[LOGO] KEMPER FUNDS
Kemper Global and International Funds
PROSPECTUS March 1, 1999
KEMPER GLOBAL AND INTERNATIONAL FUNDS
222 South Riverside Plaza, Chicago, Illinois 60606 (800) 621-1048
This prospectus describes a choice of funds managed by Scudder Kemper
Investments, Inc.
Global Discovery Fund
Growth Fund Of Spain
Kemper Asian Growth Fund
Kemper Emerging Markets Growth Fund
Kemper Emerging Markets Income Fund
Kemper Europe Fund
Kemper Global Blue Chip Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Growth and Income Fund
Kemper Latin America Fund
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
FOREIGN INVESTING
INVESTMENT APPROACH
The funds described in this prospectus invest primarily in non-U.S. issuers.
Each fund has its own investment objective, investment strategy and risk
profile.
PRINCIPAL RISK FACTORS
There are market and investment risks with any security and the value of an
investment in the funds will fluctuate over time and it is possible to lose
money invested in the funds.
Stock Market. Each stock fund's returns and net asset value will go up and down.
Stock market movements will affect the funds' share prices on a daily basis.
Declines in value are possible both in the overall stock market and in the types
of securities held by the funds.
Bond Market. When interest rates rise, the price of bonds typically falls in
proportion to their duration. It is also possible that bonds in the fund's
portfolio could be downgraded in credit rating or go into default.
Duration, a measurement based on the estimated pay-back period or duration of a
bond (or portfolio of bonds), is the most widely used gauge of sensitivity to
interest rate change. Like maturity, duration is expressed in years. The longer
a fund's duration, the more sharply its share price is likely to rise or fall
when interest rates change.
Portfolio Strategy. The portfolio managers' skill in choosing appropriate
investments for the funds will determine in large part the funds' ability to
achieve their respective investment objectives.
Foreign Securities. Foreign investments, particularly investments in emerging
markets, carry added risks due to inadequate or inaccurate financial information
about companies, potential political disturbances and fluctuations in currency
exchange rates.
2 Global Investing
<PAGE>
ABOUT THE FUNDS
GROWTH FUND OF SPAIN
INVESTMENT OBJECTIVE
Growth Fund Of Spain seeks long-term capital appreciation. Unless otherwise
indicated, the fund's investment objective and policies are fundamental and
cannot be changed without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its objective by investing primarily in equity
securities of Spanish companies. A company is deemed to be Spanish if it is:
o organized under the laws of Spain; or
o traded in the Spanish securities markets and doing business in Spain.
Under normal market conditions, at least 65% of the fund's total assets will be
invested in equity securities of Spanish companies. The fund may 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. The fund
may invest up to 35% of its total assets in investment-grade fixed income
securities denominated in Pesetas or U.S. dollars.
As an operating policy the investment manager intends to evaluate investment
opportunities throughout the Iberian Peninsula (i.e., Spain and Portugal). As a
matter of non-fundamental policy, the fund may invest up to 35% of its total
assets in equity securities of companies other than Spanish companies, and may
focus 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.
In selecting its investments, the fund will look for companies with (i) strong
and sustainable earnings growth, (ii) solid management and (iii) reasonable
stock market valuations.
A stock is typically sold when, in the opinion of the portfolio manager, (i) the
stock has reached its fair market value, (ii) a company's fundamentals have
deteriorated and (iii) the fund's portfolio is too heavily weighted in a
particular industry or sector.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Growth Fund Of Spain 3
<PAGE>
Other investments
To a more limited extent, the fund may, but is not required to, utilize other
investments and investment techniques that may impact fund performance,
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their value from other securities or commodities, or
that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of derivatives could magnify losses.
For temporary defensive purposes, 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. In such a case, the fund would not be
pursuing, and may not achieve, its investment objective. The fund may also at
any time invest funds in U.S. dollar-denominated money market instruments as
reserves for expenses and dividends and other distributions to shareholders.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The securities markets of Spain and Portugal have substantially less volume than
the securities markets of the U.S. 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 U.S.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The fund is the successor entity to The Growth Fund of Spain, Inc., a closed-end
fund whose shares were exchanged for Class A shares of the fund in connection
with a reorganization transaction completed on December 11, 1998. The
information provided in the chart is for The Growth Fund of Spain, Inc. through
December 11, 1998 and for the fund's Class A shares thereafter, and does not
reflect sales charges, which reduce return. Open-end funds generally have higher
expenses than closed-end funds and, accordingly, the fund expects that
4 Growth Fund Of Spain
<PAGE>
its expense ratio will be higher than that of its predecessor. Expenses
adversely affect performance.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1991................. 15.82%
1992................. -23.48%
1993................. 28.79%
1994................. 2.26%
1995................. 22.11%
1996................. 31.12%
1997................. 19.47%
1998................. 49.85%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 32.17% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -21.84% (the third quarter of 1992).
Average Annual Total Returns
For periods ended
December 31, 1998 Class A[ Class B Class C IBEX 35 Index
- ----------------- ------- ------- ------- -------------
One Year 41.21% -- -- 47.47%
Five Years 22.52% -- -- 25.23%
Ten Years -- -- -- --
Since Class
Inception* 13.19% 3.22%** 6.44%** ***
- -----------
[ The information provided is for The Growth Fund of Spain, Inc. through
December 11, 1998 and for the fund's Class A shares thereafter, and
assumes deduction of the Class A sales charge.
* Inception date for Class A shares is 2/14/90, which was the inception date
for the fund's predecessor, The Growth Fund of Spain, Inc. and for Class B
and C shares is 12/14/98.
** Aggregate returns.
*** Index return for the life of each class: 14.82% (2/14/90) for Class A
shares, and 4.65% (12/14/98) for Class B and C shares.
The IBEX 35 Index is a capitalization-weighted index of the 35 most liquid
Spanish stocks traded on the continuous markets. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees,
expenses or sales charges.
Growth Fund Of Spain 5
<PAGE>
Fee and Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transaction
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Buying shares and Choosing a share class -- Special features
sections of this prospectus.
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) 2.00%* 2.00%* 2.00%*
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets**
- --------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.10% 1.35% 1.30%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.85% 2.85% 2.80%
- --------------------------------------------------------------------------------
* A 2% redemption fee, which is retained by the fund, is imposed upon
redemptions or exchanges of shares held less than one year, with limited
exceptions. See "Redemption Fee."
** The fund was reorganized from a closed-end fund to an open-end fund in
December 1998. The fees and expenses of open-end funds are, in many cases,
higher than those of closed-end funds. Accordingly, the expense ratios
shown above are estimated, based on the fund's current fee schedule and
expenses incurred by the fund during its most recent fiscal year, for the
fund's current fiscal year ending on October 31, 1999. 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.
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
6 Growth Fund of Spain
<PAGE>
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold your shares after:
Class A Class B Class C
------- ------- -------
1 Year $941 $888 $583
3 Years $1,123 $1,183 $868
5 Years $1,518 $1,704 $1,479
10 Years $2,619 $2,719 $3,128
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $752 $288 $283
3 Years $1,123 $883 $868
5 Years $1,518 $1,504 $1,479
10 Years $2,619 $2,719 $3,128
Growth Fund Of Spain 7
<PAGE>
KEMPER ASIAN GROWTH FUND
INVESTMENT OBJECTIVE
Kemper Asian Growth Fund seeks long-term capital growth. Unless otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing in a diversified
portfolio consisting primarily of equity securities of Asian companies.
Under normal circumstances the fund will invest at least 85% of its total assets
in equity securities of Asian companies. The fund considers an issuer of
securities to be an Asian company if:
o the company is organized under the laws of an Asian country and has a
principal office in an Asian country;
o the company derives 50% or more of its total revenues from business in
Asia; or
o the company's equity securities are traded principally on a stock exchange
in Asia.
Furthermore, the fund will invest at least 65% of its total assets in securities
of Asian companies which satisfy at least one of the first two criteria
described above.
The fund invests principally in developing or emerging countries. The fund may
invest without limit in emerging Asian countries, such as China, Indonesia,
Korea, Malaysia, Philippines, Thailand and Taiwan. The fund may also invest
without limit in developed Asian countries, such as Japan and Singapore.
However, the fund will only invest in Japan when economic conditions warrant,
and then only in limited amounts. From time to time, the fund may have 40% or
more of its total assets invested in any major Asian industrial or developed
country.
The fund's investment manager determines the appropriate distribution of
investments among various Asian countries and geographic regions by considering
numerous factors, including the following, among other things:
o prospects for relative economic growth of Asian countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to investors in
Asian companies.
In selecting its investments, the fund will look for companies with (i)
identifiable market niches, (ii) clean balance sheets and (iii) strong
valuations.
8 Kemper Asian Growth Fund
<PAGE>
A stock is typically sold when, in the opinion of the portfolio manager, (i) the
stock has reached its fair market value, (ii) a company's fundamentals have
deteriorated and (iii) the fund's portfolio is too heavily weighted in a
particular industry or sector.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in other types of securities including, but not limited to,
equity securities of non-Asian companies, bonds, notes, and other debt
securities of domestic or foreign companies and obligations of domestic or
foreign governments and their political subdivisions. The fund does not
currently intend to invest more than 5% of its net assets in debt securities.
The fund considers Asian equity securities to include shares of closed-end
management investment companies, the assets of which are invested primarily in
equity securities of Asian companies and depository receipts where the
underlying or deposited securities are equity securities of Asian companies.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests primarily in one geographic region. Common economic forces and
other factors may affect investments in a single region, even though a number of
different countries within a region may be represented within the fund. Factors
affecting Asian investments may present a greater risk to the fund than
investments in a more geographically diversified fund.
Kemper Asian Growth Fund 9
<PAGE>
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1997................. -34.60%
1998................. -19.02%
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 19.46% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -33.05% (the second quarter of 1998).
Average Annual Total Returns
MSCI All Country
For periods ended Asia Free
December 31, 1998 Class A Class B Class C Ex-Japan Index
- ----------------- ------- ------- ------- --------------
One Year -23.70% -22.37% -20.06% -4.82%
Five Years -- -- -- --
Ten Years -- -- -- --
Since Class
Inception** -25.10% -24.90% -23.77% *
- -----------
* Index returns for the life of each class: -26.49% (11/30/96) for Class A,
B, and C, respectively.
** Inception date for Class A, B and C shares is 10/21/96.
10 Kemper Asian Growth Fund
<PAGE>
The Morgan Stanley Capital International All Country Asia Free Ex-Japan Index is
a capitalized weighted index that is representative of the equity securities for
the following countries: Hong Kong, Indonesia, Korea (at 20%), Malaysia,
Philippines free, Singapore free and Thailand. Index returns assume reinvestment
of dividends and unlike the fund's returns, do not reflect any fees, expenses,
or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.85% 0.85% 0.85%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.80% 2.69% 2.96%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.65% 4.29% 4.56%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended November 30, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.80%, Class B shares to 2.78%, and Class C shares to 2.71%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. As a result, for the fiscal year ended November 30, 1998,
"Total Annual Fund Operating Expenses" were reduced by 0.85%, 1.51% and 1.85%
for Class A, Class B and Class C and actual total
Kemper Asian Growth Fund 11
<PAGE>
annual fund operating expenses were 1.80% for Class A, 2.78% for Class B and
2.71% for Class C.
Total Annual Fund Operating Expenses are currently limited to 1.85% for Class A
shares, 2.79% for Class B shares, and 3.25% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary to
current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. It is estimated that Total Annual
Fund Operating Expenses, without the effect of any waiver or reimbursement, will
be 3.23% for Class A shares, 4.11% for Class B shares and 6.30% for Class C
shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $828 $831 $557
3 Years $1,351 $1,601 $1,377
5 Years $1,899 $2,383 $2,305
10 Years $3,387 $3,788 $4,662
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $828 $431 $457
3 Years $1,351 $1,301 $1,377
5 Years $1,899 $2,183 $2,305
10 Years $3,387 $3,788 $4,662
12 Kemper Asian Growth Fund
<PAGE>
KEMPER EMERGING MARKETS GROWTH FUND
INVESTMENT OBJECTIVE
Kemper Emerging Markets Growth Fund seeks long-term growth of capital. Unless
otherwise indicated, the fund's investment objective and policies may be changed
without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective through equity investment in
emerging markets around the globe. Normally, at least 65% of the fund's total
assets will be invested in the equity securities of emerging market issuers.
The investment manager takes a top-down approach to evaluating investments for
the fund, using extensive fundamental and field research. The process begins
with a study of the economic fundamentals of each country and region, as well as
an examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the investment manager to identify industries and companies that
the investment manager believes are most likely to benefit from the political,
social and economic changes taking place in a given region of the world.
Within a market, the investment manager looks for, among other things,
individual companies with exceptional business prospects, which may be due to
market dominance, unique franchises, high growth potential, or innovative
services, products or technologies. The investment manager seeks to identify
companies with favorable potential for appreciation through growing earnings or
greater market recognition over time. While these companies may be among the
largest in their local markets, they may be small by the standards of U.S. stock
market capitalization.
A stock is typically sold when, in the opinion of the portfolio manager (i) the
stock has reached it fair market value and its appreciation is limited, (ii) a
company's fundamentals have deteriorated, (iii) the fund's portfolio is too
heavily weighted in a particular industry or sector, and (iv) country risk
outweighs probable return.
The fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the following: the International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.
The investment manager may pursue investment opportunities in Asia, Africa,
Latin America, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The fund deems an issuer to be located in an emerging market
if:
o the issuer is organized under the laws of an emerging market country;
o the issuer's principal securities trading market is in an emerging market;
or
Kemper Emerging Markets Growth Fund 13
<PAGE>
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is
derived (directly or indirectly through subsidiaries) from assets or
activities located in emerging markets.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest up to 35% of its total assets in emerging market and
domestic debt securities which may be below investment-grade or unrated if the
investment manager determines that capital appreciation of debt securities is
likely to equal or exceed the capital appreciation of equity securities.
Under normal market conditions, the fund may invest up to 35% of its total
assets in equity securities of issuers in the U.S. and other developed markets.
The fund may invest in closed-end investment companies investing primarily in
the emerging markets. Such closed-end company investments will generally only be
made when market access or liquidity considerations restricts direct investment
in the market.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may hold, without limit, debt
instruments, as well as cash and cash equivalents, including foreign and
domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements. In such a case, the fund would not be
pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
14 Kemper Emerging Markets Growth Fund
<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 21.13% 22.06% 22.03%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 22.38% 24.06% 24.03%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 2.28%, Class B shares to 3.18%, and Class C shares to 3.15%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.35% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 20.10%, 20.88% and 20.88% for Class A, Class B and
Class C and actual total annual fund operating expenses were 2.28% for Class A,
3.18% for Class B and 3.15% for Class C.
Total Annual Fund Operating Expenses are currently limited to 2.19% for Class A
shares, 3.06% for Class B shares, and 3.03% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary
Kemper Emerging Markets Growth Fund 15
<PAGE>
to current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. The investment manager has agreed
to continue to waive 0.35% of its management fee until December 31, 1999. It is
estimated that Total Annual Fund Operating Expenses, without the effect of any
waiver or reimbursement, will be 17.82% for Class A shares, 19.05% for Class B
shares and 17.48% for Class C shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $2,501 $2,577 $2,274
3 Years $5,407 $5,665 $5,360
5 Years $7,391 $7,653 $7,449
10 Years $10,014 $9,914 $10,042
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $2,501 $2,177 $2,174
3 Years $5,407 $5,365 $5,360
5 Years $7,391 $7,453 $7,449
10 Years $10,014 $9,914 $10,042
16 Kemper Emerging Markets Growth Fund
<PAGE>
KEMPER EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVES
Kemper Emerging Markets Income Fund has dual investment objectives. The fund's
primary investment objective is to provide investors with high current income.
As a secondary investment objective, the fund seeks long-term capital
appreciation. Unless otherwise indicated, the fund's investment objectives and
policies may be changed without a vote of shareholders.
Main investment strategies
In pursuing its investment objectives, the fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets.
The fund can invest entirely in high yield/high risk bonds (also called "junk"
bonds). The fund invests in lower quality securities of emerging market issuers,
some of which have defaulted in the past on certain of their financial
obligations. The fund's weighted average maturity may vary from period to
period.
In seeking high current income and, secondarily, long-term capital appreciation,
the fund invests, under normal market conditions, at least 65% of its total
assets in debt securities issued by governments, government-related entities and
corporations in emerging markets, or in debt securities, the return on which is
derived primarily from emerging markets.
The fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the following: the International
Bank for Reconstruction and Development (i.e., the World Bank), the
International Finance Corporation or the United Nations or its authorities.
The investment manager may pursue investment opportunities in Asia, Africa,
Latin America, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The fund deems an issuer to be located in an emerging market
if:
o The issuer is organized under the laws of an emerging market country;
o The issuer's principal securities trading market is in an emerging market;
or
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is
derived (directly or indirectly from subsidiaries) from assets or
activities located in emerging markets.
The portfolio manager seeks to buy securities of companies with good credit,
strong fundamentals and strong valuations, and conversely, to sell securities
which cannot meet these criteria.
In an attempt to reduce or eliminate currency risk, the debt securities in which
the fund invests are exclusively U.S. dollar-denominated debt securities, or
foreign currency denominated debt securities that are fully hedged back into the
U.S. dollar.
Kemper Emerging Markets Income Fund 17
<PAGE>
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but not required to, invest in the
following:
The fund may invest up to 35% of its total assets in securities other than debt
obligations issued in emerging markets. These holdings include debt securities
and money market instruments issued by corporations and governments based in
developed markets.
The fund may invest up to 20% of its total assets in U.S. fixed income
instruments which may be below investment-grade.
The fund may acquire shares of closed-end investment companies that invest
primarily in emerging market debt securities.
The fund is authorized to borrow from banks and other entities in an amount
equal to up to 20% of the fund's total assets (including the amount borrowed),
less all liabilities and indebtedness other than the borrowing, and may use
proceeds of the borrowings for investment purposes. Borrowing creates leverage,
which is a speculative characteristic.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
The fund will not commit more than 40% of its total assets to issuers in a
single country.
For temporary defensive purposes, the fund may invest without limit in U.S. debt
securities, including short-term money market securities. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
18 Kemper Emerging Markets Income Fund
<PAGE>
Main risks
The fund's principal risks are associated with investing in the bond market, the
investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests in emerging securities markets that may have substantially less
volume and are subject to less government supervision than U.S. securities
markets. Securities of many issuers in emerging markets may be less liquid and
more volatile than securities of comparable domestic issuers. In addition, there
is less regulation of securities exchanges, securities dealers, and listed and
unlisted companies in emerging markets than in the U.S.
Emerging markets have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Certain emerging markets require prior
governmental approval of the type and/or amount of investments by foreign
persons.
Issuers whose bonds are below investment-grade may be in impaired financial
condition and may be affected by stock market shifts. The prices of their bonds,
therefore, tend to change based on stock market movements to a greater degree
than investment-grade bond prices.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Kemper Emerging Markets Income Fund 19
<PAGE>
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1998................. -36.38%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 10.31% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -38.46% (the second quarter of 1998).
Average Annual Total Returns
For periods ended JP Morgan
December 31, 1998 Class A Class B Class C EMBI+ Index
- ----------------- ------- ------- ------- -----------
One Year* -39.20% -38.78% -36.96% -14.35%
Five Years -- -- -- --
Ten Years -- -- -- --
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
The unmanaged JP Morgan Emerging Markets Bond Index Plus (EMBI+) tracks total
returns for traded external debt instruments in the emerging markets. Included
in the index are U.S. dollar and other external-currency-denominated Brady
bonds, loans, Eurobonds, and local market instruments. Index returns assume
reinvestment of dividends and unlike the fund's returns, do not reflect any
fees, expenses or sales charges.
Fee and Expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
20 Kemper Emerging Markets Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 4.5% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 4.12% 5.00% 4.97%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 5.12% 6.75% 6.72%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.68%, Class B shares to 2.56%, and Class C shares to 2.53%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.70% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 3.44%, 4.19% and 4.19% for Class A, Class B and Class
C and actual total annual fund operating expenses were 1.68% for Class A, 2.56%
for Class B and 2.53% for Class C.
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further that such reimbursement may be discontinued
at any time. The investment manager has agreed to continue to waive 0.70% of its
management fee until December 31, 1999. It is estimated that Total Annual Fund
Operating Expenses, without the effect of any waiver or reimbursement, will be
4.71% for Class A shares, 4.49% for Class B shares and 4.94% for Class C shares.
Kemper Emerging Markets Income Fund 21
<PAGE>
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $939 $1,069 $766
3 Years $1,914 $2,272 $1,964
5 Years $2,887 $3,430 $3,218
10 Years $5,310 $5,622 $6,170
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $939 $669 $666
3 Years $1,914 $1,972 $1,964
5 Years $2,887 $3,230 $3,218
10 Years $5,310 $5,622 $6,170
22 Kemper Emerging Markets Income Fund
<PAGE>
KEMPER EUROPE FUND
INVESTMENT OBJECTIVE
Kemper Europe Fund seeks long-term capital growth. Unless otherwise indicated,
the fund's investment objective and policies may be changed without a vote of
shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing in a diversified
portfolio consisting primarily of equity securities of European companies.
Under normal circumstances the fund will invest at least 85% of its total assets
in securities of European companies. The fund considers an issuer of securities
to be a European company if:
o the company is organized under the laws of a European country and has a
principal office in a European country;
o the company derives 50% or more of its total revenues from business in
Europe; or
o the company's equity securities are traded principally on a stock exchange
in Europe.
Furthermore, the fund will invest at least 65% of its total assets in securities
of European companies which satisfy at least one of the first two criteria
described above.
The fund invests principally in developed countries, but may invest up to 25% of
its total assets in developing or "emerging" countries. Currently, the developed
European countries in which the fund may invest without limit include Austria,
France, Germany, the Netherlands, Switzerland, Spain, Italy, Luxembourg, United
Kingdom, Ireland, Belgium, Denmark, Sweden, Norway and Finland. The fund may
invest without limit in other European countries in the future if they become
developed countries. From time to time, the fund may have 25% or more of its
total assets invested in any major European industrial or developed country.
The fund's investment manager determines the appropriate distribution of
investments among various European countries and geographic regions by
considering numerous factors, including the following, among other things:
o prospects for relative economic growth of European countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to investors in
European companies.
Kemper Europe Fund 23
<PAGE>
In selecting its investments, the fund will look for companies with (i) strong
earnings growth, (ii) clean balance sheets, (iii) strong management and (iv)
increasing revenue.
A stock is typically sold when, in the opinion of the portfolio manager, (i) the
stock has reached a predetermined value, (ii) the company's fundamentals have
deteriorated, and (iii) the company deviates from a previously demonstrated
business plan.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in other types of securities including, but not limited to,
equity securities of non-European companies, bonds, notes, and other debt
securities of domestic or foreign companies and obligations of domestic or
foreign governments and their political subdivisions.
The fund considers European equity securities to include shares of closed-end
management investment companies, the assets of which are invested primarily in
equity securities of European companies and depository receipts where the
underlying or deposited securities are equity securities of European companies.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests primarily in one geographic region. Common economic forces and
other factors may affect investments in a single region, even though a
24 Kemper Europe Fund
<PAGE>
number of different countries within a region may be represented within the
fund. Factors affecting European investments may present a greater risk to the
fund than investments in a more geographically diversified fund.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1997................. 15.87%
1998................. 19.96%
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 18.12% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -15.94% ( the third quarter of 1998).
Average Annual Total Returns
For periods ended FT/S&P World Europe
December 31, 1998 Class A Class B Class C Index
- ----------------- ------- ------- ------- -----
One Year 13.10% 15.63% 19.26% 27.55%
Five Years -- -- -- --
Ten Years -- -- -- --
Since Class
Inception** 17.39% 18.07% 19.19% *
- -----------
* Index returns for the life of each class: 25.92% (4/30/96) for Class A, B,
and C shares, respectively.
** Inception date for the Class A, B and C shares is 5/1/96.
Kemper Europe Fund 25
<PAGE>
The Financial Times/Standard & Poor's Actuaries World Index - Europe is an
unmanaged index that is generally representative of the equity securities of
European Markets. Index returns assume reinvestment of dividends and unlike the
fund's returns, do not reflect any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.53% 2.92% 1.39%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.28% 4.42% 2.89%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended November 30, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.53%, Class B shares to 2.67%, and Class C shares to 2.08%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. As a result, for the fiscal year ended November 30, 1998,
"Total Annual Fund Operating Expenses" were reduced by 0.75%, 1.75% and 0.81%
for Class A, Class B and Class C and actual total annual fund operating expenses
were 1.53% for Class A, 2.67% for Class B and 2.08% for Class C.
26 Kemper Europe Fund
<PAGE>
Total Annual Fund Operating Expenses are currently limited to 1.75% for Class A
shares, 2.65% for Class B shares, and 2.62% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary to
current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. It is estimated that Total Annual
Fund Operating Expenses, without the effect of any waiver or reimbursement, will
be 1.73% for Class A shares, 3.27% for Class B shares and 2.38% for Class C
shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $793 $843 $392
3 Years $1,246 $1,638 $895
5 Years $1,725 $2,442 $1,523
10 Years $3,040 $3,695 $3,214
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $793 $443 $292
3 Years $1,246 $1,338 $895
5 Years $1,725 $2,242 $1,523
10 Years $3,040 $3,695 $3,214
Kemper Europe Fund 27
<PAGE>
Proposed reorganization
The Board of Trustees of the Kemper Europe Fund has agreed in principle to
propose to shareholders that the Fund be reorganized into the Scudder New Europe
Fund, Inc. In connection with the reorganization, the Scudder New Europe Fund,
which is currently a closed-end investment company, will be converted to an
open-end investment company (mutual fund). After the reorganization, it is
expected that the Scudder New Europe Fund will change its name to the Kemper
Europe Fund, Inc. and will become a part of the Kemper family of funds.
The reorganization is expected to occur during the third quarter of 1999 and is
subject to a number of conditions, including final approval by the board and
approval by shareholders of each fund.
28 Kemper Europe Fund
<PAGE>
KEMPER GLOBAL BLUE CHIP FUND
INVESTMENT OBJECTIVE
Kemper Global Blue Chip Fund seeks long-term growth of capital. Unless otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
Main investment strategies
The fund will pursue its investment objective through a diversified worldwide
portfolio of marketable securities, primarily equity securities, including
common stock, preferred stocks and debt securities convertible into common
stocks.
The fund will emphasize investments in common stocks of large, well known
companies. Companies of this general type are often referred to as "blue chip"
companies. "Blue Chip" companies are generally identified by their:
o substantial capitalization;
o established history of earnings and dividends;
o easy access to credit;
o good industry position; and
o superior management structure.
Global "blue chip" companies are believed to generally exhibit less investment
risk and less price volatility, on average, than companies lacking these
characteristics, such as smaller, less seasoned companies. In addition, the
large market of publicly held shares for such companies and the generally high
trading volume in those shares usually results in a relatively high degree of
liquidity for such investments.
In general, the fund will seek to invest in companies that the investment
manager believes will benefit from global economic trends, promising
technologies or products and specific country opportunities resulting from
changing geopolitical, currency or economic relationships. The fund will also
invest in companies which possess attractive valuations.
A stock is typically sold when, in the opinion of the portfolio manager, (i) it
no longer has favorable fundamentals or valuations and (ii) it is not expected
to benefit from long-term changes in the global economy.
The fund will invest primarily in developed markets. The fund may be invested
100% in non-U.S. issues, although under normal circumstances, it is expected
that both foreign and U.S. investments will be represented in the fund's
portfolio.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Kemper Global Blue Chip Fund 29
<PAGE>
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest up to 15% of its total assets in debt or equity securities
of developing or emerging markets. The fund may invest in closed-end investment
companies that invest primarily in emerging market debt securities.
The fund may invest in securities traded over-the-counter. The fund may invest
in high-quality debt securities with credit ratings of Aaa/AAA through Baa/BBB
(and their unrated equivalents) of U.S. and foreign issuers. The fund may also
invest up to 5% of its total assets in debt securities rated Baa/BBB or below
(and their unrated equivalents), often referred to as "junk" bonds of U.S. and
foreign issuers.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in U.S. issues, high-grade debt securities, cash and cash equivalents. In such a
case, the fund would not be pursuing, and may not achieve, its investment
objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Convertible debt securities in which the fund may invest are subject to some of
the same interest rate risk as bonds; that is, their prices tend to drop when
interest rates rise.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
30 Kemper Global Blue Chip Fund
<PAGE>
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1998................. 13.79%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 10.32% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -8.00% (the third quarter of 1998).
Average Annual Total Returns
For periods ended
December 31, 1998 Class A Class B Class C MSCI World Index
- ----------------- ------- ------- ------- ----------------
One Year* 7.24% 9.63% 12.84% 24.80%
Five Years -- -- -- --
Ten Years -- -- -- --
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
The MSCI (Morgan Stanley Capital International) World Index measures performance
of a range of developed country general stock markets, including the United
States, Canada, Europe, Australia, New Zealand and the Far East. Index returns
assume reinvestment of dividends and unlike the fund's returns, do not reflect
any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper Global Blue Chip Fund 31
<PAGE>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 5.06% 5.94% 5.91%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 6.06% 7.69% 7.66%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.80%, Class B shares to 2.68%, and Class C shares to 2.65%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.15% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 4.26%, 5.01% and 5.01% for Class A, Class B and Class
C and actual total annual fund operating expenses were 1.80% for Class A, 2.68%
for Class B and 2.65% for Class C.
32 Kemper Global Blue Chip Fund
<PAGE>
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further, that such reimbursement may be discontinued
at any time. The investment manager has agreed to continue to waive 0.15% of its
management fee until December 31, 1999. It is estimated that Total Annual Fund
Operating Expenses, without the effect of any waiver or reimbursement, will be
3.63% for Class A shares, 4.53% for Class B shares and 5.81% for Class C shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $1,143 $1,159 $856
3 Years $2,261 $2,515 $2,208
5 Years $3,356 $3,795 $3,583
10 Years $5,993 $6,207 $6,715
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $1,143 $759 $756
3 Years $2,261 $2,215 $2,208
5 Years $3,356 $3,595 $3,583
10 Years $5,993 $6,207 $6,715
Kemper Global Blue Chip Fund 33
<PAGE>
KEMPER GLOBAL DISCOVERY FUND*
* Kemper Global Discovery Fund refers to the Kemper shares of Global
Discovery Fund which are offered through this prospectus.
INVESTMENT OBJECTIVE
The fund seeks above-average capital appreciation over the long term. Unless
otherwise indicated, the fund's investment objective and strategies may be
changed without a vote of shareholders.
Main investment strategies
The fund invests primarily in a diversified portfolio of equity securities of
small rapidly growing companies throughout the world that the fund's management
believes offer the potential for above-average returns relative to large
companies, yet are frequently overlooked, and thus, undervalued by the market.
Under normal circumstances the fund invests at least 65% of its total assets in
the equity securities of small companies. These companies are similar in size to
the smallest 20% of world market capitalization as represented by the Salomon
Brothers Broad Market Index - typically these companies have a market value of
between approximately $50 million and $2 billion. However, the fund may invest
in companies with smaller market values. Under current market conditions, the
median market capitalizations of the companies in which the fund invests is not
expected to exceed $750 million.
The fund may invest in any region of the world. It can invest in the securities
of companies based in emerging markets, typically in the Far East, Latin America
and lesser developed countries in Europe, as well as in companies operating in
developed economies, such as some of those of the United States, Japan and
Western Europe. The fund intends to allocate investments among at least three
countries at all times, one of which may be the United States.
The fund's investment manager determines which securities to invest in by
evaluating potential investments from both a macroeconomic and microeconomic
perspective, using fundamental analysis, including field research. The fund's
investment manager determines which securities to sell using the same criteria.
In evaluating the growth potential and relative value of a possible investment,
the investment manager considers many factors, including, among other things:
o the depth and quality of management;
o a company's product line, business strategy and competitive position;
o research and development efforts;
o financial strength, including degree of leverage;
o cost structure;
o revenue and earnings growth potential;
o price-to-earnings ratios and other stock valuation measures; and
o the attractiveness of the country and region in which a company is
located.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
34 Global Discovery Fund
<PAGE>
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest up to 35% of its total assets in (i) equity securities of
larger companies located throughout the world and in (ii) debt securities if the
fund's investment adviser determines that the capital appreciation of debt
securities is likely to exceed the capital appreciation of equity securities.
