Director, Scudder Kemper Investments, Inc.;
formerly, Head of Broker Dealer Division of an unaffiliated investment
management firm during 1997; prior thereto, President of Client Management
Services of an unaffiliated investment management firm from 1991 to 1996.
*BRENDA LYONS (2/21/63), Assistant Treasurer, Treasurer, Two International
Place, Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments,
Inc.
*ANN M. McCREARY (11/6/56) Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
*CAROLINE PEARSON (4/1/62) Assistant Secretary, Two International
Place, Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments,
Inc.; formerly, Associate, Dechert Price & Rhoads (law firm) 1989 to 1997.
*KATHRYN L. QUIRK (12/3/52) Director and Vice President, 345 Park Avenue,
New York, New York; Managing Director, Scudder Kemper Investments, Inc.
*SHERIDAN P. REILLY (2/27/52) Vice President, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*LINDA J. WONDRACK (9/12/64) Vice President, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*ELIZABETH C. WERTH (10/1/47) Assistant Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Vice President, Scudder Kemper Investments, Inc.
* Interested persons of the Corporation as defined in the 1940 Act.
Compensation of Officers and Directors
The Directors and Officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts estimated
to be paid to or accrued for those Directors who are not designated "interested
persons" by the Corporation during the 1999 fiscal year. The information in the
last column is for calendar year 1997.
Name of Estimated Aggregate Compensation Total Compensation
Board From Kemper Global/International From Kemper Fund
Members Series, Inc. Complex Paid to Board
Members(2)
James E. Akins.............. $9,216 $106,300
Arthur R. Gottschalk(1)..... $9,216 $121,100
Frederick T. Kelsey(1)...... $9,216 $111,300
Fred B. Renwick............. $9,216 $106,300
John B. Tingleff............ $9,216 $106,300
John G. Weithers............ $9,216 $106,300
- ---------
(1) Includes deferred fees and interest thereon pursuant to deferred
agreements with certain Kemper funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Zurich Money Funds-Zurich Money
Market Fund.
(2) Includes compensation for service on the boards of 13 Kemper funds with
39 fund portfolios. Each Board Member currently serves as a board
member of 15 Kemper Funds with 50 fund portfolios. Total compensation
does not reflect amounts paid by Scudder Kemper Investments, Inc. to
the board members regarding the combination of Scudder, Stevens &
Clark, Inc. and Zurich Kemper Investment, Inc. Such amounts totaled
$42,800, $40,100, $39,000, $42,900, $42,900 and $42,900 for Messrs.
Akins, Gottschalk, Kelsey, Renwick, Tingleff, and Weithers,
respectively.
The Directors and Officers as a group owned less than 1% of the Fund's
shares as of the date of this Statement of Additional Information.
SHAREHOLDER RIGHTS
The Fund's activities are supervised by the Corporation's Board of Directors.
The Fund is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or removing Directors, changing fundamental investment policies or
approving an investment advisory contract. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Director as
if Section 16(c) of the 1940 Act were applicable.
Each director serves until the next meeting of shareholders, if any,
called for the purpose of electing directors and until the election and
qualification of a successor or until such director sooner dies, resigns,
retires or is removed by a majority vote of the shares entitled to vote (as
described below) or a majority of the directors.
A majority of the Directors shall be present in person at any regular
or special meeting of the Directors in order to constitute a quorum for the
transaction of business at such meeting and, except as otherwise required by
law, the act of a majority of the Directors present at any such meeting, at
which a quorum is present, shall be the act of the Directors.
Any matter shall be deemed to have been effectively acted upon with
respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act,
or any successor rule, and in the Corporation's Articles of Incorporation. As
used in the prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Fund and all additional portfolios
(e.g., election of directors), means the vote of the lesser of (i) 67% of the
Corporation's shares represented at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy, or (ii) more than 50%
of the Corporation's outstanding shares. The term "majority," when referring to
the approvals to be obtained from shareholders in connection with matters
affecting the Fund or any other single portfolio (e.g., annual approval of
investment management contracts), means the vote of the lesser of (i) 67% of the
shares of the portfolio represented at a meeting if the holders of more than 50%
of the outstanding shares of the portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the portfolio.
In the event of the liquidation or dissolution of the Corporation,
shares of the Fund are entitled to receive the assets attributable to that Fund
that are available for distribution, and a proportionate distribution, based
upon the relative net assets of the Fund, of any general assets not attributable
to the Fund that are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Corporation.
FINANCIAL STATEMENTS
The financial statements appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended November 30, 1997, and its Semiannual
Report to Shareholders for the period ended May 31, 1998 are incorporated by
reference herein. The financial statements appearing in the Fund's Annual Report
to Shareholders for the fiscal year ended November 30, 1997 have been
incorporated by reference herein in reliance on the report of Ernst & Young LLP,
independent auditors, given on their authority as experts in auditing and
accounting. The principal business address of Ernst & Young LLP is 233 South
Wacker Drive, Chicago, Illinois 60606.
ADDITIONAL INFORMATION
Other Information
The CUSIP number of the Class A shares of the Growth Fund of Spain is
487916-81-9. The CUSIP number of the Class B shares of the Growth Fund
of Spain is 487916-79-3. The CUSIP number of the Class C shares of the
Growth Fund of Spain is 487916-78-5.
Effective as of the Fund's 1998 fiscal year, the Fund's fiscal year end
has been changed to October 31.
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the Fund's investment objective and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the 1933 Act and reference is hereby
made to the Registration Statement for further information with respect to the
Fund and the securities offered hereby. The Registration Statement and its
amendments, are available for inspection by the public at the SEC in Washington,
D.C.
<PAGE>
APPENDIX A - RATINGS OF FIXED INCOME INVESTMENTS
Standard & Poor's Ratings Group Bond Ratings
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Moody's Investors Service, Inc. Bond Ratings
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
<PAGE>
APPENDIX B - INFORMATION ABOUT SPAIN AND PORTUGAL
I. KINGDOM OF SPAIN
Note: Certain numbers in this Appendix B have been rounded for ease of
presentation. Since most calculations have been made on unrounded figures, the
sum of the component figures in many tables presented may not precisely equal
the totals shown.
Area and Population
The Kingdom of Spain ("Spain") includes 50 provinces, 47 of which are
situated on the mainland of the Iberian Peninsula, with the remaining three
being the Baleares Islands and the two provinces of the Canary Islands. In
addition, the cities of Ceuta and Melilla on the northern coast of Africa are
part of the Spanish territory. The total land area is 504,782 sq. km. As of mid
1997, the population was 39.3 million. The major cities are Madrid, Barcelona,
Valencia and Seville.
Government
Spain is a democratic, constitutional monarchy. In 1975, the current
monarch, Juan Carlos de Borbon, was proclaimed King of Spain. On December 6,
1978, a new Constitution was ratified by national referendum that provides for
the existence of political parties, universal suffrage, parliamentary elections
by secret and direct ballot every four years, and the existence of a Parliament
with two legislative chambers -- the Congress of Deputies, with 350 members and
the Senate with 248 members.
The Constitution defines the authority of the executive, legislative
and judicial powers. The King is commander-in-chief of the armed forces. He
names the Prime Minister, who is the head of Government, after consulting the
Congress of Deputies and Senate, and calls referenda to decide on major
political issues. The Prime Minister is empowered to dissolve parliament and
call elections and govern with the assistance of a Cabinet, which is
collectively responsible to the Congress of Deputies.
Members of the Congress of Deputies and the Senate serve four-year
terms, barring dissolution, and elect their own presidents. Although each house
can initiate legislation, the Congress of Deputies has the power of final
approval on all legislation.
The judicial system is headed by a Supreme Tribunal (Tribunal Supremo)
which is responsible for the final determination of all civil and criminal cases
brought on appeal from the lower courts. The lower courts consist of territorial
courts, provincial courts, regional courts, courts of the first instance and
municipal courts. There is also a Constitution Tribunal which has jurisdiction
to resolve matters affecting constitutional issues.
At the last election in March 1996, the conservative Partido Popular
(PP) narrowly defeated the socialist Partido Socialista Obrero Espanol (PSOE)
which had governed the country since 1982. However, the PP fell 20 seats short
of a parliamentary majority. After some 57 days of negotiations, two
conservative regional parties -- the Catalonian Convergencia i Unio (CiU), and
the Basque Nationalist Party (PNV) -- agreed to support the PP but not to enter
a coalition government. Jose Maria Aznar of the PP became the Prime Minister.
International Organizations
Spain is a member of the United Nations, the International Monetary
Fund (IMF), the World Bank, the Organization for Economic Cooperation and
Development (OECD), the North Atlantic Treaty Organization (NATO), the World
Trade Organization (WTO) and the European Union (EU).
The Economy
After accession to the EU in 1985, foreign capital, particularly direct
investment, poured into Spain attracted by its low labor costs relative to those
in the core European countries. In the five years through 1990, GDP in Spain
grew at an average annual rate of 5.0%, compared with an average of 3.3% for all
of EU. Domestic demand surged, but since the structural reforms needed to
improve supply conditions were slow to take place, bottlenecks arose and
inflation began to surface. Spain became less competitive and GDP slowed to a
rate of 0.7% in 1991 and a decline of 1.2% in 1992. The peseta came under
speculative attack in the Exchange Rate Mechanism crises of 1992 and 1993. The
peseta was devalued 15.6% against the dollar in 1992 and a further 19.4% in
1993. With the resulting improvement in competitiveness, the economy began to
improve.
Among the structural reforms to the Spanish economy was a reduction in
state ownership of business. During the Socialist term in power, Seat, the car
producer was sold to Volkswagen in 1986 and Enasa (trucks) to Iveco, a division
of Fiat. Between 1989 and 1995, shares were floated in such profitable companies
as Repsol, Endesa, the electrical utility, Argentaria, the banking group, and
Telefonica. The state's share in these companies was reduced to 10%, 67%, 25%
and 20% respectively. Among the plans of the center-right government is one in
which they aim to sell off additional state shareholdings worth more than three
trillion pesetas ($23.4 billion) by the year 2000.
One of the most intractable structural problems in Spain is labor
regulation, which has resulted in an official unemployment rate, currently at
20%, or roughly double the EU average. To a large extent the high unemployment
rate is the result of rigid labor laws inherited from the Franco regime. Workers
with permanent job contracts are protected by generous dismissal payments while
new entrants have great difficulty in finding a new job because of the
reluctance of employers to take on additional staff because of the very same
generous dismissal payments. In spite of the introduction of fixed-term
contracts in 1984 and the reforms of 1996 that have reduced the cost of overtime
hours and encouraged part-time contracts, there has been no change in the legal
severance provisions which are still among the highest of the OECD. Justified
layoffs, for both collective and individual dismissals, require a minimum
severance payment ranging from 20 days' wages per year of seniority to a maximum
of 12 months. Unjustified dismissals carry with them 45 days' wages per year of
seniority to a maximum of 42 months, in addition to which the firm must pay up
to 60 days' retroactive wages during the appeals process.
Gross Domestic Product
Gross Domestic Product (GDP) in Spain was approximately $531 billion
dollars in 1997, ranking fifth among the fifteen nations in the European Union.
In terms of per capita income, however, it ranked fourth from the bottom,
exceeding only Portugal, Greece and Turkey.
The following table sets forth selected economic data relating to Spain
for the indicated periods.
Selected Economic Data
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
GDP at current market prices
(billion pesetas) 59,105 60,953 64,789 69,761 73,572 77,786
% Change 7.6% 3.1% 6.3% 7.7% 5.5% 5.7%
GDP at 1990 prices
(billion pesetas) 51,635 51,016 52,098 53,546 54,708 56,672
% Change 0.7% -1.2% 2.1% 2.8% 2.2% 3.6%
CPI (1990=100) 112.2 117.3 122.9 128.6 133.2 135.8
% Change 5.9% 4.5% 4.8% 4.6% 3.6% 2.0%
Industrial Production 96.5 91.9 98.6 103.2 102.5 109.5%
% Change -2.7% -4.8% 7.3% 4.7% -0.7% 6.8%
Unemployment Rate 18.4% 22.7% 24.2% 22.9% 22.2% 20.8%
General Gov. Deficit / GDP -3.6% -6.8% -6.3% -6.6% 4.4% -3.0%
General Gov. Debt / GDP 48.3% 60.5% 63.0% 65.7% 69.6% 68.1%
Current Account (mil. US$) -21,537 -6,017 -6,922 513 503 2,486
Current Account/GDP -3.7% -1.3% -1.4% 0.1% 0.1% 0.5%
Population (millions) 39.0 39.1 39.2 39.2 39.3 39.3
Average Exchange Rate 102.38 127.26 133.96 124.69 126.66 146.41
GDP in US$ Billions $577.3 $479.0 $483.6 $559.5 $580.9 $531.3
GDP Per Capita $14,770 $12,234 $12,335 $14,247 $14,772 $13,675
Sources: IMF, International Financial Statistics, August 1998. European
Commission, 1977 Broad Economic Policy Guidelines, No. 64, 1997
Spain produces a wide range of agricultural products, both for domestic
and export markets. Among them are rice, olive oil, wine, feed grains,
vegetables and citrus fruits. In addition, Spain produces an array of forestry
products, including wood for construction and furniture, cork, firewood and
resins. Spain has significant deposits of metals and minerals, including iron
ore, mercury, potash, uranium, tungsten, lead, zinc and pyrites. The main
industries of Spain include iron and steel, aluminum, motor vehicles, electronic
equipment and machinery, chemicals, metal products, coal mining and electricity
generation. Tourism is one of the largest components of the service sector and a
significant source of foreign exchange.