The fund may purchase investment-grade bonds, those rated Aaa, Aa, A, Baa/AAA,
AA, A, BBB. The fund may also invest up to 5% of its net assets in debt
securities rated below investment-grade.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest, without limit, in cash
and cash equivalents. In such a case, the fund would not be pursuing, and may
not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities, primarily global small company stocks. You will find a discussion of
these risks under "Foreign Investing" at the front of this prospectus.
In pursuit of higher investment returns, this fund may incur greater risks and
more dramatic fluctuations in value than a fund that invests in stocks of larger
companies. The inherent business characteristics and risks of small companies
include such things as untested management, key personnel with varying degrees
of experience, less diversified product lines and weaker financial positions.
Also, small companies tend to have less predictable earnings and less liquid
securities than more established companies.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. Because
Classes A, B and C commenced operations during the course of 1998, the
performance information set forth below is for Class S shares. It does not
reflect sales charges, which reduce return.
Global Discovery Fund 35
<PAGE>
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1992................. -0.07%
1993................. 38.18%
1994................. -7.68%
1995................. 17.84%
1996................. 21.47%
1997................. 9.93%
1998................. 16.43%
The fund currently offers four classes of shares. This prospectus sets forth
information about classes A, B and C. The original class of shares is designated
as Class S, and is not offered in this prospectus. All share classes invest in
the same underlying portfolio of securities and have the same management team.
Because of different fees and expenses, performance of share classes will
differ. Otherwise, the share classes will have substantially similar returns.
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 20.25% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -16.62% (the third quarter of 1998).
Average annual total returns
Salomon Brothers
For periods ended Global World Equity
December 31, 1998 Discovery Fund Extended Market Index
- ----------------- -------------- ---------------------
One Year 16.43% 20.57%
Five Years 11.08% 15.94%
Since Inception (9/10/91) 12.83% 14.05%*
* Index comparison begins August 30, 1991.
The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization index made up of holdings selected from a 22 country universe.
Index returns assume reinvestment of dividends and, unlike fund returns, do not
reflect any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
36 Global Discovery Fund
<PAGE>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.10% 1.10% 1.10%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 1.10% 1.28% 1.38%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.20% 3.13% 3.23%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.95%, Class B shares to 2.83%, and Class C shares to 2.80%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. As a result, for the fiscal year ended October 31, 1998,
"Total Annual Fund Operating Expenses" were reduced by 0.25%, 0.30% and 0.43%
for Class A, Class B and Class C and actual total annual fund operating expenses
were 1.95% for Class A, 2.83% for Class B and 2.80% for Class C.
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further, that such reimbursement may be discontinued
at any time. It is estimated that Total Annual Fund Operating Expenses, without
the effect of any waiver or reimbursement, will be 2.07% for Class A shares,
2.81% for Class B shares and 2.75% for Class C shares.
Global Discovery Fund 37
<PAGE>
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $785 $716 $426
3 Years $1,224 $1,266 $995
5 Years $1,687 $1,840 $1,688
10 Years $2,963 $3,007 $3,531
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $785 $316 $326
3 Years $1,224 $966 $995
5 Years $1,687 $1,640 $1,688
10 Years $2,963 $3,007 $3,531
38 Global Discovery Fund
<PAGE>
KEMPER GLOBAL INCOME FUND
INVESTMENT OBJECTIVE
Kemper Global Income Fund seeks to provide high current income consistent with
prudent total return asset management. Unless otherwise indicated, the fund's
investment objective and policies may be changed without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing primarily in
investment grade foreign and domestic fixed income securities. In managing the
fund's portfolio to provide a high level of current income, the investment
manager also seeks to protect net asset value and to provide investors with a
total return, which is measured by changes in net asset value as well as income
earned. The fund's weighted average maturity may vary from period to period.
The fund may invest in securities issued by any issuer and in any currency and
may hold foreign currency. Under normal market conditions, the fund will invest
at least 65% of its assets in the securities of issuers located in at least
three countries, one of which may be the United States. It is currently
anticipated that the fund's assets will be invested principally within
Australia, Canada, Japan, New Zealand, the United States, and Western Europe,
and in securities denominated in the currencies of these countries or
denominated in multinational currency units, such as the Euro.
In managing the fund's portfolio in an effort to reduce volatility and increase
returns, the fund may allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its investment objective based upon the following:
o relative interest rates among currencies;
o the outlook for changes in these interest rates; and
o anticipated changes in worldwide exchange rates.
In considering these factors, a country's economic and political state,
including such factors as inflation rate, growth prospects, global trade
patterns and government policies, will be evaluated.
The fund will buy and sell its investments on the basis of, among other things,
various economic fundamentals, including inflation rates, interest rates and
exchange rates.
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Kemper Global Income Fund 39
<PAGE>
Other investments
To a more limited extent, the fund may, but is not required to, utilize other
investments and investment techniques that may impact fund performance,
including, but not limited to, options, futures and other derivatives (financial
instruments that derive their value from other securities or commodities, or
that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in high-grade debt securities, cash and cash equivalents. In such a case, the
fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the bond market, the
investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance. Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
40 Kemper Global Income Fund
<PAGE>
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1990................. 22.66%
1991................. 11.13%
1992................. -1.90%
1993................. 10.23%
1994................. -1.47%
1995................. 19.89%
1996................. 5.87%
1997................. 1.80%
1998................. 10.48%
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 11.23% (the first quarter of 1995), and the fund's lowest
return for a calendar quarter was -4.32% (the first quarter of 1992).
Average Annual Total Returns
For periods ended SB World Government
December 31, 1998 Class A Class B Class C Bond Index
- ----------------- ------- ------- ------- ----------
One Year 5.56% 6.56% 9.72% 6.92%
Five Years 6.08% -- -- 7.34%
Ten Years -- -- -- --
Since Class
Inception** 8.21% 7.49% 7.93% *
- -----------
* Index returns for the life of each class: 9.57% (10/1/89) for Class A
shares and 8.77% (5/31/94) for B, and C shares.
** Inception dates for Class A, B, and C shares are 10/1/89, 5/31/94 and
5/31/94, respectively.
The Salomon Smith Barney World Government Bond Index is an unmanaged index
comprised of government bonds from eighteen countries (United States, Japan,
United Kingdom, Germany, France, Canada, the Netherlands, Australia,
Switzerland, Denmark, Austria, Belgium, Finland, Ireland, Italy, Portugal, Spain
and Sweden) with maturities greater than one year. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees,
expenses or sales charges.
Fee and Expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
Kemper Global Income Fund 41
<PAGE>
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 4.5% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.83% 0.82% 0.63%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.58% 2.32% 2.13%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $603 $635 $316
3 Years $926 $1,024 $667
5 Years $1,272 $1,440 $1,144
10 Years $2,244 $2,302 $2,462
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $603 $235 $216
3 Years $926 $724 $667
5 Years $1,272 $1,240 $1,144
10 Years $2,244 $2,302 $2,462
42 Kemper Global Income Fund
<PAGE>
KEMPER INTERNATIONAL FUND
INVESTMENT OBJECTIVE
Kemper International Fund seeks total return, a combination of capital growth
and income. Unless otherwise indicated, the fund's investment objective and
policies may be changed without a vote of shareholders.
Main investment strategies
In pursuing its investment objective, the fund invests primarily in common
stocks of established non-U.S. companies believed to have potential for capital
growth, income or both.
There is no limitation on the percentage or amount of the fund's assets that may
be invested in growth or income, and therefore at any particular time the
investment emphasis may be placed solely or primarily on growth of capital or on
income. In determining whether the fund will be invested for capital growth or
income, the investment manager analyzes the international equity and fixed
income markets and seeks to assess the degree of risk and level of return that
can be expected from each market.
The fund invests primarily in non-U.S. issuers, and under normal circumstances
more than 80% of the fund's total assets will be invested in non-U.S. issuers.
From time to time, the fund may have more than 25% of its assets invested in any
major industrial or developed country which in the view of the investment
manager poses no unique investment risk.
In determining the appropriate distribution of investments among various
countries and geographic regions, the investment manager ordinarily considers
the following factors, among other things:
o prospects for relative economic growth among foreign countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to the
international investor.
In selecting its investments, the fund will look for companies with (i) strong
earnings growth, (ii) clean balance sheets, (iii) strong management and (iv)
increasing revenue. The fund will also look for previously unmanaged companies
which are undergoing a turnaround as a result of new management, product focus
or balance sheet restructuring.
A stock is typically sold when the stock (i) has reached a predetermined value,
(ii) the company's fundamentals have deteriorated, and (iii) the company
deviates from a previously demonstrated business plan.
Kemper International Fund 43
<PAGE>
Because the fund may engage in active and frequent trading of portfolio
securities, the fund may have higher transaction costs which would lower the
fund's performance over time. In addition, shareholders may incur taxes on any
realized capital gains.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in debt securities that can be converted into common stocks,
also known as convertibles. The fund may also invest in debt securities,
preferred stocks, bonds, notes and other debt securities of companies and
futures contracts.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in U.S. Government obligations or securities of companies incorporated in and
having their principal activities in the United States. In such cases, the fund
would not be pursuing, and may not achieve, its investment objective.
The fund may also establish and maintain reserves for defensive purposes and to
enable the fund to take advantage of buying opportunities. The fund's reserves
may be invested in domestic as well as foreign short-term money market
instruments.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund expects to trade securities actively. This strategy could increase
transaction costs and reduce performance.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
44 Kemper International Fund
<PAGE>
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1989................. 18.57%
1990................. -7.50%
1991................. 9.13%
1992................. -4.79%
1993................. 35.65%
1994................. -4.00%
1995................. 12.96%
1996................. 17.05%
1997................. 9.00%
1998................. 7.88%
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was 14.53% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -17.89% (the third quarter of 1998).
Average Annual Total Returns
For periods ended
December 31, 1998 Class A Class B Class C MSCI EAFE Index
- ----------------- ------- ------- ------- ---------------
One Year 1.65% 4.05% 6.79% 20.33%
Five Years 7.07% -- -- 9.50%
Ten Years 8.08% -- -- 5.85%
Since Class
Inception** 11.92% 8.29% 8.63% *
- -----------
* Index returns for the life of each class: 14.02% (5/31/81) for Class A
shares and 8.71% (5/31/94) for Class B and C shares.
** Inception date for the Class A shares is 5/21/81 and Class B and C shares
is 5/31/94.
The EAFE Index (Morgan Stanley Capital International Europe, Austral-Asia, Far
East Index) is a generally accepted benchmark for performance of major overseas
markets. Index returns assume reinvestment of dividends and, unlike fund
returns, do not reflect any fees, expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper International Fund 45
<PAGE>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 0.73% 0.73% 0.73%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 0.91% 1.14% 1.07%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.64% 2.62% 2.55%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $732 $665 $358
3 Years $1,063 $1,114 $794
5 Years $1,415 $1,590 $1,355
10 Years $2,407 $2,496 $2,885
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $732 $265 $258
3 Years $1,063 $814 $794
5 Years $1,415 $1,390 $1,355
10 Years $2,407 $2,496 $2,885
46 Kemper International Fund
<PAGE>
KEMPER INTERNATIONAL GROWTH AND INCOME FUND
INVESTMENT OBJECTIVE
Kemper International Growth and Income Fund seeks long-term growth of capital
and current income. Unless otherwise indicated, the fund's investment objective
and policies may be changed without a vote of shareholders.
Main investment strategies
The fund seeks to achieve its investment objective by investing primarily in
foreign equity securities. The fund invests generally in common stocks of
established companies listed on foreign exchanges, which offer prospects for
growth of earnings while paying relatively high current dividends.
At least 80% of the fund's net assets will normally be invested in the equity
securities of established non-U.S. companies. The fund focuses its investments
on the developed foreign countries included in the Morgan Stanley Capital
International World ex-US Index.
Stocks are selected for the fund using a disciplined, multi-part investment
approach with four stages as follows:
o Stage 1: The investment manager analyzes the pool of dividend-paying
foreign securities, primarily from the world's more mature markets,
targeting stocks that have high relative yields compared to the average
for their markets.
o Stage 2: The investment manager identifies what it believes are the most
promising stocks for the fund's portfolio.
o Stage 3: The investment manager diversifies the fund's portfolio among
different industry sectors.
o Stage 4: The investment manager diversifies the fund's portfolio among
different countries.
A stock is typically sold when a company's dividend yield reaches a
predetermined level versus the market yield. A stock is also sold when, in the
opinion of the portfolio manager, a company's financial situation begins to
deteriorate, especially through the assumption of large amounts of debt.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Kemper International Growth and Income Fund 47
<PAGE>
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
Under normal conditions, the fund may also invest up to 20% of its net assets in
debt securities convertible into common stock and fixed income securities of
governments, governmental agencies, supranational agencies and private issuers
when the investment manager believes the potential for appreciation and income
will equal or exceed that available from investments in equity securities. These
securities will predominantly be "investment grade" securities which are those
rated Aaa/AAA through Baa/BBB (and their unrated equivalents).
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash and
cash equivalents which may include domestic and foreign money market
instruments, short-term government and corporate obligations and repurchase
agreements. The fund may also hold up to 20% of its net assets in the U.S. and
foreign fixed income securities for temporary defensive purposes. In such cases,
the fund would not be pursuing, and may not achieve, its investment objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
48 Kemper International Growth and Income Fund
<PAGE>
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1998................. 8.94%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 14.21% (the first quarter of 1998), and the fund's lowest
return for a calendar quarter was -16.55% (the third quarter of 1998).
Average Annual Total Returns
For periods ended MSCI EAFE+Canada
December 31, 1998 Class A Class B Class C Index
- ----------------- ------- ------- ------- -----
One Year* 2.67% 5.03% 8.04% 19.11%
Five Years -- -- -- --
Ten Years -- -- -- --
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
The Morgan Stanley Capital International World+Canada Index is an unmanaged
index of global stock markets, excluding the U.S. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees,
expenses or sales charges.
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
Kemper International Growth and Income Fund 49
<PAGE>
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 12.58% 13.46% 13.43%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 13.58% 15.21% 15.18%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 1.81%, Class B shares to 2.69%, and Class C shares to 2.66%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.30% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 11.77%, 12.52% and 12.52% for Class A, Class B and
Class C and actual total annual fund operating expenses were 1.81% for Class A,
2.69% for Class B and 2.66% for Class C.
50 Kemper International Growth and Income Fund
<PAGE>
Total Annual Fund Operating Expenses are currently limited at the same level as
for the fiscal year ended October 31, 1998; provided, however transfer agency
fees and related out-of-pocket expenses are not subject to this reimbursement.
Therefore, if transfer agency fees and related out-of-pocket expenses were to
exceed the limits upon Total Operating Expenses for a particular class during
the period of the reimbursement (contrary to current estimates), such expenses
would be charged to the class in the actual amount incurred and Total Annual
Fund Operating Expenses for the class would exceed the limits described above
during the period. Provided further, that such reimbursement may be discontinued
at any time. The investment manager has agreed to continue to waive 0.30% of its
management fee until December 31, 1999. It is estimated that Total Annual Fund
Operating Expenses, without the effect of any waiver or reimbursement, will be
13.43% for Class A shares, 14.49% for Class B shares and 14.27% for Class C
shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $1,800 $1,843 $1,541
3 Years $3,944 $4,203 $3,897
5 Years $5,735 $6,086 $5,879
10 Years $9,031 $9,043 $9,316
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $1,800 $1,443 $1,441
3 Years $3,944 $3,903 $3,897
5 Years $5,735 $5,886 $5,879
10 Years $9,031 $9,043 $9,316
Kemper International Growth and Income Fund 51
<PAGE>
KEMPER LATIN AMERICA FUND
INVESTMENT OBJECTIVE
Kemper Latin America Fund seeks long-term capital appreciation. Unless otherwise
indicated, the fund's investment objective and policies may be changed without a
vote of shareholders.
Main investment strategies
The fund pursues its investment objective by investing at least 65% of its total
assets in Latin American equity securities. Latin America is defined as Mexico,
Central America, South America and the islands of the Caribbean.
The fund defines securities of Latin American issuers as follows:
o securities of companies organized under the laws of a Latin American
country or for which the principal trading market is in Latin America;
o securities issued or guaranteed by the government of a Latin American
country, its agencies or instrumentalities, political subdivisions or the
central bank of such country;
o securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents assets or
activities located in Latin America; or
o securities of Latin American issuers, as defined above, in the form of
depositary shares.
In managing its portfolio, the investment manager seeks out investment
opportunities created from changing economic and political trends in Latin
America. These trends are supported by governmental initiatives designed to
promote freer trade and market-oriented economies. The investment manager
believes that active management, based on disciplined fundamental research, will
yield promising investment opportunities for long-term capital appreciation.
In selecting companies for investment, the investment manager typically
evaluates, among other things, industry trends, a company's financial strength,
its competitive position in domestic and export markets, technology, recent
developments and profitability, together with overall growth prospects. Other
considerations generally include quality and depth of management, governmental
regulation, and availability and cost of labor and raw materials.
A stock is typically sold when, in the opinion of the portfolio manager, the
stock no longer falls within certain valuation parameters.
Presently, the fund expects to focus its investments in Argentina, Brazil,
Chile, Colombia, Mexico and Peru. However, the fund may invest in other
countries in Latin America when the investment manager deems it appropriate.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
52 Kemper Latin America Fund
<PAGE>
Other investments
To a more limited extent, the fund may, but is not required to, invest in the
following:
The fund may invest in debt securities when the investment manager determines
that the capital appreciation of debt securities is likely to equal or exceed
that of equity securities. The fund may also invest in debt securities which are
rated below investment grade (commonly referred to as "junk bonds").
In addition, the fund may invest up to 35% of its total assets in the equity
securities of U.S. and other non-Latin American issuers. In evaluating non-Latin
American investments, the investment manager generally seeks investments where
an issuer's Latin American business activities and the impact of developments in
Latin America may have a positive and significant effect on the issuer's
business results.
The fund may invest in closed-end investment companies investing primarily in
Latin America.
The fund may utilize other investments and investment techniques that may impact
fund performance, including, but not limited to, options, futures and other
derivatives (financial instruments that derive their value from other securities
or commodities, or that are based on indices).
Risk management strategies
The fund may, but is not required to, use certain derivatives in an attempt to
manage risk. The use of certain derivatives could magnify losses.
For temporary defensive purposes, the fund may invest without limit in cash or
cash equivalents and money market instruments, or invest all or a portion of its
assets in securities of U.S. or other non-Latin American issuers. In such a
case, the fund would not be pursuing, and may not achieve, its investment
objective.
Main risks
The fund's principal risks are associated with investing in the stock market,
the investment manager's skill in managing the fund's portfolio and foreign
securities. You will find a discussion of these risks under "Foreign Investing"
at the front of this prospectus.
The fund invests primarily in one geographic region. Common economic forces and
other factors may affect investments in a single region, even though a number of
different countries within a region may be represented within the fund. Factors
affecting Latin American investments may present a greater risk to the fund than
investments in a more geographically diversified fund.
Because the fund is non-diversified, the fund may invest a relatively high
percentage of its assets in a limited number of issuers. Accordingly, the fund's
investment returns are more likely to be impacted by changes in the market value
and returns of any one portfolio holding.
Kemper Latin America Fund 53
<PAGE>
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance.
The information provided in the chart is for Class A shares, and does not
reflect sales charges, which reduce return.
Total returns for years ended December 31
[The following table was originally a bar chart in the printed materials.]
1998................. -24.32%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.14% (the fourth quarter of 1998), and the fund's lowest
return for a calendar quarter was -19.35% (the third quarter of 1998).
Average Annual Total Returns
IFC Latin America
For periods ended Investable
December 31, 1998 Class A Class B Class C Return Index
- ----------------- ------- ------- ------- ------------
One Year* -28.68% -27.20% -25.05% -38.10%
Five Years -- -- -- --
Ten Years -- -- -- --
- -----------
* Inception date for Class A, B and C shares is 12/31/97.
The IFC Latin America Investable Return Index is prepared by the International
Finance Corporation. It is an unmanaged, market capitalization-weighted
representation of stock performance in seven Latin American markets, and
measures the returns of stocks that are legally and practically available to
investors. Index returns assume reinvestment of dividends and, unlike fund
returns, do not reflect any fees, expenses or sales charges.
54 Kemper Latin America Fund
<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund. Each class of
shares has a different set of transaction fees, which will vary based on the
length of time you hold shares in the fund and the amount of your investment.
You will find details about fee discounts and waivers in the Buying shares and
Choosing a share class -- Special features sections of this prospectus.
- --------------------------------------------------------------------------------
Shareholder fees: Fees paid directly from your investment.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as % of
offering price) 5.75% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of redemption proceeds) None(1) 4% 1%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends/Distributions None None None
- --------------------------------------------------------------------------------
Redemption Fee (as % of amount
redeemed, if applicable) None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Annual fund operating expenses: Expenses that are deducted from fund assets.
- --------------------------------------------------------------------------------
Management Fee 1.25% 1.25% 1.25%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other Expenses 11.50% 12.38% 12.34%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 12.75% 14.38% 14.34%
- --------------------------------------------------------------------------------
(1) 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% if redeemed within one year of purchase and 0.50% if
redeemed during the second year of purchase.
For the fiscal year ended October 31, 1998, Scudder Kemper Investments, Inc.
agreed to reimburse temporarily certain operating expenses to the extent
necessary to limit the fund's "Total Annual Fund Operating Expenses" of Class A
shares to 2.21%, Class B shares to 3.09%, and Class C shares to 3.06%; provided,
however transfer agency fees and related out-of-pocket expenses were not subject
to this reimbursement. In addition, for the fiscal year ended October 31, 1998,
the investment manager agreed to waive 0.35% of its management fee. As a result,
for the fiscal year ended October 31, 1998, "Total Annual Fund Operating
Expenses" were reduced by 10.54%, 11.29% and 11.28% for Class A, Class B and
Class C and actual total annual fund operating expenses were 2.21% for Class A,
3.09% for Class B and 3.06% for Class C.
Kemper Latin America Fund 55
<PAGE>
Total Annual Fund Operating Expenses are currently limited to 2.19% for Class A
shares, 3.07% for Class B shares, and 3.04% for Class C shares; provided,
however transfer agency fees and related out-of-pocket expenses are not subject
to this reimbursement. Therefore, if transfer agency fees and related
out-of-pocket expenses were to exceed the limits upon Total Operating Expenses
for a particular class during the period of the reimbursement (contrary to
current estimates), such expenses would be charged to the class in the actual
amount incurred and Total Annual Fund Operating Expenses for the class would
exceed the limits described above during the period. Provided further, that such
reimbursement may be discontinued at any time. The investment manager has agreed
to continue to waive 0.35% of its management fee until December 31, 1999. It is
estimated that Total Annual Fund Operating Expenses, without the effect of any
waiver or reimbursement, will be 9.28% for Class A shares, 10.36% for Class B
shares and 11.02% for Class C shares.
The information contained in the above table and the example below reflects the
expenses of the fund without taking into account any applicable fee waivers
and/or reimbursements.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $1,730 $1,771 $1,467
3 Years $3,779 $4,038 $3,730
5 Years $5,522 $5,882 $5,672
10 Years $8,827 $8,856 $9,146
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $1,730 $1,371 $1,367
3 Years $3,779 $3,738 $3,730
5 Years $5,522 $5,682 $5,672
10 Years $8,827 $8,856 $9,146
56 Kemper Latin America Fund
<PAGE>
INVESTMENT MANAGER
Each fund retains the investment management firm of Scudder Kemper Investments,
Inc., 345 Park Avenue, New York, New York, to manage its daily
investment and business affairs subject to the policies established by the
funds' Boards. Scudder Kemper Investments, Inc. actively manages the funds'
investments. Professional management can be an important advantage for investors
who do not have the time or expertise to invest directly in individual
securities. Scudder Kemper Investments, Inc. is one of the largest and most
experienced investment management organizations worldwide, managing more than
$280 billion in assets globally for mutual fund investors, retirement and
pension plans, institutional and corporate clients, and private family and
individual accounts.
Each fund pays the investment manager a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are shown below:
As a % of average
daily net assets
----------------
Growth Fund Of Spain 0.75%
Kemper Asian Growth Fund 0.85%
Kemper Emerging Markets Growth Fund* 1.25%
Kemper Emerging Markets Income Fund* 1.00%
Kemper Europe Fund 0.75%
Kemper Global Blue Chip Fund* 1.00%
Global Discovery Fund 1.10%
Kemper Global Income Fund 0.75%
Kemper International Fund 0.73%
Kemper International Growth and Income Fund* 1.00%
Kemper Latin America Fund* 1.25%
- ----------
* The investment manager has agreed to waive 0.15%, 0.30%, 0.70%, 0.35%, and
0.35% of its management fee until December 31, 1999 for Kemper Global Blue
Chip Fund, Kemper International Growth and Income Fund, Kemper Emerging
Markets Income Fund, Kemper Emerging Markets Growth Fund and Kemper Latin
America Fund, respectively.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-adviser for Kemper Europe Fund,
Kemper Global Income Fund, and Kemper International Fund. Scudder Investments
(U.K.) Limited has served as sub-adviser for mutual funds since December, 1996
and investment adviser for certain institutional accounts since August, 1998.
Investment Manager 57
<PAGE>
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of each fund's portfolio as allocated to
Scudder Investments (U.K.) Limited by Scudder Kemper Investments, Inc. from
time-to-time for management, including services related to foreign securities,
foreign currency transactions and related investments.
For its services, Scudder Investments (U.K.) Limited will receive from Scudder
Kemper Investments, Inc. a monthly fee at the annual rate of 0.30% for Kemper
Global Income Fund and 0.35% for each of Kemper Europe Fund and Kemper
International Fund of the portion of the average daily net assets of each fund
allocated by the investment manager to the sub-adviser for management.
PORTFOLIO MANAGEMENT
The following investment professionals are associated with the funds as
indicated:
Growth Fund Of Spain
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Joan R. Gregory 1998 Joined Scudder Kemper in 1992.
Lead Manager She is a member of the firm's
Global Equity Group and is on
the portfolio management teams
for other affiliated
international mutual funds. She
began her investment career in
1989. Prior to joining Scudder
Kemper, she worked in the
international investment
department at a bank.
Nicholas Bratt 1998 Joined Scudder Kemper in 1976 as
Manager a portfolio manager. Since then
he has served as portfolio
manager for other affiliated
international mutual funds and
has over 20 years of
international investment
experience. He is Head of the
firm's Global Equity Group,
responsible for the strategic
direction of the firm's equity
management business.
- --------------------------------------------------------------------------------
58 Investment Manager
<PAGE>
Kemper Asian Growth Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Theresa Gusman 1998 Joined Scudder Kemper in 1992 as an
Lead Manager equity analyst responsible for
China, Hong Kong, Indonesia and
Taiwan. She then joined the Pacific
Basin portfolio management team in
1996. She began her investment
career in 1983. Prior to joining
Scudder Kemper, she was an equity
research analyst at an unaffiliated
investment management company.
Elizabeth J. Allan 1998 Joined Scudder Kemper in 1987,
Manager researching investments for some of
the firm's other international
mutual funds. Since then she has
served as a portfolio manager for
other affiliated mutual funds. She
has numerous years of Pacific Basin
research and investing experience.
Prior to joining Scudder Kemper, she
spent several years working for an
unaffiliated investment management
company.
- --------------------------------------------------------------------------------
Kemper Emerging Markets Growth Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Joyce E. Cornell 1998 Joined Scudder Kemper in 1991 and
Lead Manager has been a portfolio manager since
1993. She is a member of the firm's
Global Equity Group, focusing her
portfolio management and research
responsibilities on the emerging
markets. She began her investment
career in 1987. Prior to joining
Scudder Kemper, she was a security
analyst at an unaffiliated
investment management company.
Andre J. DeSimone 1998 Joined Scudder Kemper in 1997 as
Manager part of the firm's emerging markets
portfolio management teams. He began
his investment career in 1981. Prior
to joining Scudder Kemper, he was
the founder and Chief Executive
Officer of a stock brokerage company
in Kenya.
- --------------------------------------------------------------------------------
Investment Manager 59
<PAGE>
Kemper Emerging Markets Growth Fund (continued)
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Tara C. Kenney 1998 Joined Scudder Kemper in 1995 as a
Manager portfolio manager. She is a member
of the firm's Global Equity Group,
focusing on portfolio management of
Latin American equity securities.
She has 15 years of experience in
the field. Prior to joining Scudder
Kemper, she was responsible for the
origination and execution of
corporate finance transactions in
Latin America at a banking trust
company.
Theresa Gusman 1998 Joined Scudder Kemper in 1992 as an
Manager equity analyst responsible for
China, Hong Kong, Indonesia and
Taiwan. She then joined the Pacific
Basin portfolio management team in
1996. She began her investment
career in 1983. Prior to joining
Scudder Kemper, she was an equity
research analyst at an unaffiliated
investment management company.
- --------------------------------------------------------------------------------
Kemper Emerging Markets Income Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
M. Isabel Saltzman 1997 Joined Scudder Kemper in 1990 as a
Lead Manager portfolio manager. She is the
Product Leader and a Senior
Portfolio Manager for the firm's
Emerging Markets Bond Group. She
began her investment career in
1979. Prior to joining Scudder
Kemper, she worked in international
finance at a bank.
Susan E. Dahl 1997 Joined Scudder Kemper in 1987 as
Manager head of fixed income trading. She
has over seven years of emerging
markets investment experience as a
portfolio manager. She is the
Capital Markets Strategist and a
Senior Portfolio Manager for the
firm's Emerging Markets Bond Group.
She began her investment career in
1987.
- --------------------------------------------------------------------------------
60 Investment Manager
<PAGE>
Kemper Europe Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Marc Slendebroek 1998 Joined Scudder Kemper in 1994 as a
Lead Manager European equity analyst. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He began his investment
career in 1990. Prior to joining
Scudder Kemper, he worked for an
unaffiliated investment management
company responsible for the Dutch
equity research product.
Carol L. Franklin 1999 Joined Scudder Kemper in 1981 as a
Manager portfolio manager. She is a member
of the firm's Global Equity Group
and is a portfolio manager for
other affiliated international
mutual funds. She began her
investment career in 1975. Prior to
joining Scudder Kemper, she worked
for an unaffiliated investment
management company.
Joan R. Gregory 1999 Joined Scudder Kemper in 1992. She
Manager is a member of the firm's Global
Equity Group and is on the portfolio
management teams for other
affiliated international mutual
funds. She began her investment
career in 1989. Prior to joining
Scudder Kemper, she worked in the
international investment department
at a bank.
- --------------------------------------------------------------------------------
Investment Manager 61
<PAGE>
Kemper Global Blue Chip Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Diego Espinosa 1998 Joined Scudder Kemper in 1996 as an
Lead Manager analyst for Latin American equity
securities. He has over five years
of direct investment experience as
both an analyst and portfolio
manager. He began his investment
career in 1991. Prior to joining
Scudder Kemper, he was a Latin
American equities securities analyst
for an unaffiliated investment
management company.
William E. Holzer 1998 Joined Scudder Kemper in 1980 as an
Manager analyst and portfolio manager. He is
Product Leader of the firm's global
equity investment product and is on
the portfolio management teams for
other affiliated international
mutual funds. He began his
investment career in 1970. Prior to
joining Scudder Kemper, he was a
credit analyst in the international
department at a banking trust
company.
Nicholas Bratt 1998 Joined Scudder Kemper in 1976 as a
Manager portfolio manager. Since then he has
served as portfolio manager for
other affiliated international
mutual funds and has over 20 years
of international investment
experience. He is Head of the firm's
Global Equity Group, responsible for
the strategic direction of the
firm's equity management business.
- --------------------------------------------------------------------------------
62 Investment Manager
<PAGE>
Global Discovery Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Gerald J. Moran 1991 Joined Scudder Kemper in 1968 as an
Lead Manager analyst. Since then he has worked
within the firm's research
department and has served as
portfolio manager for other
affiliated mutual funds. For the
last decade, he has worked
exclusively with small cap stocks.
He has over 30 years of industry
experience.
Sewall F. Hodges 1996 Joined Scudder Kemper in 1995 as a
Manager portfolio manager. He is a member of
the firm's Global Equity Group. He
began his investment career in 1978.
Prior to joining the firm, he was a
global equity portfolio manager and
research analyst at an unaffiliated
investment management company.
- --------------------------------------------------------------------------------
Kemper Global Income Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Terence C. Prideaux 1998 Joined Scudder Kemper in 1989 as an
Lead Manager associate director. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He has over 20 years of
investment experience. Prior to
joining Scudder Kemper, he was a
fund manager for the fixed income
portfolios of a life insurance
company.