The following table shows the changes in the distribution of GDP
by type of activity between 1986 and 1996.
Gross Domestic Product by Type of Activity
Percent Distribution
1986 1997
Agriculture, Hunting, Forestry, and Fishing 5.6% 4.3%
Mining, Mfg & Gas 29.2% 28.0%
Construction 6.5% 7.0%
Services 53.2% 55.0%
Adjustments 5.6% 5.8%
100.0% 100.07%
OECD Quarterly National Accounts, 1998:2 P226
Foreign Trade and Balance of Payments
Since accession to EU in 1986, Spain's trade with other EU members has
increased significantly as can be seen in the following table.
Geographic Breakdown of Trade
Exports Imports
1986 1987 1986 1987
---- ---- ---- ----
(Millions of US$)
Total $27,206 $104,134 $35,056 $122,753
(Percent of Total)
European Union 62.5% 69.6% 53.4% 65.0%
France 17.9% 18.4% 11.7% 17.5%
Germany 11.7% 13.5% 15.1% 14.8%
Italy 8.0% 9.8% 7.3% 9.4%
Portugal 3.5% 9.0% 1.3% 2.7%
U.K. 8.8% 8.1% 7.7% 8.1%
Other 12.6% 10.8% 10.3% 12.6%
U.S. 9.3% 4.4% 9.8% 6.3%
Japan 1.1% 1.1% 4.9% 2.8%
All Other 27.1% 24.9% 31.8% 25.9%
100.0% 100.0% 100.0% 100.0%
Source: IMF, Direction of Trade Yearbook, 1998.
Spain typically runs a deficit on the balance of trade and the balance
on income (interest and dividend payments). Services and transfers regularly
report surpluses. On the capital account, direct investment has declined from
the high level of 1992. Portfolio investment has tended to be volatile. The
overall balance, however, has improved and the Current Account as a percentage
of GDP has gone from negative 3.7% in 1992 to positive 0.5% in 1997.
Balance of Payments
(Millions US$)
1992 1993 1994 1995 1996 1997
Trade Balance (30,420) (14,946) (14,833) (18,244) (16,027) (13,347)
Balance on Services 12,607 11,108 14,712 17,898 19,789 19,227
Balance on Income (5,790) (3,573) (8,193) (3,878) (5,799) (6,396)
Transfers Net 2,066 1,393 1,388 4,737 2,540 (3,002)
Current Account (21,537) (6,017) (6,927) 513 503 2,486
Direct Investment Net 11,084 5,492 5,528 2,551 1,246 (4,486)
Portfolio Investment Net 9,358 49,212 (22,313) 20,879 (1,308) (6,359)
Equity Securities Net 3,503 5,727 107 3,681 (631) (5,388)
Debt Securities Net 5,855 43,485 (22,420) 17,198 (677) (971)
Other Investments Net (14,483) (54,983) 22,254 (31,045) 20,179 19,534
Capital Acct n.i.e. 3,726 3,168 2,722 6,285 6,420 5,965
Errors and Omissions (5,957) (1,681) (1,213) (5,598) (2,764) (5,385)
Overall Balance (17,809) 4,808 50 (6,415) 24,278 11,755
IFS January 1998:660
Exchange Rates
The following table shows the exchange rate of the peseta relative to
the U.S. dollar at the end of each year and the average for the year. The
percent of depreciation or appreciation is also shown.
Exchange Rates
End of Period Change Average Change
Relative to US$ Relative to US$
1986 132.40 140.05
1987 109.00 21.5% 123.48 13.4%
1988 113.45 -3.9% 116.49 6.0%
1989 109.72 3.4% 118.38 -1.6%
1990 96.91 13.2% 101.93 16.1%
1991 96.69 0.2% 103.91 -1.9%
1992 114.62 -15.6% 102.38 1.5%
1993 142.21 -19.4% 127.26 -19.6%
1994 131.74 8.0% 133.96 -5.0%
1995 121.41 8.5% 124.69 7.4%
1996 131.28 -7.5% 126.66 -1.6%
151.04* -0.4% 153.14 -4.4%
II. PORTUGUESE REPUBLIC
Area and Population
The Portuguese Republic ("Portugal") is situated in Southwest Europe on the
western portion of the Iberian Peninsula, bounded on the north and east by Spain
and on the south and west by the Atlantic Ocean. The country also comprises the
Azores and Madeira Islands in the Atlantic Ocean. The total area including the
islands is 91,985 sq. Km. (35,515 sq. miles).
The population of Portugal, including the Azores and Madeira Islands,
was 9.8 million according to the 1991 census. The population is concentrated
along the Atlantic coast. Lisbon, the capital and largest city and seaport,
comprises some 1.9 million inhabitants and Porto, the second largest city and
seaport comprises 1.l million.
Government
Portugal is a republic governed under a constitution approved in 1976
and revised in 1982, 1989, 1992 and 1997. The President is elected to a 5-year
term, as head of state. The current president elected in January 1996 is Jorge
Sampaio. Parliament proposes the Prime Minister to the president who then makes
the appointment. The Prime Minister, who is the country's chief administrative
official, presides over a cabinet of ministers.
The current Prime Minister is Antonio Guterres.
Legislative power is vested in a unicameral parliament, the Assembly of
the Republic. Members of the Assembly are elected under a system of proportional
representation and serve 4-year terms. The Assembly had a total of 230 seats in
the early 1990s.
The judicial system is headed by the Supreme Court, which is made up of
a president and 29 judges. Below the Supreme Court are courts of appeal and
ordinary and special district courts. There is also a Constitutional court.
The leading political parties are the Socialist Party (PS), the Social
Democratic Party (CDS), the Popular Party (PP) and the Communist Party (PCP) The
socialist party won the October 1995 election, ending 10 years of government by
the social democrats. Both of the main parties have similar economic policies,
with participation in European Monetary Union (EMU) and fulfilling Maastricht
criteria as the center piece of fiscal and monetary policies.
International Organizations
Portugal is a member of the United Nations, the International Monetary
Fund (IMF), the World Bank, the Organization for Economic Cooperation and
Development (OECD), the North Atlantic Treaty Organization (NATO), the World
Trade Organization (WTO) and the European Union (EU).
The Economy
When Portugal joined the European Union (EU) in 1986, the economy was
in need of major restructuring. Inflation, unemployment and the public sector
deficit were high. Moreover the industry sector was antiquated and the State was
heavily involved in the economy. Protectionism, underdeveloped financial markets
and rigidity in labor markets characterized the economy. Monetary policy was
based on capital controls and credit ceilings. Financial institutions were
sheltered from foreign competition and the money market was poorly developed.
The Central Bank, which could not be considered independent, controlled
liquidity through credit ceilings imposed on the overwhelmingly public banking
system. Exchange rate policy was based on a crawling peg aimed at alleviating
the chronic current account deficit which, in 1982 peaked at 12% of GDP. Over
the period from 1976-1985, the compound real effective exchange rate
depreciation of the escudo amounted to 40% while inflation was running at a rate
of 20% annually.
After joining the EU, tax reforms were introduced which lowered
effective marginal rates, broadened the tax base and curtailed opportunities for
evasion. The value added to tax (VAT) was introduced between 1984 and 1986 and
the income tax was subject to a major reform in 1989. Institutional changes
strengthened Central Bank autonomy by cutting off the government's automatic
access to Banco De Portugal credit and making its statutes broadly aligned to
the requirements of the European Union Treaty. Portugal moved from a highly
regulated financial market to financial liberalization.
A far-reaching privatization program was started in 1989. In 1988,
public sector participation in the market economy accounted for close to 19% of
total value added, around 6.5% of employment and almost 15% of total investment.
State-owned enterprises were dominant in financial service, transport, energy,
communications, steel, cement brewing, shipbuilding, pulp and tobacco.
Initially, the program focused on the financial services sector. The stock
exchange was modernized and privatized.
On April 6, 1992, the escudo joined the Exchange Rate Mechanism (ERM)
in the wide fluctuation band (6%) thereby establishing exchange rate stability
as the cornerstone of its monetary policy. Remaining controls on capital
movements were abolished at the end of that year, ahead of the schedule
previously agreed with the EU.
Turmoil in the ERM in 1992 led to widening of bands to 15% in August
1993. The Central parity of the escudo had to be devalued twice during that
period. In spite of realignments, the new monetary policy based on exchange rate
stability as an intermediate objective has remained a cornerstone of economic
policy in Portugal. In March 1995 the central parity of the escudo within the
ERM was devalued by 3.5%, half the size of the devaluation of the Spanish
peseta. This realignment was not preceded by market pressure on the escudo, but
was aimed at limiting losses in competitiveness relative to partner countries.
Since joining the EU, Portuguese output increased significantly in the
period from 1986-1990, rising on average at 5% a year compared with an average
of 1.6% in the previous five-year period. The rate of inflation, which had been
close to 30% in 1984, was brought down to about 12% in 1990. Output was affected
adversely by the oil shock of 1979-80 and the recession of 1993, but began to
pick up in 1994 and has subsequently continued to grow in each year. Inflation
has continued to abate. The CPI rose 3.2% in 1996 and 2.1% in 1997. At the same
time, the balance of payments has remained strong and the overall general
government deficit fell from above 6% of GDP in 1993 to 3.2% in 1996 and to
2.45% in 1997.
Gross National Product
In 1997, GDP amounted to approximately $102 billion. The European
Commission has stated that, measured in purchasing power parity, Portuguese GDP
per capita rose from 50% of the European Union (EU) average in 1985 to about 70%
in 1996.
The following table sets forth selected economic data relating to
Portugal for the indicated periods:
<TABLE>
<CAPTION>
Selected Economic Data
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997
GDP at current market
prices
(billion escudo) 12,759.0 13,463.1 14,628.9 15,817.7 16,803.6 17,905.2
% Change 12.8% 5.5% 8.7% 8.1% 6.2% 6.6%
GDP at 1995 prices
(billion escudo) 15,214.3 14,999.8 15,364.9 15,817.8 16,320.6 16,920.3
% Change +A11 1.9% -1.4% 2.4% 2.9% 3.2% 3.7%
CPI (1990=100) 121.3 129.6 135.9 141.5 146.0 149.1
% Change 8.9% 6.8% 4.9% 4.1% 3.2% 2.1%
Industrial Production 99.5 95.9 94.8 99.4 100.8 103.3
% Change -1.9% -3.6% -1.1% 4.9% 1.4% 2.5%
Unemployment Rate 4.2% 5.6% 6.9% 7.2% 7.3% 6.8%
General Gov. Deficit / GDP -3.6% -6.9% -5.8% -5.1% -4.0% -2.5%
General Gov. Debt / GDP 60.7% 64.3% 66.7% 66.4% 65.6% 62.4%
Current Account (mil. US$) -184 233 -2,196 -144 -1,491 -1,877
Current Account/GDP -0.2% 0.3% -2.5% -0.1% -1.4% -1.8%
Population (millions) 9.83 9.84 9.84 9.85 9.87 9.88
Average Exchange Rate 135.00 160.80 165.99 151.11 154.24 175.31
GDP in US$ Billions $94.5 $83.7 $88.1 $104.7 $108.9 102.1
GDP Per Capita $9,612 $8,509 $8,956 $10,630 $11,042 $10,342
</TABLE>
Sources: OECD, Quarterly National Account, No. 2, 1998 and IMF, International
Financial Statistics, August, 1998; European Commission, 1977 Broad Economic
Policy Guidelines, No. 64, 1997.
While the importance of agriculture in the economy has declined since
accession to the EU, approximately 11% of the labor force is still engaged in
agriculture, having declined from over 20% in 1986. Only Greece among EU members
has a higher proportion of the population currently employed in agriculture.
Approximately 34% of Portugal's total land area is covered by forest. The
country is the world's largest producer and exporter of cork and cork products
and is an increasingly important supplier of wood pulp. Portugal has substantial
reserves of copper ore, iron ore, pyrites and uranium.
The manufacturing sector accounted for about 24% of GDP and employed
about 23% of the labor force in 1993, the latest year for which data are
available. The principal manufacturing industries include metal products,
textiles, chemicals and allied products, wood pulp and cork and base metallurgy.
The construction sector employs approximately 8% of the labor force.
Tertiary production includes retail and wholesale trade, utilities,
finance, transportation and communication, and services. Trade and services have
been the fastest growing sectors of the economy. The growth in tourism is
reflected in the trade sector which includes hotels and restaurants.
The following table shows how employment by industry has changed since
accession to the EU in 1986.
Civilian Employment by Sector
1986 1995
(Thous) % of Total (Thous) % of Total
Agriculture 890.3 21.9% 477.5 11.4%
Mining 27.2 0.7% 16.8 0.4%
Manufacturing 995.3 24.5% 971.9 23.2%
Construction 332.1 8.2% 340.3 8.1%
Electricity, gas and water 31.9 0.8% 34.6 0.8%
Transport and communication 174 4.3% 183.1 4.4%
Trade 598.6 14.7% 819.2 19.5%
Banking, insurance, real estate 127 3.1% 137.4 3.3%
Personal services. 887 21.8% 1213.7 28.9%
Total 4063.4 4194.5
OECD, Economic Survey Portugal 1998:111
External Trade and Balance of Payments
Since accession to EU in 1986, Portugal's trade with other EU members
has increased significantly as illustrated in the following table:
Geographic Breakdown of Trade
Exports Imports
1986 1997 1986 1997
(Millions US$)
Total $7,243 $21,195 $9,646 $35,720
Percent of Total
European Union 75.4% 78.3% 62.1% 76.1%
France 15.2% 13.7% 10.1% 11.1%
Germany 14.7% 21.8% 14.3% 15.6%
Italy 4.0% 4.2% 8.0% 8.6%
Spain 6.9% 14.9% 11.0% 25.5%
U.K. 14.2% 12.0% 7.5% 7.5%
Other 20.5% 11.6% 11.2% 7.9%
U. S. 7.0% 5.4% 7.0% 2.9%
Japan 0.8% 0.7% 3.6% 2.5%
All Other 16.8% 15.6% 27.4% 18.5%
100.0% 100.0% 100.0% 100.0%
Source: IMF, Direction of Trade Yearbook 1998.
(Accessed through Haver
Analytics)
Portugal typically runs a deficit on the balance of trade which is
offset, in part, by tourism receipts and unilateral transfers. Tourism receipts
are expected to increase sharply with Expo 98, which runs from May 22 through
September 30, 1998. Transfers include emigrant remittances and, in recent years,
transfers from EU. The overall balance of payments is shown in the following
table:
Balance of Payments
(Millions US$)
1992 1993 1994 1995 1996 1997
Trade Balance (9,387) (8,050) (8,321) (8,910) (9,340) (9,551)
Balance on Services 765 1,365 1,269 1,613 1,375 1,206
Balance on Income 611 219 (565) (21) (352) (245)
Transfers Net 7,826 6,699 5,421 7,132 6,827 6,712
Current Account (184) 233 (2,196) (144) (1,491) (1,877)
Direct Investment Net 1,186 1,387 983 (3) (57) 71
Portfolio Investment Net (3,064) 1,827 478 (1,083) 1,746 1,133
Equity Securities Net 561 411 496 (338) 958 1,776
Debt Securities Net (3,625) 1,416 (18) (745) (2,704) (643)
Other Investments Net 928 (6,246) (409) 4,110 6,553 2,750
Errors and Omissions 978 (48) (287) (3,181) (2, 813) (2,483)
Overall Balance (156) (2,848) (1,430) (300) 445 (407)
IMF, International
Financial Statistics,
September 1998
Exchange Rates
The following table shows the exchange rate of the escudo relative to
the US dollar at the end of each year and the average for the year. The percent
of depreciation or appreciation is also shown.
Value of Escudo Relative to US$
END OF PERIOD CHANGE RELATIVE TO AVERAGE CHANGE RELATIVE TO
US$ US$
1986 146.12 149.59
1987 129.87 12.5% 140.88 6.2%
1988 146.37 -11.3% 143.95 -2.1%
1989 149.84 -2.3% 157.46 -8.6%
1990 133.60 12.2% 142.56 10.5%
1991 134.18 -0.4% 144.48 -1.3%
1992 146.76 -8.6% 135.00 7.0%
1993 176.81 -17.0% 160.80 -16.0%
1994 159.09 11.1% 165.99 -3.1%
1995 149.41 6.5% 151.11 9.9%
1996 156.39 -4.5% 154.24 -2.0%
1997 183.33 -14.7% 175.31 -12.0$
1998 182.15* 0.6% 184.79** -5.0%
<PAGE>
III. SPANISH AND PORTUGUESE MARKET INFORMATION
The Spanish Securities Markets
In 1988 the Securities Market Act (known by its Spanish acronym as LVM)
established the framework for the operation of the securities markets in Spain.
The securities markets, and all market participants are supervised by the
National Securities Market Commission ("Comision National de Mercado de Valores"
or "CNMV"), an independent public entity, and the key institution of the Spanish
securities markets. Each of the four Spanish stock exchanges is managed by a
managing company ("Sociedad Rectora"), a private limited liability company
formed and owned by the authorized dealers and broker-dealers ("sociedades de
valores" and "agencias de valores") that are members of the relevant stock
exchange. Each managing company is in turn an equal member of another company,
the "Stock Exchange Company" ("Sociedad de Bolsas"), the main function of which
is to oversee the Automated Quotation System, which is the computerized system
through which trading in equity securities on the Spanish stock exchanges takes
place primarily.
Shares (equity securities), government securities, bonds, treasury bills
and other financial instruments are traded on the exchanges. All transactions
must be effected through an official dealer or broker-dealer member of the
relevant stock exchange, except in certain exceptional cases. Brokerage
commissions are freely fixed by the dealers and broker-dealers. However, they
are overseen by the CNMV, and have to be publicly published and may not exceed
the maximum rates established by the Spanish Government.
In order for securities to be listed for trading on any exchange, the
authorization of the relevant exchange is required. Additionally, trading on the
Automated Quotation System requires previous listing on at least two Spanish
stock exchanges, and authorization of the CNMV with a favorable report of the
Stock Exchange Company. Spanish legislation establishes rules for the exchanges
with respect to listing and disclosure requirements, including examinations of
financial statements.
Equity Markets. Securities are traded on the four exchanges via the
Automated Quotation System ("AQS"), which presently exists in conjunction with
the traditional oral trading on the floor of the exchange. AQS accounts for
almost 90% of all trades. The principal feature of the AQS is the computerized
matching of buy and sell orders at the time of entry of the order. Each order is
executed as soon as a matching order is entered, but can be modified or canceled
until executed.
In a pre-opening session held from 9:00 a.m. to 10:00 a.m. each trading
day, an opening price is established for each security traded on the AQS based
on orders placed at that time. The computerized trading hours are from 10:00
a.m. to 5:00 p.m. (except for some less liquid securities which trade only at
12:00 p.m. and 4:00 p.m.) during which time the trading price of a security is
permitted to vary up to 15% (or 20% with the authorization of the Stock Exchange
Company) of the previous trading day's closing price. If the quoted price
exceeds this limits, trading in the security is suspended until the next trading
day.
Between 5:00 p.m. and 8:00 p.m, trades may occur outside the
computerized system without prior authorization of the Stock Exchange Company,
at a price within the range of 5% above the higher of the average price and
closing price for the day and 5% below the lower of the average price and
closing price for the day, if there are no outstanding bids or offers, as the
case may be, on the system matching or bettering the terms of the proposed
off-system transaction, and if the trade involves more than Ptas. 50 million and
more than 20% of the average daily trading volume of the stock during the
preceding three months. In certain cases, at any time before 8:00 p.m., trades
may take place (with the prior authorization of the Stock Exchange Company) at
any price.
The Madrid exchange is the fourth most active in turnover terms in the
European Union after London, Frankfurt and Paris. Based on market
capitalization, the Madrid exchange, valued at $235.1 billion at the end of
1997, ranked twelfth among the exchanges of the world. Market capitalization and
trading value for the past five years are given below:
Madrid Stock Exchange
No. of Cos. Mkt Cap Trading Mkt Cap Trading
Listed
ECU Billions US $ Billions
1992 400 80.3 64.6 61.9 49.8
1993 379 125.5 99.9 107.1 85.2
1994 378 122.5 132.1 103.1 111.1
1995 366 137.9 120.9 105.4 92.4
1996 361 190.2 182.5 150.0 143.9
1997 388 266.6 376.3 235.1 331.8
Bolsa de Madrid, Key Figures, January 1998
The most traded shares are shown below:
Most Traded Shares in 1997
Company Sector Trading Volume No. Shares
(Million)
ECU Mil US$ Mil
Telefonica Communications 24,205 19,089 3138
Endesa Utilities 13,648 10,763 2526
Repsol Petroleum 11,288 8,902 918
BBV Banking 8,385 6,613 1140
Iberdrola Utilities 8,186 6,456 2337
B. Santander Banking 7,599 5,993 969
Argentaria Banking 4,602 3,629 300
B. Popular Banking 4,035 3,182 249
BCH Banking 3,127 2,466 630
Banesto Banking 2,300 1,814 834
Bolsa de Madrid, Key Figures, January 1998
Stock Indexes. The main stock price indexes are the Madrid General
Index, the Total Index and the Ibex-35. The Madrid General Index reflects the
increase or decrease in share prices and is corrected for dividends and capital
increases. It has been published since December 1940 and as of 1986 the base has
been December 31, 1985=100. The Total Index measures the overall profitability
of shares based on the price performance, capital increases and dividends
reinvested. It is an indicator of total return. The index is based on December
31, 1985=100. The Ibex-35 index, made up of the 35 most liquid shares that trade
on the continuous market, acts as the underlying asset for the trading of
futures and options on indexes. The index is not corrected for dividends and the
base is December 31, 1989=3000. It has been called Ibex-35 since January 1991;
prior to that time it was known as Fiex. The following table shows the three
indexes for the period 1987-1997 (except with respect to the Madrid Total Index,
with respect to which 1997 figures are not available).
Madrid Stock Price Indexes (End of Year)
Madrid General Percent Madrid Total Percent Ibex-35 Percent
Index1 Chg. Index 1 Chg. Index2 Chg.
.
1987 227.2 242.8 2,407.1
1988 274.4 20.8% 302.8 24.7% 2,727.5 13.3%
1989 296.6 8.1% 336.8 11.2% 3,000.0 10.0%
1990 223.3 -24.7% 260.9 -22.5% 2,248.8 -25.0%
1991 246.2 10.3% 299.9 14.9% 2,603.3 15.8%
1992 214.3 -13.0% 277.8 -7.4% 2,344.6 -9.9%
1993 332.8 55.3% 433.0 55.9% 3,615.2 54.2%
1994 285.0 -14.4% 393.0 -9.2% 3,087.6 -14.6%
1995 320.1 12.3% 454.7 15.7% 3,630.8 17.6%
1996 444.8 39.0% 649.8 42.9% 5,154.8 42.0%
1997 632.5 42.2% 7,255.3 40.7%
1998 652.0*
- -------------------
1 12/21/85=100
2 12/31/89=3000
* As of September 21, 1998
Bolsa de Madrid, Fact Book 1997 and Financial Times September 22, 1998
As of March 20, 1998, the Madrid General Index was 859.08 up 34.4% from
the end of 1997 and the Ibex 35 was 9797.1, up 35% over the same time period.
New Listing of Equity Securities. In order to be eligible for listing on
any of the Spanish stock exchanges, companies are required to meet certain
requirements, including the following:
(i) General requirements:
- The company must comply with all the rules and regulations
to which it is subject; including its own memorandum and
articles of association.
- The annual company accounts, and if applicable, the
consolidated group accounts, must be audited. However,
exceptions to this requirement may be granted in certain
cases.
- The securities must be freely transferable.
- The securities must be registered in book-entry form
("anotaciones en cuenta").
(ii) Specific requirements for shares:
- The company must have a minimum share capital of Pesetas
200 million (without taking into account shareholdings
over 25%).
- The company must have enough profits (after tax) to
distribute a dividend of at least 6% of the paid up share
capital in the previous two years or in three
non-consecutive years of the previous five (although no
actual distribution is required). However, exceptions to
this requirement may be granted in certain cases.
- There must be at least 100 shareholders owning individual
interests in the company of less than 25% of its share
capital.