- --------------------------------------------------------------------------------
Investment Manager 63
<PAGE>
Kemper International Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Stephen P. Dexter 1998 Joined Scudder Kemper in 1986 as an
Co-Lead Manager equity analyst. Since then he has
served as a portfolio manager for
other affiliated mutual funds. He
began his investment career in
1983. Prior to joining Scudder
Kemper, he worked for an
unaffiliated investment management
company where he followed venture
capital and small cap companies.
Marc J. Slendebroeck 1998 Joined Scudder Kemper in 1994 as a
Co-Lead Manager European equity analyst. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He began his investment
career in 1990. Prior to joining
Scudder Kemper, he worked for an
unaffiliated investment management
company responsible for the Dutch
equity research product.
- --------------------------------------------------------------------------------
Kemper International Growth and Income Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Sheridan P. Reilly 1998 Joined Scudder Kemper in 1995 as an
Lead Manager analyst. He is a member of the
firm's Global Equity Group and is on
the portfolio management teams for
other affiliated international
mutual funds. He began his
investment career in 1987. Prior to
joining Scudder Kemper, he focused
on strategies for global bonds
portfolios, currency hedging, and
foreign equity markets at an
unaffiliated investment management
company.
- --------------------------------------------------------------------------------
64 Investment Manager
<PAGE>
Kemper International Growth and Income Fund (continued)
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Irene T. Cheng 1998 Joined Scudder Kemper in 1993 as a
Manager portfolio manager. She is a member
of the firm's Global Equity Group
and has over six years of
experience as a portfolio manager.
She began her investment career in
1985. Prior to joining Scudder
Kemper, she spent three years in
merchant banking activities and
three years as an equity analyst.
Lauren C. Lambert 1999 Joined Scudder Kemper in 1994 as a
European equity analyst. He is an
International Portfolio Manager at
Scudder Investments, UK Ltd., an
affiliated investment management
company. He began his investment
career in 1990. Prior to joining
Scudder Kemper, he worked for an
unaffiliated investment management
company responsible for the Dutch
equity research product.
- --------------------------------------------------------------------------------
Investment Manager 65
<PAGE>
Kemper Latin America Fund
Joined the Fund
as a Portfolio
Name & Title Manager Background
- --------------------------------------------------------------------------------
Tara C. Kenney 1996 Joined Scudder Kemper in 1995 as a
Lead Manager portfolio manager. She is a member
of the firm's Global Equity Group,
focusing on portfolio management of
Latin American equity securities.
She has 15 years of experience in
the field. Prior to joining Scudder
Kemper, she was responsible for the
origination and execution of
corporate finance transactions in
Latin America at a banking trust
company.
Edmund B. Games, Jr. 1992 Joined Scudder Kemper in 1960. Since
Manager then he has served as portfolio
manager for other affiliated
international mutual funds and has
over 39 years of international
investment experience. He is a
member of the firm's Global Equity
Group.
Paul H. Rogers 1996 Joined Scudder Kemper in 1994 and
Manager was responsible for Latin American
corporate bond research in the
firm's Emerging Markets/High Yield
Bond Group. Since then he has served
as portfolio manager for other
affiliated international mutual
funds. He began his investment
career in 1985. Prior to joining
Scudder Kemper he worked in the
Latin American group for a bank.
- --------------------------------------------------------------------------------
66 Investment Manager
<PAGE>
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund relies,
which primarily include those used by the investment manager, 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 funds' business and
operations, such as problems with calculating net asset value and difficulties
in implementing a fund's purchase and redemption procedures. The investment
manager has commenced a review of the Year 2000 Issue as it may affect the funds
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 issuers whose securities are held by a fund or on
global markets or economies generally.
Euro conversion
The introduction of a new European currency, the Euro, may result in
uncertainties for European securities and the operation of each fund. The Euro
was introduced on January 1, 1999 by eleven European countries that are members
of the European Economic and Monetary Union (EMU). 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. Additional questions are raised by the fact that certain other
European community members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999.
The investment manager 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 fund's holdings is negative, it
could hurt the fund's performance.
Investment Manager 67
<PAGE>
ABOUT YOUR INVESTMENT
CHOOSING A SHARE CLASS
Each fund provides investors with the option of purchasing shares in the
following ways:
- --------------------------------------------------------------------------------
Class A Shares(1) Offered at net asset value plus a maximum sales charge of
5.75% of the offering price, or 4.5% of the offering price
in the cases of Kemper Global Income Fund and Kemper
Emerging Markets Income Fund.
Reduced sales charges apply to purchases of $50,000 or
more for all funds except Kemper Global Income Fund and
Kemper Emerging Markets Income Fund. Reduced sales charges
apply to purchases of $100,000 or more for Kemper Global
Income Fund and Kemper Emerging Markets Income Fund.
Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge if redeemed within one
year of purchase and a 0.50% contingent deferred sales
change if redeemed during the second year of purchase.
Class B Shares(1) Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1
distribution fee and a contingent deferred sales charge
that declines from 4% to zero on certain redemptions made
within six years of purchase. Class B shares
automatically convert into Class A shares (which have
lower ongoing expenses) six years after purchase.
Class C Shares(1) Offered at net asset value without an initial sales
charge, but subject to a 0.75% Rule 12b-1 distribution fee
and a 1% contingent deferred sales charge on redemptions
made within one year of purchase. Class C shares do not
convert into another class.
- --------------------------------------------------------------------------------
(1) Class A, B and C shares of Growth Fund Of Spain are subject to a 2%
redemption fee on shares redeemed or exchanged within one year after
purchase, with limited exceptions.
When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors 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. For more information about these sales
arrangements, consult your financial representative or the Shareholder Service
Agent. Be aware that financial services firms may receive different compensation
depending upon which class of shares they sell.
68 About Your Investment
<PAGE>
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and other services provided to
shareholders of those classes. Because 12b-1 fees are paid out of fund assets on
an ongoing basis, they will, over time, increase the cost of investment and may
cost more than other types of sales charges. Long-term shareholders may pay more
than the economic equivalent of the maximum initial sales charges permitted by
the National Association of Securities Dealers, although Kemper Distributors,
Inc. believes that it is unlikely, in the case of Class B shares, because of the
automatic conversion feature of the shares.
SPECIAL FEATURES
Class A Shares -- Combined Purchases. Each fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors. 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.
Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
the above mentioned Kemper Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.
Class A Shares -- Large Order NAV Purchase Privilege. Class A shares of a fund
may be purchased at net asset value by any purchaser provided that the amount
invested in such fund or other Kemper Funds 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 above (the "Large Order NAV
Purchase Privilege").
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Currently, shares of a Kemper Fund with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange from 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"). Effective June 1,
1999, shares of a Kemper Fund with a value of $1,000,000 or less (except Kemper
Cash Reserves Fund) acquired by exchange from another Kemper Fund, or from a
Money Market Fund, may not
About Your Investment 69
<PAGE>
be exchanged thereafter until they have been owned for 15 days if, in the
investment manager's judgement, the exchange activity may have an adverse effect
on the fund. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to the Fund and therefore may be subject to
the 15-Day Hold Policy. For purposes of determining whether the 15 Day Hold
Policy applies to a particular exchange, the value of the shares to be exchanged
shall be computed by aggregating the value of shares being exchanged for all
accounts under common control, direction or advice, including without limitation
accounts administered by a financial services firm offering market timing, asset
allocation or similar services.
For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
Upon the exchange of any class of shares of the Growth Fund Of Spain 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 Fee" below). Redemptions for any one shareholder
during any 90-day period in excess of the lesser of $250,000 or 1% of the net
asset value of the fund 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 in the fund's Statement of Additional Information under
"Redemption-in-kind."
BUYING SHARES
You may purchase shares of a fund by contacting the securities dealer or other
financial services firm from whom you received this prospectus.
CLASS A SHARES -- All funds, except Kemper Global Income Fund and Kemper
Emerging Markets Income Fund
Public Offering Price. Including Sales Charge
Sales Charge
------------
As a % of As a % of
Amount of Purchase Offering Price Net Amount Invested*
- ------------------ -------------- --------------------
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50 4.71
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00** 0.00**
- -----------
* Rounded to nearest one hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
and, in the case of Growth Fund Of Spain, a redemption fee, as discussed
below.
70 About Your Investment
<PAGE>
CLASS A SHARES -- Kemper Global Income Fund and Kemper Emerging Markets Income
Fund
Public Offering Price. Including Sales Charge
Sales Charge
------------
As a % of As a % of Net Amount
Amount of Purchase Offering Price Invested*
- ------------------ -------------- ---------
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00** 0.00**
- -----------
* Rounded to nearest one hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
NAV Purchases
Class A shares of a fund may be purchased at net asset value by:
o shareholders in connection with the investment or reinvestment of income
and capital gain dividends;
o a participant-directed qualified retirement plan or a participant-directed
non-qualified deferred compensation plan or a participant-directed
qualified retirement plan which is not sponsored by a K-12 school
district, provided in each case that such plan has not less than 200
eligible employees;
o any purchaser with Kemper Funds investment totals of at least $1,000,000
o unitholders of unit investment trusts sponsored by Ranson & Associates,
Inc. or its predecessors through reinvestment programs described in the
prospectuses of such trusts that have such programs;
o officers, trustees, directors, employees (including retirees) and sales
representatives of a fund, its investment manager, its principal
underwriter or certain affiliated companies, for themselves or members of
their families, any trust, pension, profit-sharing or other benefit plan
for only such persons;
o persons who purchase shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm;
o registered representatives and employees of broker-dealers having selling
group agreements with Kemper Distributors or any trust, pension,
profit-sharing or other benefit plan for only such persons;
o officers, directors, and employees of service agents of the funds;
o 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);
About Your Investment 71
<PAGE>
o selected employees (including their spouses and dependent children) of
banks and other financial services firms that provide administrative
services related to the funds pursuant to an agreement with Kemper
Distributors or one of its affiliates;
o certain professionals who assist in the promotion of Kemper Funds pursuant
to personal services contracts with Kemper Distributors, for themselves or
members of their families;
o in connection with the acquisition of the assets of or merger or
consolidation with another investment company;
o 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, any trust, pension, profit-sharing or other
benefit plan for only such persons;
o persons who purchase shares of the fund through Kemper Distributors as
part of an automated billing and wage deduction program administered by
RewardsPlus of America;
o through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms, acting solely as
agent for their clients, that adhere to certain standards established by
Kemper Distributors, including a requirement that such shares be purchased
for the benefit of their clients participating in an investment advisory
program under which such clients pay a fee to the investment advisor or
other firm for portfolio management or agency brokerage services.
Contingent Deferred Sales Charge
A contingent deferred sales charge may be imposed upon redemption of Class A
shares purchased under the Large Order NAV Purchase Privilege as follows: 1% if
they are redeemed within one year of purchase and 0.50% if redeemed during the
second year following purchase. The charge will not be imposed upon redemption
of reinvested dividends or share appreciation. The contingent deferred sales
charge will be waived in the event of:
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account;
o redemption of shares of a shareholder (including a registered joint owner)
who has died;
o 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);
72 About Your Investment
<PAGE>
o redemptions by a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation plan or a
participant-directed qualified retirement plan which is not sponsored by a
K-12 school district;
o redemptions by employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder
Service Agent or its affiliates;
o redemptions of shares whose dealer of record at the time of the investment
notifies Kemper Distributors that the dealer waives the commission
applicable to such Large Order NAV Purchase.
Rule 12b-1 Fee
None
Exchange Privilege
Class A shares may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase Privilege may be
exchanged for Class A shares of any Kemper Fund or a Money Market Fund without
paying any contingent deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed.
Shares of Growth Fund Of Spain held for less than one year are subject to a 2%
redemption fee upon exchange.
Redemption fee
Upon the redemption of any class of shares of Growth Fund Of Spain 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.
CLASS B SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
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. 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: First Second Third Fourth Fifth Sixth
- --------------------------------------------------------------------------------
Contingent Deferred
Sales Charge: 4% 3% 3% 2% 2% 1%
- --------------------------------------------------------------------------------
About Your Investment 73
<PAGE>
The contingent deferred sales charge will be waived:
o 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);
o 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;
o for redemptions made pursuant to a systematic withdrawal plan;
o 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;
o in the event of the death of the shareholder (including a registered joint
owner).
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
Kemper Service Company, the Shareholder Service Agent:
o 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);
o redemptions in connection with retirement distributions (limited at any
one time to 10% of the total value of plan assets invested in a fund);
o redemptions in connection with distributions qualifying under the hardship
provisions of the Code;
o redemptions representing returns of excess contributions to such plans.
Rule 12b-1 Fee
0.75%
Conversion Feature
Class B shares of a fund will automatically convert to Class A shares of the
same fund six years after issuance on the basis of the relative net asset value
per share. 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.
Exchange Privilege
Class B shares of a fund and Class B shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without paying any
contingent deferred sales charge. Shares of Growth Fund Of Spain held for less
than one year are subject to a 2% redemption fee upon exchange.
74 About Your Investment
<PAGE>
Redemption fee
Upon the redemption of any class of shares of Growth Fund Of Spain 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.
CLASS C SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase.
Contingent Deferred Sales Charge
A contingent deferred sales charge of 1% may be imposed upon redemption of Class
C shares redeemed within one year of purchase. The charge will not be imposed
upon redemption of reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
o redemptions by a participant-directed qualified retirement plan described
in Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457;
o redemptions by employer sponsored employee benefit plans (or their
participants) using the subaccount record keeping system made available
through the Shareholder Service Agent or its affiliates;
o redemption of shares of a shareholder (including a registered joint owner)
who has died;
o 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);
o redemptions under a fund's systematic withdrawal plan at a maximum of 10%
per year of the net asset value of the account;
o redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Kemper Funds and whose dealer of record has
waived the advance of the first year administrative service and
distribution fees applicable to such shares and agrees to receive such
fees quarterly;
o redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer
of record has waived the advance of the first year administrative services
and distribution fees applicable to such shares and has agreed to receive
such fees quarterly.
Rule 12b-1 Fee
0.75%
Conversion Feature
None
About Your Investment 75
<PAGE>
Exchange Privilege
Class C shares of a fund and Class C shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without paying any
contingent deferred sales charge. Shares of Growth Fund Of Spain held for less
than one year are subject to a 2% redemption fee upon exchange.
Redemption fee
Upon the redemption of any class of shares of Growth Fund Of Spain 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.
SELLING AND EXCHANGING SHARES
General
Contact your securities dealer or other financial services firm to arrange for
share redemptions or exchanges.
Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557.
An exchange of shares entails the sale of fund shares and subsequent purchase of
shares of another Kemper Mutual Fund.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Service Company, 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.
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.
76 About Your Investment
<PAGE>
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
Each fund normally distributes dividends of net investment income as follows:
annually for Kemper Asian Growth Fund, Kemper Emerging Markets Growth Fund,
Kemper Europe Fund, Kemper Global Blue Chip Fund, Global Discovery Fund, Growth
Fund Of Spain, Kemper International Fund, and Kemper Latin America Fund;
semi-annually for Kemper International Growth and Income Fund; monthly for
Kemper Emerging Markets Income Fund and Kemper Global Income Fund. Each fund
distributes any net realized short-term and long-term capital gains at least
annually.
Income and capital gains dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, Kemper Service Company, a shareholder
may select one of the following options:
1. To receive income and short-term capital gains dividends in cash and
long-term capital gains dividends in shares of the same class at net asset
value; or
2. To receive income and capital gains dividends in cash.
Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, by writing to the
Shareholder Service Agent, you may choose to have dividends of a fund invested
in shares of the same class of another Kemper fund at the net asset value of
that class and fund. To use this privilege, you must maintain a minimum account
value of $1,000 in the fund distributing the dividends. The funds will reinvest
dividend checks (and future dividends) in shares of that same fund and class if
checks are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same fund unless you request that such policy not be applied to your account.
Distributions are generally taxable, whether received in cash or reinvested.
About Your Investment 77
<PAGE>
Taxes
Dividends representing net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individual shareholders as long-term capital gains, regardless of the length of
time shareholders have owned shares. Short-term capital gains and any other
taxable income distributions are taxable to you as ordinary income. A portion of
dividends from ordinary income may qualify for the dividends-received deduction
for corporations.
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, is taxable to you.