Debt Market. The debt instruments principally traded in the Spanish
markets are treasury letters of credit ("Letras del Tesoro"), treasury
promissory notes ("Pagares del Tesoro"), and state bonds and debt instruments
("Bonos y obligaciones del Estado"), a mixture of short, medium and long-term
instruments.
These public debt securities, and also those issued by Autonomous
Communities (i.e., territorial political sub-divisions of the Spanish State) and
local authorities, are primarily traded in the Public Debt Market ("Mercado de
Deuda Publica en Anotaciones") which operates through a book-entry system run by
the Bank of Spain. The Bank of Spain is empowered to supervise and control the
Public Debt Market, Public debt represented by book entry can also be traded on
the Spanish stock exchanges.
The "AIAF" fixed-yield wholesale securities market is an organized but
unofficial wholesale market of securities. This market is sponsored by a private
entity ("AIAF"), governed by its own supervisory body in accordance with its
rules, and under the supervision of the CNMV. Several fixed-yield securities
which could also trade on the Spanish stock exchanges trade on this market.
The capitalization of fixed-income securities has been gradually
declining while trading has risen sharply. The explanation lies in the fact that
as of 1993 the book-entry debt of the State and regional governments has been
traded via the Bolsa de Madrid's electronic system, however capitalization of
this debt is not included in that of public sector securities on the Bolsa.
Trading and capitalization of fixed-income securities is shown below.
Fixed-Income Securities
Mkt Cap Trading
(Bil. Ptas.) (Bil. US$) (Bil. (Bil. US$)
Ptas.)
1992 4,332 42.3 922 9.0
1993 4,371 34.3 1,758 13.8
1994 3,832 28.6 4,488 33.5
1995 3,532 28.3 4,274 34.3
1996 3,334 26.3 9,540 75.3
Bolsa de Madrid, Fact Book 1997
Futures and Options Market. The futures and options markets are
organized by the holding company Mercado Espanol de Futuros Financieros (MEFF).
MEFF's subsidiary, MEFF Renta Variable, based in Madrid, manages the trading of
options and futures on the Ibex-35 stock index and individual options on certain
shares. MEFF Renta Fija, based in Barcelona, manages the trading of futures and
options on interest rates.
Spanish Foreign Exchange Control
Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Spain in consultation with
the banks authorized to conduct foreign exchange business. Purchases and sales
by bank transfers of foreign currencies are centralized at the Bank of Spain,
which publishes the rates at which it settles transactions.
Foreign investors may freely invest in shares of Spanish companies and
need only obtain prior verification or authorization from the Ministry of
Economy in certain cases. Foreign non-European Union governments, state-owned
entities and state-controlled entities are required to obtain specific consent
from the relevant Spanish authorities to make capital investments in Spain.
Payments and collections derived from foreign investments in Spain are
liberalized, but certain formalities have to be fulfilled and specific
information must be supplied, in certain cases, to the Spanish exchange control
authorities. Generally payments must be channeled through licensed credit
entities.
Spanish Public Finance, State Revenue and Taxation
Each year, the Ministry of Economy and Finance, in collaboration with
other Government Ministries, prepares the State Budget and summary budgets for
autonomous public agencies and the social security system. After submission to
the Council of Ministers, the budget is presented for approval to parliament. If
the budget is not finally approved by January 1 of each year, the budget of the
previous year is automatically extended.
Spain has a fairy complex tax system with a wide range of direct and
indirect taxes applicable to both individuals and businesses. The majority of
Spanish taxes are imposed by the State, although certain taxes are levied by
local governments. Certain Autonomous Communities, namely the Basque Country and
Navarra, have a particular tax system adopted by their respective local
legislative bodies within the framework of the State tax system.
The Spanish Monetary and Banking System
Government regulation of the Spanish banking industry is administered
by the Bank of Spain, a public law entity which operates as the Spanish
autonomous central bank. In addition, it has the ability to function as a
private bank. Except in its performance of public functions, the Bank of Spain's
relations with third parties are governed by general private law and its actions
and omissions subject to the civil and commercial codes.
Among other responsibilities, the Bank of Spain is responsible for
determining and executing monetary policy with the primary goal of attaining
price stability (while the Bank of Spain's monetary policy must support the
general financial policy of the government, it is not subject to instructions
from the Government or the Ministry of Economy and Finance), maintaining,
administering and managing foreign exchange and precious metal reserves in order
to execute the rate of exchange policy formulated by the Government, promoting
stability, good performance and operation of the financial payment systems,
issuing Spanish currency, rendering treasury services to the Spanish Treasury
and to the Autonomous Communities, and rendering services related to public debt
of the State and the Autonomous Communities
In addition, the Bank of Spain exercises general supervisory control
over all Spanish credit institutions and is entrusted with certain supervisory
powers over Spanish banks, subject to rules and regulations issued by the
Ministry of Economy and Finance. The "Fondos de Garantia de Depositos", which
operate under the guidance of the Bank of Spain, guarantee bank and savings bank
deposits up to EURO 15,000 per depositor. The minimum covered amount for all
European Union member banks will be increased to EURO 20,000 after December 31,
1999.
Spanish Credit Entities
The commercial banking sector in Spain is dominated by four Spanish
banking groups, which, based on statistics of the Spanish Banking Association,
accounted for approximately 68.5% of total deposits at commercial banks at
December 31, 1996.
Spanish savings banks also represent an important source of competition
for retail deposits, mortgage loans and other retail banking products and
services. Since 1988, Spanish savings banks, which have traditionally been
regional institutions, have been permitted to open branches and offices through
Spain. The savings banks are divided into "Cajas de Ahorro", which are partially
controlled by local governments, and "Cajas Rurales", which specialize in the
agricultural sector.
Law 3/1994, of April 14, 1994 conforms Spanish law to the European
Unions' Second Banking Coordination Directive (89-646) (the "Second Banking
Directive") by providing that any financial institution incorporated in and
authorized to conduct business in another member state of the European Union
will be permitted to conduct business in Spain either through branches in Spain
or on a cross-border basis following certain procedures.
Likewise, the European Union's Investment Services Directive. No.
93/22/CE took effect on December 31, 1995. Although Spain has not yet
implemented this Directive, it could affect financial services in Spain by
permitting any brokerage house incorporated and authorized to operate in the
European Union to offer its services in Spain. A bill of law amending the
Securities Market Act and implementing the Investment Services Directive is
pending approval by the Spanish Parliament.
The Portuguese Securities Markets
Background and Development. The Portuguese securities markets
officially opened at the turn of the century with the establishment of the
Oporto Stock Exchange and the Lisbon Stock Exchange (the "Stock Exchanges"). The
Stock Exchanges were closed in 1974 and were reopened in the late 1970s, but it
was not until 1987, when the Portuguese Government passed additional laws
designed to stimulate the capital markets, that activity on the Stock Exchanges
increased substantially. The 1987 legislation consisted mainly of tax
incentives, the relaxation of listing and issuing requirements and a reduction
in limitations on foreign investment.
A series of legislative measures designed to reform the Stock Exchanges
was implemented in July 1991, including the transfer of their ownership from the
Portuguese Government to the brokers and dealers acting on the Stock Exchanges.
In addition, the 1991 legislation (i) established an independent regulatory
authority over the securities market, the Comissao do Mercado de Valores
Mobiliarios (the "CMVM"), to supervise the securities markets, (ii) established
a framework for the regulation of trading practices, tender offers and insider
trading, (iii) required members of the Stock Exchanges to be corporate entities,
(iv) required companies listed on the Stock Exchanges to file annual audited
financial statements and to publish semi-annual financial information, (v)
established a framework for integrating quotations on the Stock Exchanges by
computer, and (vi) provided for the transfer of shares by book-entry.
Equity securities are currently listed only on the Lisbon Stock
Exchange. The Lisbon Stock Exchange is regulated by the Ministry of Finance and
the CMVM. Shares were traded on the Oporto Stock Exchange until May 1994, when
it was closed in preparation for the introduction of the trading of derivative
securities. Trading on the Oporto Stock Exchange is now limited to derivative
instruments.
The official market index of the Lisbon Stock Exchange, published since
February 1991 (the "BVL General Index"), is a weighted average price of shares
listed on the Official Market of the Lisbon Stock Exchange. The exact number of
companies in the index's portfolio may change each day because of new
admissions, exclusions, suspensions and the absence of quotations. Since January
1993, the Lisbon Stock Exchange has calculated a sub-index of the 30 most
frequently traded shares listed on the Official Market, which includes the
Ordinary Shares, and their market capitalization (the "BVL 30"). Two Portuguese
banks, Banco Totta & Acores, S.A. and Banco Portugues do Atlantico, S.A., also
calculate stock market indices.
Regulation of the Exchanges. Each of the two Portuguese stock exchanges
(Lisbon Stock Exchange and Oporto Stock Exchange) is managed by a managing
company ("Associacao de Bolsa"), a private limited liability association formed
and owned by the authorized dealers and brokers ("sociedades financeiras de
corretagem" and "sociedades de corretagem") that are members of the relevant
stock exchange.
The securities markets, and all market participants are supervised by
the Securities Market Commission ("Comissao do Mercado de Valores Mobiliarios"),
an independent public entity.
Shares (equity securities), government securities, bonds, treasury
bills, and other financial instruments are traded on the Lisbon Stock Exchange.
Trading in the Oporto Stock Exchange is now limited to derivative products.
Market Activity. The market capitalization of all securities traded on
the LSE at the end of 1997 was 14,388,729 million escudos or $78,487 million. Of
this total bonds accounted for $38,798 million or 49.4%; stocks, $39,065 million
or 49.8% and other securities, such as participation bonds, investment trust
units and rights, $624 million or 0.8%. The LSE is one of the smaller stock
markets among the developed markets. In terms of the Morgan Stanley Capital
International list of developed markets, Portugal ranked 21 out of 23 in market
capitalization at the end of 1997. Only the Austria and New Zealand stock
markets had smaller capitalizations.
<PAGE>
The following table shows the market capitalization of securities on
the LSE in the various markets as of the end of 1997.
Mil Esc. Mil. US$ % Distribution
Official Market 13,667,609 74,554 95.0%
Bonds 6,558,200 35,773
Stocks 7,007,975 38,227
Other* 101,434 553
Second Market 597,954 3,262 4.2%
Bonds 553,528 3,019
Stocks 44,426 242
Market without 123,167 672 0.9%
Quotations
Bonds 996 5
Stocks 109,268 596
Other 12,903 70
Subtotal 14,388,728 78,487 100.0%
Addendum:
Bonds 7,112,723 38,798 49.4%
Stocks 7,161,669 39,065 49.8%
Other 114,337 624 0.8%
14,388,729 78,487 100.0%
* Participation bonds, Investment Trust Units and Rights of bonds,
warrants and shares.
Bolsa de Valores de Lisboa: Nota Informativa 1997
Trading in 1997 of all securities amounted to 6,450,409 million escudos
or $36,794 million. Approximately 90% of the trades took place on the Official
Market. Trading in stocks accounted for 63.7% of all trades.
The following table shows the value of trading on the three main
markets in 1997 and for both normal and special sessions.
Lisbon Stock Exchange: Value of Trading in 1997
Mil Esc. Mil. US$ % Distribution
Normal Sessions
Official Market 5,812,687 33,156 90.1%
Bonds 2,175,717 12,411
Stocks 3,598,606 20,527
Other* 38,364 219
Second Market 128,363 732 2.0%
Bonds 102,061 582
Stocks 26,302 150
Market without 68,410 390 1.1%
Quotations
Bonds 2,131 12
Stocks 45,727 261
Other 20,552 117
Subtotal 6,009,459 34,279 93.2%
Special Sessions
Stocks 440949 2,515 6.8%
Grand Total 6,450,408 36,794
Addendum:
Bonds 2,279,909 13,005 35.3%
Stocks 4,111,584 23,453 63.7%
Other 58,916 336 0.9%
6,450,409 36,794 100.0%
* Participation bonds, Investment Trust Units and Rights of bonds,
warrants and shares.
Bolsa de Valores de Lisboa: Nota Informativa 1997
Stocks. Both market capitalizations and trading values of stocks have
grown rapidly in recent years. The following table showing recent history of the
growth of capitalization and trading value of stocks includes the dramatic rise
in trading that took place in 1997
Lisbon Stock Exchange
No. Market Capitalization Trading Value
Of Cos.
(bil escudos) (bil US $) (bil escudos) (bil US $)
1987 143 1,150.3 8.9 213.9 1.5
1988 171 1,052.3 7.2 163.4 1.1
1989 182 1,588.4 10.6 300.4 1.9
1990 181 1,257.2 9.4 240.4 1.7
1991 180 1,284.3 9.6 406.2 2.8
1992 191 1,353.6 9.2 467.3 3.5
1993 183 2,193.0 12.4 780.3 4.9
1994 195 2,586.8 16.3 874.6 5.3
1995 169 2,743.1 18.4 634.1 4.2
1996 170 3,828.4 24.5 1,102.6 7.1
1997* 159 7,161.7 39.1 3,670.6 20.9
* Data are for Normal Sessions. In 1997 trading value, including Special
Session, was 4,11.6 bil escudos or $23.5 bil.
Lisbon Stock Exchange
Stock Price Indexes. The BVL (Bolsa de Valores de Lisboa) Index has
been the official market index of the LSE since February 18, 1991. It has a base
of 1000 at January 5, 1988 and includes all listed shares on the LSE official
market. The exact number of companies in the index can change daily as a result
of admissions, exclusions, suspensions and the absence of quotations. On January
11, 1993, the LSE began to calculate the BVL 30. This index, based on January 4,
1993=1000, includes the shares of 30 companies listed on the main market and is
weighted by their market capitalization and liquidity. These indexes are shown
below in the following table:
Stock Price Indexes
BVL General Index (January 5, 1998-1000)
High Date Low Date Close Pct. Chg.
1988 1,145.10 8-Jan 670.70 21-Oct 722.85
1989 1,041.59 24-Oct 691.11 22-Jun 951.91 31.7%
1990 953.76 4-Jan 627.57 5-Dec 638.30 -32.9%
1991 747.69 18-Mar 605.66 16-Jan 623.63 -2.3%
1992 651.63 11-May 541.60 20-Oct 553.71 -11.2%
1993 848.54 31-Dec 537.20 13-Jan 848.54 53.2%
1994 999.46 18-Feb 801.57 20-Jan 919.95 8.4%
1995 933.32 12-May 842.31 22-Nov 877.69 -4.6%
1996 1,163.54 31-Dec 877.17 2-Jan 1,163.54 32.6%
1997 1,922.72 31-Dec 1,163.47 2-Jan 1,922.72 65.2%
1998* 3,162.51 22-Apr 1,863.70 1-Oct 1,937.83 0.79%
*Through October 6, 1998
BVL 30 Index (January 4, 1993-1000)
High Date Low Date Close
1993 1565.16 31-Dec 980.14 13-Jan 1565.16
1994 1863.53 18-Feb 1447.56 20-Jun 1699.54 8.6%
1995 1740.05 12-May 1529.44 22-Nov 1605.30 -5.5%
1996 2165.92 30-Dec 1602.81 2-Jan 2164.50 34.8%
1997 3781.31 29-Dec 2165.57 2-Jan 3757.27 73.6%
1998* 6176.89 2-Oct 3599.08 6-Oct 3747.89 0.2%
*Through October 6, 1998
Source: Lisbon Stock Exchange
Stock prices began to rise sharply in 1997 when it became likely that
Portugal might be included in the early admittance to EMU. The rise has
continued and on March 26, the day after the European Commission recommended
Portugal's inclusion in EMU, the BVL 30 was 5556.77 or 47.9% above the close of
1997. Prices have subsequently declined and the index was 3747.89 on October 6,
1998.
The Oporto Stock Exchange has recently launched the PSI-20 which is
made up of the 20 most representative Portuguese official market issues. It aims
to serve a reliable benchmark for the national equity market and to facilitate
the introduction of derivatives based on a single indicator for the equity
market.
Most Actively Traded Stocks. The ten most actively traded stocks on the
official market in 1997 are shown below. These ten stocks accounted for 73% of
trading on the official market.
No of Value of Trading
Shares
(Millions) (Mil Esc.) Mil. US$)
Portugal Telecom 100 692,198 3,948
EDP-Nominativas 140 446,148 2,545
BCP Nom. e Porta. Reg 95 312,992 1,785
CIMPOR-Cim.Port.SGPS-Nom 69 285,910 1,631
Telecel-Com.Pessoais-Nom 17 240,688 1,373
Banco Espirito Santo (BESCL)Nom Port.Reg 38 161,935 924
Sonae Invest.-SGPS 23 150,396 858
Banco Portugues de Investimento (BPI) 37 124,434 710
Banco Totta & Acores (BTA)-Nom.Port.Reg. 40 122,265 697
Jeronimo Martins & Filho-SGPS 9 91,630 523
Total of above 567 2,628,596 14,994
Grand Total 1,001 3,598,606 20,527
Percent of Grand Total 56.6% 73.0% 73.0%
Bolsa de Valores de Lisboa: Nota Informativa 1997
Price-to-earnings and price-to-book ratios and dividend yields of
Portuguese stocks in the Internal Finance Corporation's Global Indexes are as
follows:
Portugal: IFC Global Index
P/E Ratio P/BV Ratio Dividend Yield %
1987 22.6 5.4 1.3
1988 18.0 3.7 1.3
1989 19.0 3.4 1.9
1990 11.8 1.7 2.7
1991 10.9 1.3 3.7
1992 9.0 1.0 4.7
1993 18.0 1.7 2.9
1994 20.3 1.8 3.2
1995 14.8 1.4 3.3
1996 18.1 1.7 2.3
1997 22.9 3.1 1.7
July, 1998 28.8 3.6 1.8
IFC: Emerging Markets Data Base, and
Morgan Stanley Capital International,
December 1997.
Equity Market Trading. Listed securities for both exchanges are divided
into three sections. The "Market With Official Quotations" section allows for
the listing of bonds, shares and other securities which meet certain specific
requirements established by the Securities Market Commission, the most important
of which being a significantly diversified shareholding. The "Second Market"
section and the "Market Without Official Quotation" section include the
securities of issuers that do not satisfy the requirements for listing on the
Market with Official Quotations.
Prior to 1991, all shares were traded by an open-outcry procedure;
prices were fixed once or twice a day at the market-clearing price for all bids
and offers tendered. The Official Market, created in July 1991, is a nationwide
market in which most Portuguese securities having the greatest market
capitalization are listed.
In September 1991, the Continuous Trading System, designed to provide
automatic execution of orders and continuous trading through Tradis, a
computerized trading system, was introduced. As of December 31, 1995, all of the
77 equity securities listed on the "Market With Official Quotations" were traded
through the Continuous Trading System. All other securities continue to trade by
the traditional open-outcry procedure, but it is currently planned that they
will be gradually introduced to the Continuous Trading System.
The Continuous Trading System linked the Stock Exchanges prior to the
closure of the Oporto Stock Exchange. The principal feature of the Continuous
Trading System is the computerized matching of buy and sell orders based, first,
on matching sales price and, second, on the time of entry of the order. Each
order is executed as soon as a matching order is entered, but can be modified or
canceled up to execution.
From 9:00 a.m. to 10:00 a.m. on each trading day (from Monday to Friday
excluding public holidays), an opening market clearing price is established for
each security on the Continuous Trading System based on the bids and offers
outstanding.
On any trading day, such opening price may not change more than 30%
from the most recent closing price. If a security has not traded within the
immediately preceding four trading days, the opening price will be fixed by the
market without restriction. Computer matched trading then proceeds on the
Continuous Trading System from 10:00 a.m. until 4:00 p.m. During such time, each
price may not change more than 5% from the prior executed price without a
temporary suspension to reset the market-clearing price.
At present, there are no official market makers or independent
specialists in the Continuous Trading System and therefore orders to buy or sell
in excess of corresponding orders to sell or buy will not be executed.
Only selected brokers and dealers may effect stock exchange
transactions. The market is served by 12 dealers, who may buy and sell for their
own accounts and eight brokers. All trades on the Lisbon Stock Exchange,
including through the Continuous Trading System, must be placed through a
brokerage or a dealer firm. Stock prices are quoted directly in Escudos per
share. Any trading of stock listed on the Continuous Trading System that takes
place off-the-market (i.e., those shares that are not traded during the 10:00
a.m. to 4:00 p.m. trading hours referred to above) must be cleared through
financial institutions.
Pursuant to Portuguese law, dividends are paid to shareholders of
record as of the date established for payment. In order to effect such payment
by means of Portugal's book-entry clearance and settlement system, under current
practice, trading of Shares will be suspended for the four business days
preceding any such dividend payment date.
Clearing and Settlement. One of the most important aspects of the
reform of the Portuguese securities market has been the creation of the Central
de Valores Mobiliarios (the "CVM"), the Portuguese central securities
depositary, the creation of the Sistema de Liquidcao de Ambito Nacional (the
"National Clearing and Settlement System"). Both organizations are owned and
managed by Interbolsa, a non-profit organization owned by the Stock Exchange
Associations of Lisbon and Oporto. The CVM provides a system for the
registration and control of securities, including custody of certificates of
securities and registration of book-entry securities.
The National Clearing and Settlement System is currently the most
commonly used clearing and settlement system in Portugal. Under this system, the
broker inputs trade information on Tradis, the nationwide computerized trading
system. The custodian bank accepts the trade, at the latest, one day after the
date of the trade, becoming the legal party to the transaction until it settles.
At the end of the third day after the trade, the electronic book-entry for the
transfer of the securities takes place in the books of the Bank of Portugal (the
"Central Bank"). This physical settlement is provisional until financial
settlement takes place on the morning of the fourth day after the trade. The net
amount due to or from each participant's account with the Central Bank is posted
to the closing balance of the previous day. Under Portuguese law, physical and
financial settlement of a trade of a security must take place before any further
transaction with respect to such security may be effected. Accordingly, short
selling is not permitted.
Listing of Equity Securities. In order to be eligible for listing on
the Lisbon Stock Exchange--Market with Official Quotations, companies are
required to meet certain requirements.
General Requirements:
- - the company must comply with all the rules and regulations to which it is
subject, including its own memorandum and articles of incorporation;
- - the company's annual accounts for the three years preceding the listing
must have been published;
- - the company must have at least two years of activity;
- - the securities must be freely transferable, and
- - the listing must include all the securities of the same kind.
Specific requirements for shares.
- - the expected market capitalization must be at least Escudos 500 million;
- - 25% of the shares or, at least, 500,000 shares of the same category,
should be held by the public; and
- - the company must have an adequate financial and economic position.
Portuguese Exchange Rates, Exchange Control and Other Policies Affecting
Security Holders
Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Portugal in consultation
with the banks authorized to conduct foreign exchange business.
Since January 1, 1993, there have been no exchange controls imposed on
the Escudo by the Portuguese Government. In connection with certain currency
transactions, some formal requirements must be fulfilled and specific
information must be supplied, in certain cases, to the Bank of Portugal.
Foreign investors may freely invest in shares of Portuguese companies
and need no prior verification or authorization with the Portuguese authorities.
In certain cases, information reporting to the supervisory authorities is
required. Some non-European Union regulated entities, such as banks, financial
companies and insurance companies, need prior authorization from the Portuguese
authorities to operate in Portugal.
As Portuguese regulations conform with EU's second Banking Coordination
Directive (86/646) and the Investment Services Directive, N(degree)93/22/CE, any
financial institution incorporated in and authorized to conduct business in
another member state of the EU will be permitted to conduct business in
Portugal.
Monetary and Banking System. Portuguese banking and monetary policy is
administered by the Bank of Portugal, a public law entity that operates as
Portugal's autonomous central bank. Except in its performance of public
functions, the Bank of Portugal's relations with third parties is governed by
private law and its actions are subject to the civil and commercial law codes.
Among other responsibilities, the Bank of Portugal is responsible for
determining and executing monetary policy with the main purpose of attaining
price stability (not being subject to instruction from the Government),
maintaining, administering and managing foreign exchange and precious metal
reserves of Portugal, promoting stability, good performance and operation of the
financial payment system, issuing Portuguese currency, rendering treasury
services to the Portuguese treasury and rendering services related to public
debt to the State.
In addition, the Bank of Portugal exercises, general supervisory
control over all Portuguese credit institutions (including Banks) and financial
companies and may issue regulations concerning financial activities.
<PAGE>
IV. SPAIN AND PORTUGAL AND THE EUROPEAN MONETARY UNION
Both Spain and Portugal signed the Accession Treaty to the European
Union (EU) in 1985 and became full members on January 1, 1986. EU membership has
provided a framework to facilitate the implementation of structural reforms
needed to modernize their economies and provide for European integration. In
1989, the government of Spain took the Peseta into the European Monetary System
(EMS) and in 1992, the government of Portugal took the escudo into the EMS.
Structural reforms and progress in both countries on reducing inflation and
their government deficits have led to their admission to the European Monetary
Union (EMU) from its start on January 1, 1999, pursuant to the decision of the
EU Council in May of 1998.