A sale or exchange of your shares is a taxable event and may result in a capital
gain or loss which may be long-term or short-term, generally depending on how
long you owned the shares. Shareholders of a fund may be subject to state, local
and foreign taxes on fund distributions and dispositions of fund shares. You
should consult your tax advisor regarding the particular tax consequences of an
investment in a fund.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable to you as if paid on December 31 of the calendar year in which they
were declared.
Each fund sends you detailed tax information about the amount and type of its
distributions by January 31 of the following year. In certain years, you may be
able to claim a credit or deduction on your income tax return for your share of
foreign taxes paid by a fund.
Each fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the fund with
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Any such withheld amounts may be credited against your U.S. federal
income tax liability.
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Market prices are used to determine the value of the funds' assets.
If market prices are not readily available for a security or if a security's
price is not considered to be market indicative, that security may be valued by
another method that the Board or its delegate believes accurately reflects fair
value. In those circumstances where a security's price is not considered to be
market indicative, the security's valuation may differ from an available market
quotation.
78 About Your Investment
<PAGE>
The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class, less all liabilities of that class, by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a fund will generally be lower than that of the
Class A shares of a fund because of the higher annual expenses borne by the
Class B and Class C shares.
To the extent that the funds invest in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the funds do not price
their shares. As a result, the net asset value per share of the funds may change
at a time when shareholders are not able to purchase or redeem their shares.
Redemption Fee
Upon the redemption or exchange of any class of shares of Growth Fund Of Spain
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 investment manager or its
subsidiaries, and does not benefit the investment manager in any way. The fund
reserves the right to modify the terms of or terminate this fee at any time.
The 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, 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.
About Your Investment 79
<PAGE>
With respect to Growth Fund Of Spain, 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 which can be obtained by contacting
the Shareholder Service Agent. The form details, among other things, the
shareholder's valid custodial arrangements in Spain, Portugal and the U.S. No
redemptions requests subject to in-kind redemption may be made other than by a
written request accompanied by a properly completed redemption and certification
form.
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the New York Stock
Exchange are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load or contingent deferred
sales charge). Orders received by dealers or other financial services firms
prior to the determination of net asset value and received by the funds'
transfer agent prior to the close of its business day will be confirmed at a
price based on the net asset value effective on that day. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
before shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which the fund may not
yet have received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), the fund may delay transmittal of the proceeds until it
has determined that collected funds have been received for the purchase of such
shares. This may be up to 10 days from receipt by a fund of the purchase amount.
The redemption of shares within certain time periods may be subject to
contingent deferred sales charges, as noted above.
Signature guarantees
A signature guarantee is required unless you sell $50,000 or less worth of
shares (prior to the imposition of any contingent deferred sales charge) and the
proceeds are payable to the shareholder of record at the address of record. You
can obtain a guarantee from most brokerage houses and financial institutions,
although not from a notary public. The funds will normally send you the proceeds
within one business day following your request, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and their transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price. Each fund reserves the right to
80 About Your Investment
<PAGE>
withdraw all or any part of the offering made by this prospectus and to reject
purchase orders. Also, from time to time, each fund may temporarily suspend the
offering of its shares or a class of its shares to new investors. During the
period of such suspension, persons who are already shareholders normally are
permitted to continue to purchase additional shares and to have dividends
reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' distributor,
Kemper Distributors), that member may charge a fee for that service. This
prospectus should be read in connection with such firms' material regarding
their fees and services.
Redemption-in-kind
Each fund reserves the right to honor any request for redemption or repurchase
by making payment in whole or in part in readily marketable securities
("redemption in kind"). These securities will be chosen by the fund and valued
as they are for purposes of computing the fund's net asset value. A shareholder
may incur transaction expenses in converting these securities to cash.
It is the policy of Growth Fund Of Spain 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.
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, which expenses
are in addition to any applicable redemption fee or contingent deferred sales
charge (see the Statement of Additional Information about redemptions-in-kind).
About Your Investment 81
<PAGE>
With respect to Growth Fund Of Spain, 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 which can be obtained by contacting
the Shareholder Service Agent. The form details, among other things, the
shareholder's valid custodial arrangements in Spain, Portugal and the U.S. No
redemptions requests subject to in-kind redemption may be made other than by a
written request accompanied by a properly completed redemption and certification
form.
82 About Your Investment
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables below are intended to help you understand the
funds' financial performance for the periods reflected below. Certain
information reflects the financial results for a single fund share. The total
return figures show what a shareholder in a fund would have earned (or lost)
assuming reinvestment of all distributions. This information, for all funds
except Global Discovery Fund, has been audited by Ernst & Young LLP. With
respect to Global Discovery Fund, this information has been audited by
Pricewaterhouse Coopers LLP. The reports of each of the auditors, along with the
funds' financial statements, are included in the funds' annual reports, which
are available upon request by calling Kemper at 1-800-621-1048.
Growth Fund Of Spain is the successor entity to The Growth Fund of Spain, Inc.,
a closed-end management investment company that had one class of shares. In
connection with the December 11, 1998 reorganization of The Growth Fund of
Spain, Inc. as Growth Fund Of Spain, an open-end series of Kemper
Global/International Series, Inc., the shares of The Growth Fund of Spain, Inc.
were exchanged on that date for Class A shares of the fund. Accordingly, the
following table shows financial information for Growth Fund Of Spain's Class A
shares expressed in terms of one share outstanding throughout the relevant
period, and reflects the operations of The Growth Fund of Spain, Inc. as a
closed-end investment company. Financial information is not available for the
fund's Class B and Class C shares since the reorganization took place after the
close of the fund's most recent fiscal year. Effective as of the fund's 1998
fiscal year, the fund's fiscal year end was changed to October 31.
Financial Highlights 83
<PAGE>
The Growth Fund of Spain, Inc.
<TABLE>
<CAPTION>
Eleven
months
ended
October
31, Year ended November 30,
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $19.06 15.67 13.33 12.40 10.67
- ----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .11 .24 .36 .37 .32
- ----------------------------------------------------------------------------------
Net realized and
unrealized gain 5.72 4.15 2.69 1.01 1.41
- ----------------------------------------------------------------------------------
Total from investment
operations 5.83 4.39 3.05 1.38 1.73
- ----------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .11 .17 .42 .45 --
- ----------------------------------------------------------------------------------
Distribution from net
realized gain 1.36 .83 .29 -- --
- ----------------------------------------------------------------------------------
Total dividends 1.47 1.00 .71 .45 --
- ----------------------------------------------------------------------------------
Net asset value, end of period $23.42 19.06 15.67 13.33 12.40
- ----------------------------------------------------------------------------------
Total return (not annualized) 32.90% 29.86 24.12 11.62 16.21
- ----------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.43% 1.22 1.25 1.22 1.23
- ----------------------------------------------------------------------------------
Net investment income .58% 1.29 2.46 2.89 2.57
- ----------------------------------------------------------------------------------
Supplemental data
Net assets at end of period
(in thousands) $387,126 315,059 263,935 227,997 213,972
- ----------------------------------------------------------------------------------
Portfolio turnover rate
(annualized) 10% 29 45 69 85
- ----------------------------------------------------------------------------------
</TABLE>
Note: Total return reflects reinvestment of dividends.
84 Financial Highlights
<PAGE>
Kemper Asian Growth Fund
October 21
Year ended to November
November 30, 30,
CLASS A 1998 1997 1996
- ------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $6.65 10.04 9.50
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .11 .08 --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.27) (3.47) .54
- ------------------------------------------------------------------------------
Total from investment operations (1.16) (3.39) .54
- ------------------------------------------------------------------------------
Less distribution from net investment income .08 -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $5.41 6.65 10.04
- ------------------------------------------------------------------------------
Total return (not annualized) (17.66)% (33.76) 5.68
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 1.80% 1.60 1.46
- ------------------------------------------------------------------------------
Net investment income 2.05% .97 .74
- ------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.65% 2.62 1.46
- ------------------------------------------------------------------------------
Net investment income (loss) 1.20% (.05) .74
- ------------------------------------------------------------------------------
October 21
Year ended to November
November 30, 30,
CLASS B 1998 1997 1996
- ------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $6.58 10.03 9.50
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.28) (3.45) .53
- --------------------------------------------------------------------------
Total from investment operations (1.22) (3.45) .53
- ------------------------------------------------------------------------------
Less distribution from net investment
income .02 -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $5.34 6.58 10.03
- ------------------------------------------------------------------------------
Total return (not annualized) (18.65)% (34.40) 5.58
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.78% 2.57 2.34
- ------------------------------------------------------------------------------
Net investment income (loss) 1.07% -- (.14)
- ------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 4.29% 3.51 2.34
- ------------------------------------------------------------------------------
Net investment loss (.44)% (.94) (.14)
- ------------------------------------------------------------------------------
Financial Highlights 85
<PAGE>
October 21
Year ended to November
November 30, 30,
CLASS C 1998 1997 1996
- ------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $6.60 10.03 9.50
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 -- --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.28) (3.43) .53
- ------------------------------------------------------------------------------
Total from investment operations (1.23) (3.43) .53
- ------------------------------------------------------------------------------
Less distribution from net investment
income .02 -- --
- ------------------------------------------------------------------------------
Net asset value, end of period $5.35 6.60 10.03
- ------------------------------------------------------------------------------
Total return (not annualized) (18.72)% (34.20) 5.58
- ------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.71% 2.54 2.34
- ------------------------------------------------------------------------------
Net investment income (loss) 1.14% .03 (.14)
- ------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 4.56% 3.55 2.34
- ------------------------------------------------------------------------------
Net investment loss (.71)% (.98) (.14)
- ------------------------------------------------------------------------------
October 21
Year ended to November
November 30, 30,
1998 1997 1996
- ------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $7,416,000 6,398,000 1,949,000
- ------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 131% 155 74
- ------------------------------------------------------------------------------
Notes: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. agreed to waive a portion of its management fee and
absorb certain operating expenses of the fund during the years ended November
30, 1998 and 1997. The Other Ratios to Average Net Assets are computed without
this expense waiver or absorption.
86 Financial Highlights
<PAGE>
Kemper Emerging Markets Growth Fund
For the period from January 9, 1998
(commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .03 (.01) (.03)
- --------------------------------------------------------------------------------
Net realized and unrealized loss (1.73) (1.75) (1.71)
- --------------------------------------------------------------------------------
Total from investment operations (1.70) (1.76) (1.74)
- --------------------------------------------------------------------------------
Net asset value, end of period $7.80 7.74 7.76
- --------------------------------------------------------------------------------
Total return (not annualized) (17.89)% (18.53) (18.32)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 2.28% 3.18 3.15
- --------------------------------------------------------------------------------
Net investment income (loss) .40% (.50) (.47)
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 22.38% 24.06 24.03
- --------------------------------------------------------------------------------
Net investment loss (19.70)% (21.38) (21.35)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $1,771,222
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 69%
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 87
<PAGE>
Kemper Emerging Markets Income Fund
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .64 .53 .54
- --------------------------------------------------------------------------------
Net realized and unrealized loss (4.14) (4.09) (4.09)
- --------------------------------------------------------------------------------
Total from investment operations (3.50) (3.56) (3.55)
- --------------------------------------------------------------------------------
Less distribution from net investment
income .61 .56 .56
- --------------------------------------------------------------------------------
Net asset value, end of period $5.39 5.38 5.39
- --------------------------------------------------------------------------------
Total return (not annualized) (38.39)% (38.87) (38.75)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund before
interest expense 1.68% 2.56 2.53
- --------------------------------------------------------------------------------
Expenses absorbed by the fund after
interest expense 2.46% 3.34 3.31
- --------------------------------------------------------------------------------
Net investment income 10.59% 9.71 9.74
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses before interest expense 5.12% 6.75 6.72
- --------------------------------------------------------------------------------
Expenses after interest expense 5.90% 7.53 7.50
- --------------------------------------------------------------------------------
Net investment income 7.15% 5.52 5.55
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $5,040,189
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 294%
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
88 Financial Highlights
<PAGE>
Kemper Europe Fund
Year ended May 1 to
November 30, November 30,
CLASS A 1998 1997 1996
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $12.43 11.02 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .03 .01
- --------------------------------------------------------------------------------
Net realized and unrealized gain 2.07 1.51 1.51
- --------------------------------------------------------------------------------
Total from investment operations 2.11 1.54 1.52
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .05 -- --
- --------------------------------------------------------------------------------
Distribution from net realized gain .15 .13 --
- --------------------------------------------------------------------------------
Total dividends .20 .13 --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.34 12.43 11.02
- --------------------------------------------------------------------------------
Total return (not annualized) 17.25% 14.18 16.00
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 1.53% 1.52 1.49
- --------------------------------------------------------------------------------
Net investment income .32% .34 .46
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.28% 1.75 4.74
- --------------------------------------------------------------------------------
Net investment income (loss) (.43)% .11 (2.79)
- --------------------------------------------------------------------------------
Year ended May 1 to
November 30, November 30,
CLASS B 1998 1997 1996
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $12.27 10.97 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.05) (.05) (.02)
- --------------------------------------------------------------------------------
Net realized and unrealized gain 1.98 1.48 1.49
- --------------------------------------------------------------------------------
Total from investment operations 1.93 1.43 1.47
- --------------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.05 12.27 10.97
- --------------------------------------------------------------------------------
Total return (not annualized) 15.92% 13.23 15.47
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.67% 2.45 2.44
- --------------------------------------------------------------------------------
Net investment loss (.82)% (.59) (.49)
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 4.42% 2.66 5.63
- --------------------------------------------------------------------------------
Net investment loss (2.57)% (.80) (3.68)
- --------------------------------------------------------------------------------
Financial Highlights 89
<PAGE>
Year ended May 1 to
November 30, November 30,
CLASS C 1998 1997 1996
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $12.28 10.97 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.05) (.01)
- --------------------------------------------------------------------------------
Net realized and unrealized gain 2.00 1.49 1.48
- --------------------------------------------------------------------------------
Total from investment operations 2.00 1.44 1.47
- --------------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.13 12.28 10.97
- --------------------------------------------------------------------------------
Total return (not annualized) 16.48% 13.32 15.47
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses 2.08% 2.38 2.34
- --------------------------------------------------------------------------------
Net investment loss (.23)% (.52) (.39)
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 2.89% 2.59 5.50
- --------------------------------------------------------------------------------
Net investment loss (1.04)% (.73) (3.55)
- --------------------------------------------------------------------------------
Year ended May 1 to
November 30, November 30,
1998 1997 1996
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period (in
thousands) $67,308 23,910 3,856
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 132% 101 96
- --------------------------------------------------------------------------------
Notes: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive a portion of its
management fee and absorb certain operating expenses of the fund. The Other
Ratios to Average Net assets are computed without this expense waiver or
absorption.