On February 25, 1998, the government of Portugal submitted figures to
the European Commission showing that Portugal complies with the criteria for
joining EMU. The government stated that its budget deficit fell to a low of
2.45% of GDP in 1997, down from 5.8% in 1996. It also announced inflation of
1.9% and a public debt of 62% of GDP. At the same time the Spanish government
submitted figures showing that its public deficit was 2.6% of GDP, down from
4.6% in 1996 and 7.3% in 1993. Public debt, although above the objective of 60%
of GDP, had come down from 70.1% to 68.3%. Inflation was reported to have been
just over 2% in 1997, down from 4.3% in 1996.
The following tables show how interest rates in Spain and Portugal have
converged to core EU rates.
Nominal Short-Term Interest Rates
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Belgium 9.4% 8.2% 5.7% 4.7% 3.2% 3.4%
Germany 9.5% 7.2% 5.3% 4.5% 3.3% 3.3%
France 10.4% 8.6% 5.9% 6.6% 3.9% 3.5%
Netherlands 9.4% 6.9% 5.2% 4.4% 3.0% 3.3%
Portugal 16.2% 13.3% 11.1% 9.8% 7.4% 5.7%
Spain 13.3% 11.7% 8.0% 9.4% 7.5% 5.4%
Nominal Long-Term Interest Rates
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Belgium 8.6% 7.2% 7.8% 7.5% 6.5% 5.8%
Germany 8.0% 6.4% 6.9% 6.8% 6.2% 5.7%
France 8.6% 6.7% 7.3% 7.5% 6.3% 5.6%
Netherlands 8.1% 6.3% 6.9% 6.9% 6.2% 5.6%
Portugal 15.4% 9.5% 10.4% 11.5% 8.6% 6.4%
Spain 12.2% 10.1% 10.1% 11.3% 8.7% 6.4%
European Commission: European Economy, 1998 No. 65, pp. 316-9
The following tables show net borrowing of governments and gross debt
as a percent of Gross Domestic Product.
Net Lending (+) or Net Borrowing (-) of General Government as % of GDP
1992 1993 1994 1995 1996 1997 1998*
Belgium -6.9% -7.1% -4.9% -3.9% -3.2% -2.1% -1.7%
Germany -2.6% -3.2% -2.4% -3.3% -3.4% 2.7% -2.5%
France -3.9% -5.8% -5.8% -4.9% -4.1% -3.0% -2.9%
Netherlands -3.9% -3.2% -3.8% -4.0% -2.3% -1.4% -1.6%
Portugal -3.0% -6.1% -6.0% -5.7% -3.2% -2.5% -2.5%
Spain -3.8% -6.9% -6.3% -7.3% -4.6% -2.6% -2.2%
General Government Consolidated Gross Debt as Percent of GDP
1992 1993 1994 1995 1996 1997 1998*
Belgium 129.0 135.2 133.5 131.3 126.9 122.2 118.1
Germany 44.1 48.0 50.2 58.0 60.4 61.3 61.2
France 39.8 45.3 48.5 52.7 55.7 58.0 58.1
Netherlands 80.0 81.2 77.9 79.1 77.2 72.1 70.0
Portugal 60.1 63.1 63.8 65.9 65.0 62.0 60.0
Spain 48.0 60.0 62.6 65.5 70.1 68.8 67.4
*Spring 1988 European Commission's Economic Forecast
European Commission: EUROPEAN ECONOMY, 1988 no. 65, pp. 364-5,
368-9
On March 25, 1998, the European Commission reported that all 11
candidates, including Spain and Portugal, seeking admission to EMU had met the
Maastricht convergence criteria and the European Monetary Institute concurred,
although it stressed the challenges that lie ahead. The EU heads of government
and Finance Ministers decided the actual membership of the EMU, announced ERM
central rates used to fix bilateral conversion rates under EMU and nominated the
head of the European Central Bank (ECB) at meeting held on May 1-3, 1998, at
which time it was determined that Spain and Portugal will join the EMU.
There are likely to be periods of uncertainty and confusion. The loss
of an independent monetary policy under EMU may complicate government policy if
economic trends in all of the countries are not synchronized. Spain and
Portugal, countries that have had periods of high inflation, may be particularly
vulnerable.
<PAGE>
Part C - Page 9 KEMPER GLOBAL/
INTERNATIONAL SERIES, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights of the Growth Fund of Spain
Incorporated by Reference in Part B of this Registration
Statement:
The financial statements appearing in (i) the Fund's
Annual Report to Shareholders for the fiscal year
ended November 30, 1997, and (ii) its Semiannual
Report to Shareholders for the period ended May 31,
1998.
b. Exhibits:
1. (a) Articles of Incorporation dated October 1, 1997. (1)
(b) Articles of Amendment dated December 23, 1997. (2)
(c) Articles Supplementary establishing the Growth Fund
of Spain are filed herein.
2. By-Laws. (2)
3. Inapplicable.
4. Specimen Share Certificate. (2)
5. (a) Investment Management Agreement between the Registrant
on behalf of Kemper Global Blue Chip Fund and Scudder
Kemper Investments, Inc., dated December 31, 1997. (2)
(b) Investment Management Agreement between the Registrant
on behalf of Kemper International Growth and Income Fund
and Scudder Kemper Investments, Inc., dated December 31,
1997. (2)
(c) Investment Management Agreement between the Registrant
on behalf of Kemper Emerging Markets Income Fund and
Scudder Kemper Investments, Inc., dated December
31, 1997. (2)
(d) Investment Management Agreement between the Registrant
on behalf of Kemper Emerging Markets Growth Fund and
Scudder Kemper Investments, Inc., dated December
31, 1997. (2)
(e) Investment Management Agreement between the Registrant
on behalf of Kemper Latin America Fund and Scudder Kemper
Investments, Inc., dated December 31, 1997. (2)
(f) Investment Management Agreement between the Registrant
on behalf of the Growth Fund of Spain and Scudder Kemper
Investments, Inc. to be filed by amendment.
6. (a) Underwriting Agreement and Distribution Services
Agreement, between the Registrant and Kemper
Distributors, Inc., dated December 31, 1997. (2)
7. Inapplicable.
8. (a) Custodian Agreement between the Registrant and Brown
Brothers Harriman & Co., dated December 31, 1997. (2)
(b) Fee schedule for Exhibit 8(a) to be filed by amendment.
(c) Custodian Agreement between the Registrant on behalf
of the Growth Fund of Spain and Chase Manhattan Bank,
to be filed by amendment.
9. (a)(1) Agency Agreement between the Registrant on behalf
of Kemper Global Blue Chip Fund and Kemper Service
Company, dated December 31, 1997. (2)
(a)(2) Agency Agreement between the Registrant on behalf
of Kemper International Growth and Income Fund and
Kemper Service Company, dated December 31, 1997. (2)
(a)(3) Agency Agreement between the Registrant on behalf
of Kemper Emerging Markets Income Fund and Kemper
Service Company, dated December 31, 1997. (2)
(a)(4) Agency Agreement between the Registrant on behalf of
Kemper Emerging Markets Growth Fund and Kemper
Service Company, dated December 31, 1997. (2)
(a)(5) Agency Agreement between the Registrant on behalf
of Kemper Latin America Fund and Kemper Service
Company, dated December 31, 1997. (2)
(a)(6) Agency Agreement between the Registrant on
behalf of the Growth Fund of Spain and Kemper
Service Company to be filed by amendment.
(b)(1) Administrative Services Agreement between the
Registrant on behalf of Kemper Global Blue Chip
Fund and Kemper Distributors, Inc., dated December
31, 1997. (2)
(b)(2) Administrative Services Agreement between the
Registrant on behalf of Kemper International Growth
and Income Fund and Kemper Distributors, Inc.,
dated December 31, 1997. (2)
(b)(3) Administrative Services Agreement between the
Registrant on behalf of Kemper Emerging Markets
Income Fund and Kemper Distributors, Inc., dated
December 31, 1997. (2)
(b)(4) Administrative Services Agreement between the
Registrant on behalf of Kemper Emerging Markets
Growth Fund and Kemper Distributors, Inc., dated
December 31, 1997. (2)
(b)(5) Administrative Services Agreement between the
Registrant on behalf of Kemper Latin America Fund
and Kemper Distributors, Inc., dated December 31,
1997. (2)
(b)(6) Administrative Services Agreement between the
Registrant on behalf of Growth Fund of Spain and
Kemper Distributors, Inc., dated November
25, 1998, is filed herein.
(c) Fund Accounting Services Agreement between the
Registrant on behalf of Growth Fund of Spain and
Scudder Fund Accounting Corporation, dated November
25, 1998, is filed herein.
(d) Fund Accounting Services Agreement Fee
Schedule to
Fund Accounting Services Agreement between the
Registrant on behalf of Growth Fund of Spain and
Scudder Fund Accounting Corporation, dated
November 25, 1998, is filed herein.
(e) Agreement and Plan of Reorganization between the
Registrant on behalf of its Growth Fund of Spain
and The Growth Fund of Spain, Inc. will be filed by
amendment.
10. Opinion of Counsel is filed herein.
11. Consent and Report of Independent Auditors are filed herein.
12. Inapplicable.
13. Inapplicable.
14. Inapplicable.
15. (a) Rule 12b-1 Plan applicable to Class B shares of Growth
Fund of Spain is filed herein.
(b) Rule 12b-1 Plan applicable to Class C shares of Growth
Fund of Spain is filed herein.
16. Inapplicable.
17. Financial data schedules.
18. (a) Kemper Mutual Funds Multi-Distribution System Plan. (2)
(b) Powers of Attorney for Daniel Pierce, James E. Akins,
Arthur R. Gottschalk, Frederick T. Kelsey, Fred B.
Renwick, John B. Tingleff, Kathryn L. Quirk and John G.
Weithers are incorporated by reference to the Signature
Page to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.
(1) Incorporated by Reference to Registrant's Initial Registration Statement
filed on October 3, 1997.
(2) Incorporated by Reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities (as of November 11, 1998).
(1) (2)
Title of Class Number of Shareholders
Shares of capital stock
($.001 par value)
Kemper Global Blue Chip Fund
Class A 938
Class B 814
Class C 341
Kemper International Growth and Income Fund
Class A 409
Class B 577
Class C 77
Kemper Latin America Fund
Class A 114
Class B 68
Class C 35
Kemper Emerging Markets Growth Fund
Class A 182
Class B 251
Class C 99
Kemper Emerging Markets Income Fund
Class A 130
Class B 87
Class C 21
Growth Fund of Spain
Class A N/A
Class B N/A
Class C N/A
Item 27. Indemnification.
Article Tenth of Registrant's Articles of Incorporation state as
follows:
TENTH: Liability and Indemnification
To the fullest extent permitted by the Maryland General Corporation Law
and the Investment Company Act of 1940, no director or officer of the
Corporation shall be liable to the Corporation or to its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation, whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted. No amendment to these Articles of Amendment and Restatement or
repeal of any of its provisions shall limit or eliminate the benefits provided
to directors and officers under this provision with respect to any act or
omission which occurred prior to such amendment or repeal.
The Corporation, including its successors and assigns, shall indemnify
its directors and officers and make advance payment of related expenses to the
fullest extent permitted, and in accordance with the procedures required by
Maryland law, including Section 2-418 of the Maryland General Corporation Law,
as may be amended from time to time, and the Investment Company Act of 1940. The
By-laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.
The rights provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
such rights in serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Amendment and Restatement shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
Nothing in these Articles of Amendment and Restatement shall be deemed
to (i) require a waiver of compliance with any provision of the Securities Act
of 1933, as amended, or the Investment Company Act of 1940, as amended, or of
any valid rule, regulation or order of the Securities and Exchange Commission
under those Acts or (ii) protect any director or officer of the Corporation
against any liability to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of his or her duties or by reason of his or her
reckless disregard of his or her obligations and duties hereunder.
Item 28. Business or Other Connections of Investment Adviser
Scudder Kemper Investments, Inc. has stockholders and employees who
are denominated officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for the
purpose of this Item 28.
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper
Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting
Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution
Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning
Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper
Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services##
Chairman, Zurich-American Insurance Companyo
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance
Company of Switzerland##
Director, ZKI Holding Corporation xx
Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance
Company of Switzerland##
Director, Zurich Holding Company of Americao
Gunther Gose Director, Scudder Kemper Investments, Inc. **
Chief Financial Officer and Member, Group Executive Board,
Zurich Financial Services##
CEO/Branch Offices, Zurich Life Insurance Company##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper
Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance
Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company
of Americao
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer
and Secretary, Scudder Kemper Investments, Inc.**
Director, Senior Vice President & Assistant Clerk,
Scudder Investor Services, Inc.* Director, Vice
President & Secretary, Scudder Fund Accounting
Corporation* Director, Vice President & Secretary,
Scudder Realty Holdings Corporation* Director &
Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.* Vice President, Director &
Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder,
Stevens & Clark of Canada, Ltd.*** Director, Vice
President and Secretary, Scudder Canada Investor
Services Limited*** Director, Vice President and
Secretary, Scudder Realty Advisers, Inc. x Director
and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark
Overseas Corporationoo Director and Secretary, SFA,
Inc.* Director, Vice President and Secretary, Scudder
Defined Contribution Services, Inc.** Director, Vice
President and Secretary, Scudder Capital Asset
Corporation** Director, Vice President and Secretary,
Scudder Capital Stock Corporation** Director, Vice
President and Secretary, Scudder Capital Planning
Corporation** Director, Vice President and Secretary,
SS&C Investment Corporation** Director, Vice
President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV
Investment Corporation** Director, Vice President and
Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder
Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas
Corporationoo
President and Director, Scudder, Stevens & Clark
Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A.Luxembourg,
Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 29. Principal Underwriters.
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with
Registrant
William S. Baughman Vice President None
Two International Place
Boston, MA 02110
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and President
Two International Place Assistant Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior None
Two International Place Vice President
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President None
345 Park Avenue and Assistant Clerk
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, None
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Thomas F. McDonough Clerk None
Two International Place
Boston, MA 02110
James J. McGovern Chief Financial Officer
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President
Two International Place
Boston, MA 02110
Daniel Pierce Director, Vice President Chairman of the
Two International Place and Assistant Treasurer Board and Director
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Director and Vice
345 Park Avenue Chief Legal Officer and Assistant President
New York, NY 10154 Clerk
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Vice President
Two International Place Compliance Officer
Boston, MA 02110
David B. Watts Assistant Treasurer
Two International Place
Boston, MA 02110
(c)
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
Scudder Investor None None None None
Services, Inc.
Item 30. Location of Accounts and Records.
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder will be maintained by Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, NY 10154, and
Kemper Distributors, Inc., the Registrant's principal
underwriter, 222 South Riverside Plaza, Chicago, IL 60606.
Records relating to the duties of the Registrant's custodian
are maintained by Brown Brothers Harriman & Co., with respect
to all series except Growth Fund of Spain, such records being
maintained by Investors Fiduciary Trust Company, 801
Pennsylvania Avenue, Kansas City, MO 64105, and The Chase
Manhattan Bank, Chase MetroTech Center, Brooklyn, NY 11245.
Records relating to the duties of the Registrant's transfer
agent are maintained by Kemper Service Company, 811 Main
Street, Kansas City, MO 64105.
Item 31. Management Services.
Inapplicable.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Fund's
latest annual report to shareholders upon request and without
charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 2 to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 2 to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on the
25th day of November, 1998.
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
By /s/Mark S. Casady
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to its Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/Mark S. Casady
- --------------------------
Mark S. Casady President (Principal November 25, 1998
Executive Officer)
/s/Daniel Pierce
- --------------------------
Daniel Pierce* Chairman and Director November 25, 1998
/s/James E. Akins
- --------------------------
James E. Akins* Director November 25, 1998
/s/Arthur R. Gottschalk
- --------------------------
Arthur R. Gottschalk* Director November 25, 1998
/s/Frederick T. Kelsey
- --------------------------
Frederick T. Kelsey* Director November 25, 1998
/s/Fred B. Renwick
- --------------------------
Fred B. Renwick* Director November 25, 1998
/s/John B. Tingleff
- --------------------------
John B. Tingleff* Director November 25, 1998
/s/John G. Weithers
- --------------------------
John G. Weithers* Director November 25, 1998
/s/Kathryn L. Quirk
- --------------------------
Kathryn L. Quirk* Director November 25, 1998
/s/John R. Hebble
- --------------------------
- --------------------------
John R. Hebble Treasurer (Chief November 25, 1998
Financial Officer)
*By: /s/Caroline Pearson
Caroline Pearson
Attorney-in-fact pursuant to powers of
attorney filed with Post-Effective
Amendment No. 1 to Registrant's
Registration Statement and incorporated by
reference herein.
<PAGE>
File No. 811-8395
File No. 333-42337
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT No. 2
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT No. 4
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
<PAGE>
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
Exhibit Index
Exhibit 1(c)
Exhibit 9(b)(6)
Exhibit 9(c)
Exhibit 9(d)
Exhibit 10
Exhibit 11
Exhibit 15(a)
Exhibit 15(b)
Exhibit 27(a)
Exhibit 27(b)
Exhibit 1(c)
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
ARTICLES SUPPLEMENTARY
Kemper Global/International Series, Inc., a Maryland corporation (which
is hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to and in accordance with Section 2-105(c) and Section
2-208.1 of the Maryland General Corporation Law, the aggregate number of shares
of capital stock that the Corporation, which is registered as an open-end
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), has the authority to issue is hereby increased to Six Hundred
Million (600,000,000) shares, with a par value of $0.001 per share, for an
aggregate par value of Six Hundred Thousand Dollars ($600,000).
(a) Immediately prior to the increase effected by these Articles
Supplementary, the total number of Shares of all series and classes that the
Corporation had the authority to issue was Five Hundred Million (500,000,000)
shares, with a par value of $0.001 per share, for an aggregate par value of Five
Hundred Thousand Dollars ($500,000).
(b) Immediately after the increase effected by these Articles
Supplementary, the total number of shares of all series and classes that the
Corporation has the authority to issue is Six Hundred Million (600,000,000)
shares, with a par value of $0.001 per share, for an aggregate par value of Six
Hundred Thousand Dollars ($600,000).
<PAGE>
SECOND: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Fifth of the Charter of the Corporation,
the Board of Directors has duly classified the One Hundred Million (100,000,000)
shares of the capital stock of the Corporation resultant from the increase of
authorized capital effected by these Articles Supplementary as a new series of
the capital stock of the Corporation, such series being designated the "Growth
Fund of Spain." Pursuant to Article Fifth of the Charter of the Corporation, the
One Hundred Million (100,000,000) shares of the Growth Fund of Spain are further
divided into three (3) classes of shares, designated as the Class A shares, the
Class B shares and the Class C shares, with the Class A and Class B shares each
consisting of 33,333,333 shares and the Class C shares consisting of 33,333,334
shares. Prior to the increase effected by these Articles Supplementary, one
hundred million (100,000,000) shares of the capital stock were designated as the
Kemper Global Blue Chip Fund; one hundred million (100,000,000) shares of the
capital stock were designated as the Kemper International Growth and Income
Fund; one hundred million (100,000,000) shares of the capital stock were
designated as the Kemper Emerging Markets Income Fund; one hundred million
(100,000,000) shares of the capital stock were designated as the Kemper Emerging
Markets Growth Fund; and one hundred million (100,000,000) shares of the capital
stock of the Corporation were designated as the Kemper Latin America Fund. Prior
to the increase effected by these Articles Supplementary, each of the Kemper
Global Blue Chip Fund, the Kemper International Growth and Income Fund, the
Kemper Emerging Markets Income Fund, the Kemper Emerging Markets Growth Fund and
the Kemper Latin America Fund was further divided into three (3) classes of
shares, designated as the Class A shares, the Class B shares and the Class C
shares, with the Class A and Class B shares each consisting of 33,333,333 shares
and the Class C shares consisting of 33,333,334 shares.
THIRD: Except as otherwise provided by the express provisions of these
Articles Supplementary, nothing herein shall limit, by inference or otherwise,
the discretionary right of the Board of Directors of the Corporation to classify
and reclassify and issue any unissued shares of any series or class of the
Corporation's capital stock and to fix or alter all terms thereof to the full
extent permitted by the Charter of the Corporation.
FOURTH: A description of the series and classes, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions for
redemption is set forth in the Charter of the Corporation and is not changed by
these Articles Supplementary, except that six series of shares, as opposed to
five, now exist.
FIFTH: The Board of Directors of the Corporation, at a meeting duly
called and held, duly authorized and adopted resolutions increasing the
aggregate number of shares of capital stock that the Corporation has authority
to issue and classifying and designating the capital stock resultant from the
increase as set forth in these Articles Supplementary.
IN WITNESS WHEREOF, Kemper Global/International Series, Inc. has caused
these Articles Supplementary to be signed and acknowledged in its name and on
its behalf by its President and attested to by its Secretary on this 20th day of
November, 1998; and its President acknowledges that these Articles Supplementary
are the act of Kemper Global/International Series, Inc., and he further
acknowledges that, as to all matters or facts set forth herein which are
required to be verified under oath, such matters and facts are true in all
material respects to the best of his knowledge, information and belief, and that
this statement is made under the penalties for perjury.
ATTEST: KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
/s/Philip J. Collora By:/s/Mark S. Casady (SEAL)
Philip J. Collora, Mark S. Casady,
Secretary President
Exhibit 9(b)(6)
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 25th day of November, 1998 by and between KEMPER
GLOBAL/INTERNATIONAL SERIES, INC., a Maryland corporation (the "Fund"), on
behalf of GROWTH FUND OF SPAIN, a series of the Fund, and KEMPER DISTRIBUTORS,
INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to provide information and administrative
services for the benefit of the Fund and its shareholders. In this regard, KDI
shall appoint various broker-dealer firms and other service or administrative
firms ("Firms") to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide such office space
and equipment, telephone facilities, personnel or other services as may be
necessary or beneficial for providing information and services to investors in
the Fund. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund and its
special features, assistance to investors in changing dividend and investment
options, account designations and addresses, and such other administrative
services as the Fund or KDI may reasonably request. Firms may include affiliates
of KDI. KDI may also provide some of the above services for the Fund directly.
KDI accepts such appointment and agrees during such period to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. In carrying out its duties and
responsibilities hereunder, KDI will appoint various Firms to provide
administrative and other services described herein directly to or for the
benefit of investors in the Fund. Such Firms shall at all times be deemed to be
independent contractors retained by KDI and not the Fund. KDI and not the Fund
will be responsible for the payment of compensation to such Firms for such
services.
2. For the administrative services and facilities described in Section 1, the
Fund will pay to KDI at the end of each calendar month an administrative service
fee computed at an annual rate of up to 0.25 of 1% of the average daily net
assets of the Fund (except assets attributable to Class I Shares). The current
fee schedule is set forth as Appendix I hereto. The administrative service fee
will be calculated separately for each class of each series of the Fund as an
expense of each such class; provided, however, no administrative service fee
shall be payable with respect to Class I Shares. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during such month and year, respectively. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others.
The net asset value for each share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a share of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
3. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Fund or by KDI on sixty (60) days written notice to the other
party. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation described in Section
2 hereof earned prior to such termination. This Agreement may not be amended for
any class of any series of the Fund to increase the amount to be paid to KDI for
services hereunder above .25 of 1% of the average daily net assets of such class
without the vote of a majority of the outstanding voting securities of such
class. All material amendments to this Agreement must in any event be approved
by vote of the Board of the Fund.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. This Agreement shall be construed in accordance with applicable federal law
and the laws of the State of Illinois.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.,
on behalf of Growth Fund of Spain
By /s/Mark S. Casady
Title: President
KEMPER DISTRIBUTORS, INC.
By /s/James Greenawalt
Title: President
<PAGE>
APPENDIX I
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to which this
Appendix is attached, the Fund and KDI agree that the administrative service fee
will be computed at an annual rate of .25 of 1% (the "Fee Rate") based upon
assets with respect to which a Firm provides administrative services.
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.,
on behalf of GROWTH FUND OF SPAIN
By /s/Mark S. Casady
Title: President
KEMPER DISTRIBUTORS, INC.