90 Financial Highlights
<PAGE>
Kemper Global Blue Chip Fund
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 -- --
- --------------------------------------------------------------------------------
Net realized and unrealized gain .66 .63 .64
- --------------------------------------------------------------------------------
Total from investment operations .71 .63 .64
- --------------------------------------------------------------------------------
Net asset value, end of period $10.21 10.13 10.14
- --------------------------------------------------------------------------------
Total return (not annualized) 7.47% 6.63 6.74
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 1.80% 2.68 2.65
- --------------------------------------------------------------------------------
Net investment income .92% .04 .07
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 6.06% 7.69 7.66
- --------------------------------------------------------------------------------
Net investment loss (3.34)% (4.97) (4.94)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $9,539,623
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 84%
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 91
<PAGE>
Global Discovery Fund
For the For the For the
Period Period Period
April 16, April 16, April 16,
1998 1998 1998
(commence- (commence- (commence-
ment sale ment sale ment sale
of Class A of Class B of Class C
shares) to shares) to shares) to
October 31, October October 31,
1998 31, 1998 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Net asset value, beginning of period $23.98 $23.98 $23.98
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.09) (.18) (.17)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments transactions (4.11) (4.10) (4.11)
- --------------------------------------------------------------------------------
Total from investment operations (4.20) (4.28) (4.28)
- --------------------------------------------------------------------------------
Net asset value, end of period $19.78 $19.70 $19.70
- --------------------------------------------------------------------------------
Total return (%)(b)(c) (17.51)** (17.85)** (17.85)**
- --------------------------------------------------------------------------------
Ratios and Supplemental Data
Net assets, end of period ($ millions) 11 6 2
- --------------------------------------------------------------------------------
Ratio of operating expenses, net to
average daily
net assets (%) 1.95* 2.83* 2.80*
- --------------------------------------------------------------------------------
Ratio of operating expenses before expense
reductions, to average daily net assets (%) 2.20* 3.13* 3.23*
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average daily net assets (%) (1.00)* (1.87)* (1.88)*
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 40.6 40.6 40.6
- --------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
92 Financial Highlights
<PAGE>
Kemper Global Income Fund
Year ended December 31,
CLASS A 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of year $8.58 8.97 9.05 8.55 9.29
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .37 .48 .52 .61 .60
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) .50 (.33) (.02) 1.05 (.74)
- --------------------------------------------------------------------------------
Total from investment
operations .87 .15 .50 1.66 (.14)
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .40 .47 .58 1.16 .38
- --------------------------------------------------------------------------------
Tax return of capital
distribution .11 .07 -- -- .22
- --------------------------------------------------------------------------------
Total dividends .51 .54 .58 1.16 .60
- --------------------------------------------------------------------------------
Net asset value, end of
year $8.94 8.58 8.97 9.05 8.55
- --------------------------------------------------------------------------------
Total return 10.48% 1.80 5.87 19.89 (1.47)
- --------------------------------------------------------------------------------
Ratios to average net assets
Expenses 1.58% 1.32 1.48 1.34 1.53
- --------------------------------------------------------------------------------
Net investment income 4.31% 5.56 5.77 6.43 6.67
- --------------------------------------------------------------------------------
May 31 to
December
Year ended December 31, 31,
CLASS B 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $8.60 9.00 9.09 8.56 8.70
- -------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .31 .41 .46 .56 .30
- -------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) .49 (.33) (.02) 1.05 (.14)
- -------------------------------------------------------------------------------
Total from investment
operations .80 .08 .44 1.61 .16
- -------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .34 .42 .53 1.08 .19
- -------------------------------------------------------------------------------
Tax return of capital
distribution .10 .06 -- -- .11
- -------------------------------------------------------------------------------
Total dividends .44 .48 .53 1.08 .30
- -------------------------------------------------------------------------------
Net asset value, end of
period $8.96 8.60 9.00 9.09 8.56
- -------------------------------------------------------------------------------
Total return (not
annualized) 9.56% 1.03 5.11 19.21 1.89
- -------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.32% 2.18 2.14 1.98 2.27
- -------------------------------------------------------------------------------
Net investment income 3.57% 4.70 5.11 5.79 5.89
- -------------------------------------------------------------------------------
Financial Highlights 93
<PAGE>
May 31 to
December
Year ended December 31, 31,
CLASS C 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $8.62 9.02 9.09 8.56 8.70
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .32 .42 .48 .57 .30
- --------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) .49 (.33) (.02) 1.05 (.14)
- --------------------------------------------------------------------------------
Total from investment
operations .81 .09 .46 1.62 .16
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .34 .43 .53 1.09 .19
- --------------------------------------------------------------------------------
Tax return of capital
distribution .10 .06 -- -- .11
- --------------------------------------------------------------------------------
Total dividends .44 .49 .53 1.09 .30
- --------------------------------------------------------------------------------
Net asset value, end of
period $8.99 8.62 9.02 9.09 8.56
- --------------------------------------------------------------------------------
Total return (not
annualized) 9.72% 1.09 5.31 19.26 1.91
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.13% 2.11 2.06 2.06 2.23
- --------------------------------------------------------------------------------
Net investment income 3.76% 4.77 5.19 5.71 5.93
- --------------------------------------------------------------------------------
Year ended December 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of year
(in thousands) $84,795 99,054 131,761 152,959 170,700
- --------------------------------------------------------------------------------
Portfolio turnover rate 313% 283 276 220 378
- --------------------------------------------------------------------------------
Notes: Total return does not reflect the effect of any sales charges. Per share
data for 1998, 1997 and 1996 were determined based on average shares
outstanding.
94 Financial Highlights
<PAGE>
Kemper International Fund
Year ended October 31,
CLASS A 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of year $12.68 11.96 10.59 11.13 10.56
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .04 -- .04 .07 --
- --------------------------------------------------------------------------------
Net realized and
unrealized gain .01 1.52 1.50 .05 .86
- --------------------------------------------------------------------------------
Total from investment
operations .05 1.52 1.54 .12 .86
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .08 .12 .12 -- --
- --------------------------------------------------------------------------------
Distribution from net
realized gain .55 .68 .05 .66 .29
- --------------------------------------------------------------------------------
Total dividends .63 .80 .17 .66 .29
- --------------------------------------------------------------------------------
Net asset value, end of
year $12.10 12.68 11.96 10.59 11.13
- --------------------------------------------------------------------------------
Total return .45% 13.49 14.70 1.69 8.32
- --------------------------------------------------------------------------------
Ratios to average net assets
Expenses 1.64% 1.57 1.64 1.57 1.54
- --------------------------------------------------------------------------------
Net investment income .36% .16 .34 .83 .02
- --------------------------------------------------------------------------------
May 31 to
October
Year ended October 31, 31,
CLASS B 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $12.50 11.81 10.46 11.09 10.58
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (.08) (.12) (.06) (.02) (.04)
- --------------------------------------------------------------------------------
Net realized and
unrealized gain .03 1.51 1.47 .05 .55
- --------------------------------------------------------------------------------
Total from investment
operations (.05) 1.39 1.41 .03 .51
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- .02 .01 -- --
- --------------------------------------------------------------------------------
Distribution from net
realized gain .55 .68 .05 .66 --
- --------------------------------------------------------------------------------
Total dividends .55 .70 .06 .66 --
- --------------------------------------------------------------------------------
Net asset value, end of
period $11.90 12.50 11.81 10.46 11.09
- --------------------------------------------------------------------------------
Total return (not
annualized) (.37)% 12.32 13.59 .84 4.82
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.62% 2.57 2.53 2.50 2.58
- --------------------------------------------------------------------------------
Net investment loss (.62)% (.84) (.55) (.10) (.97)
- --------------------------------------------------------------------------------
Financial Highlights 95
<PAGE>
May 31 to
October
Year ended October 31, 31,
CLASS C 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $12.51 11.81 10.46 11.09 10.58
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (.08) (.09) (.06) (.02) (.04)
- --------------------------------------------------------------------------------
Net realized and
unrealized gain .03 1.49 1.47 .05 .55
- --------------------------------------------------------------------------------
Total from investment
operations (.05) 1.40 1.41 .03 .51
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income -- .02 .01 -- --
- --------------------------------------------------------------------------------
Distribution from net
realized gain .55 .68 .05 .66 --
- --------------------------------------------------------------------------------
Total dividends .55 .70 .06 .66 --
- --------------------------------------------------------------------------------
Net asset value, end of
period $11.91 12.51 11.81 10.46 11.09
- --------------------------------------------------------------------------------
Total return (not
annualized) (.37)% 12.45 13.59 .84 4.82
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 2.55% 2.49 2.50 2.50 2.52
- --------------------------------------------------------------------------------
Net investment loss (.55)% (.76) (.52) (.10) (.91)
- --------------------------------------------------------------------------------
Year ended October 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of year
(in thousands) $604,684 588,069 472,243 364,708 418,282
- --------------------------------------------------------------------------------
Portfolio turnover rate 105% 76 104 114 103
- --------------------------------------------------------------------------------
Notes: Total return does not reflect the effect of any sales charges. Per share
data were determined based on average shares outstanding for the years ended
1995, 1996 and 1998, respectively.
96 Financial Highlights
<PAGE>
Kemper International Growth and Income Fund
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .04 .05
- --------------------------------------------------------------------------------
Net realized and unrealized gain .20 .22 .21
- --------------------------------------------------------------------------------
Total from investment operations .33 .26 .26
- --------------------------------------------------------------------------------
Less distribution from net investment
income .10 .05 .05
- --------------------------------------------------------------------------------
Net asset value, end of period $9.73 9.71 9.71
- --------------------------------------------------------------------------------
Total return (not annualized) 3.31% 2.64 2.65
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 1.81% 2.69 2.66
- --------------------------------------------------------------------------------
Net investment income 1.54% .66 .69
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 13.58% 15.21 15.18
- --------------------------------------------------------------------------------
Net investment loss (10.23)% (11.86) (11.83)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $4,270,979
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 97%
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
Financial Highlights 97
<PAGE>
Kemper Latin America Fund
For the period from December 31,
1997 (commencement of operations)
to October 31, 1998
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $9.50 9.50 9.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .04 .04
- --------------------------------------------------------------------------------
Net realized and unrealized loss (2.25) (2.28) (2.28)
- --------------------------------------------------------------------------------
Total from investment operations (2.19) (2.24) (2.24)
- --------------------------------------------------------------------------------
Net asset value, end of period $7.31 7.26 7.26
- --------------------------------------------------------------------------------
Total return (not annualized) (23.05)% (23.58) (23.58)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses absorbed by the fund 2.21% 3.09 3.06
- --------------------------------------------------------------------------------
Net investment income 1.38% .50 .53
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 12.75% 14.38 14.34
- --------------------------------------------------------------------------------
Net investment loss (9.16)% (10.79) (10.75)
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $1,460,498
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 55%
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the Fund. The Other Ratios to Average Net
Assets are computed without this expense waiver or absorption.
98 Financial Highlights
<PAGE>
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intentionally
left blank.
<PAGE>
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intentionally
left blank.
<PAGE>
1
Additional information about each fund may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling the toll-free telephone
number listed below. The Statement of Additional Information contains more
detailed information on fund investments and operations. The Shareholder
Services Guide contains more information about purchases and sales of fund
shares. The semiannual and annual shareholder reports contain a discussion of
the market conditions and the investment strategies that significantly affected
the funds' performance during the last fiscal year, as well as a listing of
portfolio holdings and financial statements. These and other fund documents may
be obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By Telephone Call the Kemper Funds at: 1-800-621-1048
- --------------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section,
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
In Person Public Reference Room
Securities and Exchange Commission
Washington, D.C.
(Call 1-800-SEC-0330
for more information.)
- --------------------------------------------------------------------------------
By Internet http://www.sec.gov
http://www.kemper.com
- --------------------------------------------------------------------------------
For each of the funds, the respective Statement of Additional Information dated
March 1, 1999 is incorporated by reference into this prospectus (is legally a
part of this prospectus).
Investment Company Act file numbers:
Growth Fund Of Spain 811-08395
Kemper Asian Growth Fund 811-7731
Kemper Emerging Markets Growth Fund 811-08395
Kemper Emerging Markets Income Fund 811-08395
Kemper Europe Fund 811-7479
Kemper Global Blue Chip Fund 811-08395
Global Discovery Fund 811-4670
Kemper Global Income Fund 811-5829
Kemper International Fund 811-3136
Kemper International Growth and Income Fund 811-08395
Kemper Latin America Fund 811-08395
<PAGE>
KEMPER GLOBAL and INTERNATIONAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
Kemper Global Blue Chip Fund ("Global Blue Chip Fund")
Kemper International Growth and Income Fund
("International Growth and Income Fund")
Kemper Emerging Markets Income Fund ("Emerging Markets Income Fund")
Kemper Emerging Markets Growth Fund ("Emerging Markets Growth Fund")
Kemper Latin America Fund ("Latin America Fund")
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This combined Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for each of the Funds listed above (the
"Funds"), each a series of Kemper Global/International Series, Inc. (the
"Corporation"), an open-end management investment company. It should be read in
conjunction with the combined prospectus of the Funds dated March 1, 1999. A
prospectus may be obtained without charge from the Funds, and is also available,
along with other related materials, on the SEC's Internet Web site
(http://www.sec.gov).
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS.......................................................2
INVESTMENT POLICIES AND TECHNIQUES...........................................10
PORTFOLIO TRANSACTIONS.......................................................32
INVESTMENT MANAGER AND UNDERWRITER...........................................33
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES................................40
NET ASSET VALUE..............................................................52
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................53
PERFORMANCE..................................................................59
OFFICERS AND DIRECTORS.......................................................61
SHAREHOLDER RIGHTS...........................................................63
APPENDIX -- RATINGS OF FIXED INCOME INVESTMENTS..............................70
The financial statements appearing in each Fund's Annual Report to Shareholders
are incorporated herein by reference. The Report for any Fund for which this
Statement of Additional Information is requested accompanies this document.
Scudder Kemper Investments, Inc. (the "Adviser") serves as each Fund's
investment manager.
KEF-13 03/99 (Recycled Logo) printed on recycled paper
1
<PAGE>
INVESTMENT RESTRICTIONS
Each 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 outstanding
shares of the Fund.
Global Blue Chip Fund and International Growth and Income Fund each has elected
to be classified as a diversified series of an open-end management, investment
company. Emerging Markets Income Fund, Emerging Markets Growth Fund and Latin
America Fund are non-diversified series of an open-end management, investment
company.
As a matter of fundamental policy, each Fund will not:
a) borrow money, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having
jurisdiction from time to time;
b) issue senior securities, except as permitted under the 1940
Act and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
c) purchase physical commodities or contracts relating to
physical commodities;
d) engage in the business of underwriting securities issued by
others, except to the extent that a Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
e) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that a Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
f) make loans except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time; or
g) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, and as interpreted or modified
by regulatory authority having jurisdiction, from time to
time.
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, each Fund will not:
1. For all Funds except for Emerging Markets Income Fund: borrow money in an
amount greater than 5% of its total assets, except (i) for temporary or
emergency purposes and (ii) by engaging in reverse repurchase agreements,
dollar rolls, or other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
2. For Emerging Markets Income Fund: borrow money in an amount greater than
20% of its total assets, except (i) for temporary or emergency purposes and
(ii) by engaging in reverse repurchase agreements, dollar rolls, or other
investments or transactions described in the Fund's registration statement
which may be deemed to be borrowings;
3. For all Funds except for Emerging Markets Income Fund: enter into either of
reverse repurchase agreements or dollar rolls in an amount greater than 5%
of its total assets;
4. purchase securities on margin or make short sales, except (i) short sales
against the box, (ii) in connection with arbitrage transactions, (iii) for
margin deposits in connection with futures contracts, options or other
permitted investments, (iv) that transactions in futures contracts and
options shall not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be necessary for
the clearance of securities transactions;
5. 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;
2
<PAGE>
6. 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;
7. purchase warrants if as a result, such securities, taken at the lower of
cost or market value, would represent more than 5% of the value of the
Fund's total assets (for this purpose, warrants acquired in units or
attached to securities will be deemed to have no value); and
8. For all Funds except for International Growth and Income Fund: lend
portfolio securities in an amount greater than 5% of its total assets.
9. For International Growth and Income Fund: lend portfolio securities in an
amount greater than 33 1/3% of its total assets.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Kemper Global Blue Chip Fund (the "Global Blue Chip Fund") seeks
long-term growth of capital through a diversified worldwide portfolio of
marketable securities, primarily equity securities, including common stocks,
preferred stocks and debt securities convertible into common stocks. Kemper
International Growth And Income Fund (the "International Growth and Income
Fund") seeks long-term growth of capital and current income primarily from
foreign equity securities. Kemper Emerging Markets Income Fund (the "Emerging
Markets Income Fund") has dual investment objectives. The Fund's primary
investment objective is to provide investors with high current income. As a
secondary objective, the Fund seeks long-term capital appreciation. Kemper
Emerging Markets Growth Fund (the "Emerging Markets Growth Fund") seeks
long-term growth of capital primarily through equity investment in emerging
markets around the globe. Kemper Latin America Fund (the "Latin America Fund")
seeks to provide long-term capital appreciation through investment primarily in
the securities of Latin American issuers.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which a Fund may engage (such as short
selling, hedging, etc.) or a financial instrument which a Fund may purchase
(such as options, forward foreign currency contracts, etc.) are meant to
describe the spectrum of investments that the Adviser, in its discretion, might,
but is not required to, use in managing the Fund's portfolio assets. The Adviser
may, in its discretion, at any time, employ such practice, technique or
instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund but, to the extent employed, could, from time to time, have a material
impact on the Fund's performance.
Each Fund may engage in futures, options and other derivative transactions
("Strategic Transactions and Derivatives") in accordance with its respective
investment objectives and policies. Each such Fund intends to engage in such
transactions if it appears to the Adviser to be advantageous for the Fund to do
so in order to pursue its investment objective(s), 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 to create
leveraged exposure in the Fund.