By /s/James Greenawalt
Title: President
Dated: November 25, 1998
Exhibit 9(c)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 25th day of November, 1998, between Kemper
Global/International Series, Inc. (the "Fund"), on behalf of Growth Fund of
Spain (hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in New York, New York,
and Scudder Fund Accounting Corporation, with its principal place of business in
Boston, Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records and other
documents as are required of the Fund under Section 31 of the Investment
Company Act of 1940 (the "1940 Act") and Rules 31a-1, 31a-2 and 31a-3
thereunder, applicable federal and state laws and any other law or
administrative rules or procedures which may be applicable to the Fund on
behalf of the Portfolio, other than those accounts, books and financial
records required to be maintained by the Fund's investment adviser,
custodian or transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its business as a
registered open-end management investment company. All such books and
records shall be the property of the Fund and shall at all times during
regular business hours be open for inspection by, and shall be surrendered
promptly upon request of, duly authorized officers of the Fund. All such
books and records shall at all times during regular business hours be open
for inspection, upon request of duly authorized officers of the Fund, by
employees or agents of the Fund and employees and agents of the Securities
and Exchange Commission.
b. Record the current day's trading activity and such other proper bookkeeping
entries as are necessary for determining that day's net asset value and net
income.
c. Render statements or copies of records as from time to time are reasonably
requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public accountants
or by any other auditors employed or engaged by the Fund or by any
regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's public offering price and/or its daily dividend
rates and money market yields, if applicable, in accordance with Section 3
of the Agreement and notify the Fund and such other persons as the Fund may
reasonably request of the net asset value per share, the public offering
price and/or its daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Directors of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Directors of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on the books of
the Portfolio;
b. The source of quotations to be used for such securities as may not be
available through FUND ACCOUNTING's normal pricing services;
c. The value to be assigned to any asset for which no price quotations are
readily available;
d. If applicable, the manner of computation of the public offering price and
such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Directors.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and
shall be without liability for any action taken or thing done in good
faith in reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Directors. The Fund, on
behalf of the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices as from time
to time agreed to by an authorized officer of the Fund and FUND
ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the
appropriate person(s) within FUND ACCOUNTING a copy of the Registration
Statement as in effect from time to time. FUND ACCOUNTING may
conclusively rely on the Fund's most recently delivered Registration
Statement for all purposes under this Agreement and shall not be liable
to the Portfolio or the Fund in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its shareholders to
which FUND ACCOUNTING would otherwise be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
<PAGE>
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund or the Portfolio.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: Growth Fund of Spain
345 Park Avenue
New York, NY 10154
Attn: President, Secretary or Treasurer
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Directors.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.,
on behalf of Growth Fund of Spain
By: /s/Mark S. Casady
President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/John R. Hebble
Title: Vice President
Exhibit 9(d)
Scudder Fund Accounting Corp.
Fund Accounting Fee Schedule
Kemper Global/International Series, Inc.
Fund Accounting Service - Maintain and preserve accounts, books, records and
other documents as are required of the Fund under Section 31 of the Investment
Company Act of 1940 and Rules 31a-1 and 31a-2. Record the current day's trading
activity and such other proper bookkeeping entries as are necessary for
determining that day's net asset value. Calculate net asset value.
I. Annual Fees
International Equity Funds
Fund Net Assets Annual Fee
First $150 Million 6.50 Basis Points
Next $850 Million 4.00 Basis Points
Excess - Over $1 Billion 2.00 Basis Points
A minimum monthly fee of $4,167 will be applied.
International Fixed Income Funds
Fund Net Assets Annual Fee
First $150 Million 8.00 Basis Points
Next $850 Million 6.00 Basis Points
Excess - Over $1 Billion 4.00 Basis Points
A minimum monthly fee of $4,167 will be applied.
II. Multiple Class Portfolios
For any class in excess of one each portfolio will incur a 33%
surcharge on the annual fee.
III. Holdings Charge
For each issue maintained - monthly charge: $ 7.50
IV. Portfolio Trades
Money Market Instruments $ 5.00
Domestic Fixed Income Securities $12.50
Domestic Equity Securities $12.50
Options, Futures and Forward Contracts $25.00
Foreign Equity and Fixed Income Securities $25.00
Foreign Currency Options and Futures Contracts $35.00
Foreign Options and Futures Contracts $35.00
V. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made at the end of each month. Out-of-pocket expenses include:
telephone, courier or delivery service, legal fees, fees for pricing
services and all other reasonable out-of-pocket expenses.
Kemper Global/International Series, Inc. Scudder Fund Accounting Corp.
By: /s/Mark S. Casady By: /s/John R. Hebble
Title: President Title: Vice President
Date: November 25, 1998 Date: November 25, 1998
Exhibit 10
November 25, 1998
Kemper Global/International Series, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
We have acted as special Maryland counsel to Kemper
Global/International Series, Inc. ("Kemper"), a corporation organized under the
laws of the State of Maryland on October 2, 1997. Kemper is authorized to issue
Six Hundred Million (600,000,000) shares of capital stock (each a "Share" and
collectively, the "Shares"), one-tenth of one cent ($0.001) par value per Share,
which have been classified into six series (each a "Series" and collectively,
the "Series") of One Hundred Million (100,000,000) Shares each. The designations
of the six Series are as follows: (1) Kemper Global Blue Chip Fund; (2) Kemper
International Growth and Income Fund; (3) Kemper Emerging Markets Income Fund;
(4) Kemper Emerging Markets Growth Fund; (5) Kemper Latin America Fund and (6)
Growth Fund of Spain.
Each Series is further classified into three classes of Shares (each a
"Class" and collectively, the "Classes"), designated as the Class A Shares, the
Class B Shares and the Class C Shares, respectively, with the Class A and Class
B Shares of each Series consisting of 33,333,333 Shares and the Class C Shares
of each Series consisting of 33,333,334 Shares.
We understand that you are about to file with the Securities and
Exchange Commission, on Form N-1A, Post Effective Amendment No. 2 to Kemper's
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), and Amendment No. 4 to Kemper's Registration Statement under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
(collectively, the "Registration Statement"), for the purpose of registering,
under the Securities Act and the Investment Company Act, the Class A, Class B
and Class C Shares of the Growth Fund of Spain. We understand that our opinion
is required to be filed as an exhibit to the Registration Statement.
In rendering the opinions set forth below, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of the
following documents:
(i) the Registration Statement;
(ii) the Charter and Bylaws of Kemper;
(iii) a certificate of Kemper regarding, among other things, certain
actions by Kemper in connection with the authorization of the issuance of Class
A, Class B and Class C Shares of the Growth Fund of Spain (the "Certificate");
(iv) a certificate of the Maryland State Department of Assessments and
Taxation dated November 24, 1998 to the effect that the Kemper is duly
incorporated and existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of Maryland (the
"Good Standing Certificate"); and
(v) such other documents and matters as we have deemed necessary and
appropriate to render this opinion, subject to the limitations, assumptions, and
qualifications contained herein.
As to any facts or questions of fact material to the opinions expressed
herein, we have relied exclusively upon the aforesaid documents and
certificates, and representations and declarations of the officers or other
representatives of Kemper. We have made no independent investigation whatsoever
as to such factual matters.
In reaching the opinions set forth below, we have assumed, without
independent investigation or inquiry, that:
(a) all documents submitted to us as originals are authentic; all
documents submitted to us as certified or photostatic copies conform to the
original documents; all signatures on all documents submitted to us for
examination are genuine; and all documents and public records reviewed are
accurate and complete;
(b) all representations, warranties, certifications and statements
with respect to matters of fact and other factual information (i) made by public
officers; or (ii) made by officers or representatives of Kemper, including
certifications made in the Certificate, are accurate, true, correct and complete
in all material respects; and
(c) at no time prior to and including the date when all of the Shares
of each Class of the Growth Fund of Spain are issued will (i) Kemper's Charter,
Bylaws or the existing corporate authorization to issue such Shares be amended,
repealed or revoked; (ii) the total number of the issued Class A or Class B
Shares of any Series exceed 33,333,333; (iii) the total number of the issued
Class C Shares of any Series exceed 33,333,334; or (iv) the net asset value per
Share of any Class of any Series be less than one-tenth of one cent ($0.001) per
Share.
Based on our review of the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that, as of the date of this
letter:
1. Kemper is a corporation duly organized, validly existing and, based
solely on the Good Standing Certificate, in good standing under the laws of the
State of Maryland.
2. The issuance and sale of the Class A, Class B and Class C Shares of
the Growth Fund of Spain have been duly and validly authorized by all necessary
corporate action on the part of Kemper.
3. When issued and sold to the public as described in the Registration
Statement, the Class A, Class B and Class C Shares of the Growth Fund of Spain
will be legally and validly issued, fully paid and non-assessable.
In addition to the qualifications set forth above, the opinions set
forth herein are also subject to the following qualifications:
We express no opinion as to compliance with the Securities Act, the
Investment Company Act or the securities laws of any state with respect to the
issuance of Shares of any Class of the Growth Fund of Spain. The opinions
expressed herein concern only the effect of the laws (excluding the principles
of conflict of laws) of the State of Maryland as currently in effect. We assume
no obligation to supplement this opinion if any applicable laws change after the
date hereof, or if we become aware of any facts that might change the opinions
expressed herein after the date hereof.
We consent to your filing this opinion with the Securities and Exchange
Commission in connection with the Registration Statement.
Sincerely yours,
/s/ Ober, Kaler, Grimes & Shriver,
a Professional Corporation
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights," "Independent Auditors and Reports to Shareholders," and "Financial
Statements" and to the incorporation by reference of our report dated January
20, 1998 for the Growth Fund of Spain (formerly, The Growth Fund of Spain, Inc.)
in the Registration Statement (Form N-1A) of Kemper Global/International Series,
Inc., and in the related prospectus and statement of additional information
filed with the Securities and Exchange Commission in this Post-Effective
Amendment No. 2 to the Registration Statement under the Securities Act of 1933
(File No. 333-42337) and in this Amendment No. 4 to the Registration Statement
under the Investment Company Act of 1940 (File No. 811-8395).
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
November 25, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
The Growth Fund of Spain, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Growth Fund of Spain, Inc. as of November
30, 1997, and the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal periods since 1990. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Growth Fund of Spain, Inc. at November 30, 1997, the results of its operations
for the year then ended, the changes in it net assets for each of the two years
in the period then ended, and the financial highlights for each of the fiscal
periods since 1990, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
Exhibit 15(a)
Fund: Kemper Global/International Series, Inc. (the "Fund")
Series: Growth Fund of Spain (the "Series")
Class: Class B (the "Class")
Rule 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Rule 12b-1 Plan (the "Plan") has been adopted for
the Fund, on behalf of the Series, for the Class (all as noted and defined
above) by a majority of the members of the Fund's Board (the "Board"), including
a majority of the Board members who are not "interested persons" of the Fund and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreements related to the Plan (the "Qualified Board Members") at a
meeting called for the purpose of voting on this Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("KDI")
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
Exhibit 15(b)
Fund: Kemper Global/International Series, Inc. (the "Fund")
Series: Growth Fund of Spain (the "Series")
Class: Class C (the "Class")
RULE 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Rule 12b-1 Plan (the "Plan") has been adopted for
the Fund, on behalf of the Series, for the Class (all as noted and defined
above) by a majority of the members of the Fund's Board (the "Board"), including
a majority of the Board members who are not "interested persons" of the Fund and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreements related to the Plan (the "Qualified Board Members") at a
meeting called for the purpose of voting on this Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("KDI")
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services fee shall be in addition
to and shall not be reduced or offset by the amount of any contingent deferred
sales charge received by KDI.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997
ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 194,489
<INVESTMENTS-AT-VALUE> 302,990
<RECEIVABLES> 1,035
<ASSETS-OTHER> 15,213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 319,238
<PAYABLE-FOR-SECURITIES> 3,876
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<ACCUMULATED-NII-CURRENT> 1,625
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 107,959
<NET-ASSETS> 315,059
<DIVIDEND-INCOME> 6,410
<INTEREST-INCOME> 723
<OTHER-INCOME> 0
<EXPENSES-NET> (3,463)
<NET-INVESTMENT-INCOME> 3,670
<REALIZED-GAINS-CURRENT> 20,740
<APPREC-INCREASE-CURRENT> 47,441
<NET-CHANGE-FROM-OPS> 71,851
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,854)
<DISTRIBUTIONS-OF-GAINS> (13,931)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (310)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 51,124
<ACCUMULATED-NII-PRIOR> 2,654
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 3,463
<AVERAGE-NET-ASSETS> 284,263
<PER-SHARE-NAV-BEGIN> 15.67
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> 4.15
<PER-SHARE-DIVIDEND> (.17)
<PER-SHARE-DISTRIBUTIONS> (.83)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.06
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1998
SEMIANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 188,412
<INVESTMENTS-AT-VALUE> 386,813
<RECEIVABLES> 1,162
<ASSETS-OTHER> 4,542
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 392,517
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 456
<TOTAL-LIABILITIES> 456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 183,418
<SHARES-COMMON-STOCK> 16,530
<SHARES-COMMON-PRIOR> 16,530
<ACCUMULATED-NII-CURRENT> 788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,465
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 198,390
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<DIVIDEND-INCOME> 2,961
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<EXPENSES-NET> (2,125)
<NET-INVESTMENT-INCOME> 982
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<APPREC-INCREASE-CURRENT> 90,431
<NET-CHANGE-FROM-OPS> 101,302
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,819)
<DISTRIBUTIONS-OF-GAINS> (22,481)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 77,002
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<AVERAGE-NET-ASSETS> 348,762
<PER-SHARE-NAV-BEGIN> 19.06
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 6.07
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (1.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.72
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