GLOBAL BLUE CHIP FUND. Global Blue Chip Fund seeks long-term growth of capital
through a diversified worldwide portfolio of marketable securities, primarily
equity securities, including common stocks, preferred stocks and debt securities
convertible into common stocks. The Fund invests in equity securities of
companies which are incorporated in the U.S. and in foreign countries. The Fund
will invest primarily in developed markets, with a maximum of 15% of the Fund's
total assets invested in emerging markets. It also may invest in the debt
securities of U.S. and foreign issuers. Income is an incidental consideration.
In pursuing its objective, the Fund will emphasize investments in common stocks
of large, well known companies. Companies of this general type are often
referred to as "Blue Chip" companies. While specific investment and financial
criteria may vary from market to market, Blue Chip companies around the world
are generally identified by the Adviser as having substantial capitalization,
established financial history, ready access to credit, good industry position
and superior management structure.
3
<PAGE>
While these companies may be among the largest in their local markets, they may
be small by the standards of U.S. stock market capitalization. Global Blue Chip
companies are believed to generally exhibit less investment risk and less price
volatility, on average, than companies lacking these characteristics, such as
smaller, less-seasoned companies. In addition, the large market of publicly held
shares for such companies and the generally higher trading volume in those
shares generally result in a relatively high degree of liquidity for such
investments.
The Fund invests in companies that the Adviser believes will benefit from global
economic trends, promising technologies or products and specific country
opportunities resulting from changing geopolitical, currency or economic
relationships. The Fund's global framework allows it to take advantage of
investment opportunities created by the growing integration of economies around
the world. The Fund offers investors access to opportunities wherever they
arise, without being constrained by location of a company's headquarters or the
trading market for its shares.
It is expected that investments will be spread broadly around the world with an
emphasis on developed economies and capital markets. The Fund will usually be
invested in securities of issuers located in at least three countries, one of
which may be the U.S. The Fund may be invested 100% in non-U.S. issues, and for
temporary defensive purposes may be invested 100% in U.S. issues, although under
normal circumstances it is expected that both foreign and U.S. investments will
be represented in the Fund's portfolio. It is expected that investments will
include securities of companies of varying sizes, as measured by assets, sales,
income or market capitalization.
The Fund generally invests in equity securities of established companies listed
on U.S. or foreign securities exchanges, but also may invest in securities
traded over-the-counter. It also may invest in debt securities convertible into
common stock, and convertible and non-convertible preferred stock, and
fixed-income securities of governments, governmental agencies, supranational
agencies and companies when the Adviser believes the potential for appreciation
will equal or exceed that available from investments in equity securities. These
debt and fixed-income securities will be predominantly investment-grade
securities, that is, those rated Aaa, Aa, A or Baa by Moody's Investor Services,
Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P")
or those of equivalent quality as determined by the Adviser. The Fund may not
invest more than 5% of its total assets in debt securities rated Baa or below by
Moody's, or BBB or below by S&P or deemed by the Adviser to be of comparable
quality (commonly referred to as "high yield" or "junk" bonds).
The Fund may invest in zero coupon securities. In addition, fixed-income
securities may be held without limit for temporary defensive purposes when the
Adviser believes market conditions so warrant and for temporary investment. It
is impossible to accurately predict how long such alternative strategies may be
utilized. Similarly, the Fund may invest in cash equivalents (including domestic
and foreign money market instruments, such as bankers' acceptances, certificates
of deposit, commercial paper, short-term government and corporate obligations
and repurchase agreements) for temporary defensive purposes and for liquidity.
The Fund may invest in closed-end investment companies holding foreign
securities, as well as shares of closed-end investment companies that invest
primarily in emerging market debt securities. In addition, the Fund may engage
in strategic transactions, which may include derivatives.
The Fund may invest in REITs. REITs are sometimes informally characterized as
equity REITs, mortgage REITs and hybrid REITs. Investment in REITs may subject
the Fund to risks associated with the direct ownership of real estate, such as
decreases in real estate values, overbuilding, increased competition and other
risks related to local or general economic conditions, increases in operating
costs and property taxes, changes in zoning laws, casualty or condemnation
losses, possible environmental liabilities, regulatory limitations on rent and
fluctuations in rental income. Equity REITs generally experience these risks
directly through fee or leasehold interests, whereas mortgage REITs generally
experience these risks indirectly through mortgage interests, unless the
mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of the Fund's investment in REITs. For instance,
during periods of declining interest rates, certain mortgage REITs may hold
mortgages that the mortgagors elect to prepay, which prepayment may diminish the
yield on securities issued by those REITs.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the "Code") and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on
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their ability to generate cash flow to make distributions to shareholders. The
value invested in REITs will not exceed 5% of the value of the Fund's total
assets.
INTERNATIONAL GROWTH AND INCOME FUND. International Growth and Income Fund seeks
long-term growth of capital and current income primarily from foreign equity
securities. The Fund invests generally in common stocks of established companies
listed on foreign exchanges, which offer prospects for growth of earnings while
paying relatively high current dividends. The Fund can also invest in other
types of equity securities, including preferred stocks and securities
convertible into common stock. The Fund does not invest in emerging markets, but
instead focuses its investments on the developed foreign countries included in
the Morgan Stanley Capital International World ex-US Index (the "MSCI").
The Fund's income-oriented strategy, which can help cushion returns in volatile
periods, and its concentration in developed markets, may make it appropriate for
investors seeking lower share price volatility than many other international
equity funds.
While the Fund may offer the potential for price appreciation and dividend
income, it also involves various types of risk. The Fund's net asset value can
fluctuate with changes in world securities market levels, political
developments, movements in currencies, investment flows and other factors.
In pursuing its dual objective, at least 80% of the Fund's net assets will
normally be invested in the equity securities of established non-U.S. companies.
The Fund generally invests in equity securities of established companies listed
on foreign securities exchanges, but also may invest in securities traded
over-the-counter. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.
The Fund intends to diversify investments among several developed foreign
markets and normally to invest in securities of issuers located in at least
three different countries. The Fund will invest predominantly in securities of
issuers in the developed foreign countries included in the MSCI.
Under normal conditions, the Fund may also invest up to 20% of its net assets in
debt securities convertible into common stock and fixed-income securities of
governments, governmental agencies, supranational agencies and private issuers
when the Adviser believes the potential for appreciation and income will equal
or exceed that available from investments in equity securities. These securities
will predominantly be "investment grade" securities, which are those rated Aaa,
Aa, A, or Baa by Moody's or AAA, AA, A or BBB by S&P or if unrated, judged by
the Adviser to be of equivalent quality. The Fund may also invest up to 5% of
its total assets in debt securities which are rated below-investment grade or
unrated but deemed by the Adviser to be of comparable quality to those rated
below investment-grade (commonly referred to as "junk bonds").
The Fund may also hold up to 20% of its net assets in U.S. and foreign fixed
income securities for temporary defensive purposes when the Adviser believes
market conditions so warrant. Similarly, the Fund may invest up to 20% of its
net assets in cash or cash equivalents including domestic and foreign money
market instruments, short-term government and corporate obligations and
repurchase agreements under normal circumstances and without limit for temporary
defensive purposes and to maintain liquidity. It is impossible to accurately
predict for how long such alternative strategies may be utilized. In addition,
the Fund may engage in strategic transactions, which may include derivatives.
The Adviser applies a disciplined, multi-part investment approach for selecting
stocks for the Fund. The first stage of this process involves analyzing the pool
of dividend-paying foreign securities, primarily from the world's more mature
markets, and targeting stocks that have high relative yields compared to the
average for their markets. In the Adviser's opinion, this group of
higher-yielding stocks offers the potential for returns that is greater than or
equal to the average market return, with price volatility that is lower than the
overall market volatility. The Adviser believes that these potentially favorable
risk and return characteristics exist because the higher dividends offered by
these stocks act as a "cushion" when markets are volatile and because the stocks
with higher yields tend to have more attractive valuations (e.g., lower
price-to-earnings ratios and lower price-to-book ratios).
The second stage of portfolio construction involves a fundamental analysis of
each company's financial strength, profitability, projected earnings,
competitive positioning and ability of management. During this step, the
Adviser's research team identifies what it believes are the most promising
stocks for the Fund's portfolio.
The third stage of the investment process involves diversifying the portfolio
among different industry sectors. The key element of this stage is evaluating
how the stocks in different sectors react to economic factors such as interest
rates, inflation, Gross Domestic
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Product and consumer spending, and then attaining a proper balance of stocks in
these sectors based on the Adviser's economic forecast.
The fourth and final stage of this ongoing process is diversifying the portfolio
among different countries. The Adviser will seek to have broad country
representation, favoring those countries that it believes have sound economic
conditions and open markets. The Fund's strategy is to manage risk and create
opportunity at each of its four stages in the investment process, starting with
the focus on stocks with high relative yields.
EMERGING MARKETS INCOME FUND. Emerging Markets Income Fund has dual investment
objectives. The Fund's primary investment objective is to provide investors with
high current income. As a secondary objective, the Fund seeks long-term capital
appreciation. In pursuing these goals, the Fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets. Many developing regions of the world have undertaken sweeping political
and economic changes that favor increased business activity and demand for
capital. In the opinion of the Adviser, these changes present attractive
investment opportunities, both in terms of income and appreciation potential,
for long-term investors. In an attempt to eliminate currency risk, the Fund
invests exclusively in U.S. dollar-denominated debt securities, or in foreign
currency denominated debt securities that are fully hedged back into the U.S.
dollar.
The Fund involves above-average bond fund risk and can invest entirely in high
yield/high risk bonds. While designed to provide a high level of current income,
the Fund may not be appropriate for all income investors. The Fund should not be
viewed as a substitute for a money market or short-term bond fund. The Fund
invests in lower quality securities of emerging market issuers, some of which
have in the past defaulted on certain of their financial obligations.
In seeking high current income and, secondarily, long-term capital appreciation,
the Fund invests, under normal market conditions, at least 65% of its total
assets in debt securities issued by governments, government-related entities and
corporations in emerging markets, or in debt securities, the return on which is
derived primarily from emerging markets. The Fund considers "emerging markets"
to include any country that is defined as an emerging or developing economy by
any one of the following: the International Bank for Reconstruction and
Development (i.e., the World Bank), the International Finance Corporation or the
United Nations or its authorities.
The Fund takes a global approach to portfolio management. The Adviser currently
weights its investments toward countries in Latin America, which has offered the
largest and most liquid debt markets of the emerging nations around the globe in
the past few years. However, the Adviser may pursue investment opportunities in
Asia, Africa, the Middle East and the developing countries of Europe, primarily
in Eastern Europe. The Fund deems an issuer to be located in an emerging market
if:
o the issuer is organized under the laws of an emerging market
country;
o the issuer's principal securities trading market is in an
emerging market; or
o at least 50% of the issuer's non-current assets,
capitalization, gross revenue or profit in any one of the two
most recent fiscal years is derived (directly or indirectly
from subsidiaries) from assets or activities located in
emerging markets.
The Fund may invest in a wide variety of high-yielding debt obligations,
including sovereign debt securities issued or guaranteed by governments,
government-related entities and central banks based in emerging markets
(including participations in and assignments of portions of loans between
governments and financial institutions); government owned, controlled or
sponsored entities located in emerging markets; entities organized and operated
for the purpose of restructuring investment characteristics of instruments
issued by government or government-related entities in emerging markets; and
debt obligations issued by supranational organizations such as the Asian
Development Bank and the Inter-American Development Bank, among others.
The Fund may also consider for purchase debt securities issued by commercial
banks and companies in emerging markets. The Fund may invest in both fixed- and
floating-rate issues. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments and trust interests. The
Fund may invest regularly in "Brady Bonds," which are debt securities issued
under the framework of the Brady
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Plan as a mechanism for debtor countries to restructure their outstanding bank
loans. Some "Brady Bonds" have their principal collateralized by zero coupon
U.S. Treasury bonds.
The Fund is not restricted by limits on weighted average portfolio maturity or
the maturity of an individual issue. Debt securities in which the Fund may
invest may have stated maturities from overnight to 30 years or longer. The
weighted average maturity of the Fund's portfolio is actively managed and will
vary from period to period based upon the Adviser's assessment of economic and
market conditions, taking into account the Fund's investment objectives.
In addition to maturity, the Fund's investments are actively managed in terms of
geography and industry allocation. In managing the Fund's portfolio, the Adviser
takes into account such factors as the credit quality of issuers, changes in and
levels of interest rates, projected economic growth rates, capital flows, debt
levels, trends in inflation, and governmental initiatives.
While the Fund is not "diversified" for purposes of the Investment Company Act
of 1940, as amended (the "1940 Act"), it intends to invest in a minimum of three
countries at any one time and will not commit more than 40% of its total assets
to issuers in a single country.
By focusing on fixed-income instruments issued in emerging markets, the Fund
invests predominantly in debt securities that are rated below investment-grade,
or unrated but equivalent to those rated below investment-grade, by
internationally recognized rating agencies such as S&P or Moody's. Debt
securities rated below BBB by S&P or below Baa by Moody's are considered to be
below investment-grade. These types of high yield/high risk debt obligations
(commonly referred to as "junk bonds") are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and often more
volatility in price than securities in higher rating categories, such as
investment-grade U.S. bonds. On occasion, the Fund may invest up to 5% of its
net assets in non-performing securities whose quality is comparable to
securities rated as low as D by S&P or C by Moody's. A large portion of the
Fund's bond holdings may trade at substantial discounts from face value.
The Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"), as well as Synthetic Investments.
The Fund may invest up to 35% of its total assets in securities other than debt
obligations issued in emerging markets. These holdings include debt securities
and money market instruments issued by corporations and governments based in
developed markets, including up to 20% of total assets in U.S. fixed-income
instruments.
However, for temporary, defensive or emergency purposes, the Fund may invest
without limit in U.S. debt securities, including short-term money market
securities. It is impossible to predict accurately how long such alternative
strategies will be utilized. In addition, the Fund may engage in strategic
transactions. The Fund may also acquire shares of closed-end investment
companies that invest primarily in emerging market debt securities.
The Fund is authorized to borrow money from banks and other entities in an
amount equal to up to 20% of the Fund's total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing, and
may use the proceeds of the borrowings for investment purposes. Borrowings
create leverage, which is a speculative characteristic. Although the Fund
intends to borrow frequently, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing and the likely investment returns on the securities
purchased with the borrowed moneys. The extent to which the Fund will borrow
will depend upon the availability of credit. No assurance can be given that the
Fund will be able to borrow on terms acceptable to the Fund and the Adviser.
EMERGING MARKETS GROWTH FUND. Emerging Markets Growth Fund seeks long-term
growth of capital primarily through equity investment in emerging markets around
the globe.
The Fund will invest in the Asia-Pacific region, Latin America, less developed
nations in Europe, the Middle East and Africa, focusing investments in countries
and regions where there appear to be the best value and appreciation potential,
subject to considerations of portfolio diversification and liquidity. In the
opinion of the Adviser, many emerging nations around the globe are likely to
continue to experience economic growth rates well in excess of those found in
the U.S., Japan and other developed markets. In the opinion of the Adviser, this
economic growth should translate into strong stock market performance over the
long term.
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The Fund's net asset value can fluctuate significantly with changes in stock
market levels, political developments, movements in currencies, investment flows
and other factors.
At least 65% of the Fund's total assets will be invested in the equity
securities of emerging market issuers. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the following: the International Bank for Reconstruction and Development
(i.e., the World Bank), the International Finance Corporation or the United
Nations or its authorities. The Fund intends to allocate its investments among
issuers located in at least three countries at all times, and does not expect to
concentrate in any particular industry. There is no limitation, however, on the
amount the Fund can invest in a specific country or region of the world.
The Fund deems an issuer to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market
country;
o the issuer's principal securities trading market is in an
emerging market; or
o at least 50% of the issuer's non-current assets,
capitalization, gross revenue or profit in any one of the two
most recent fiscal years is derived (directly or indirectly
through subsidiaries) from assets or activities located in
emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.
The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments, and trust interests.
Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of issuers in the U.S. and other developed markets. In
evaluating the appropriateness of such investments for the Fund, the Adviser
takes into account the issuer's involvement in the emerging markets and the
potential impact of that involvement on business results. The Fund may also
purchase securities on a when-issued or forward delivery basis, and may engage
in various strategic transactions, including derivatives. In addition, to
maintain liquidity, the Fund may borrow from banks. The Fund does not expect to
borrow for investment purposes.
For temporary defensive purposes, the Fund may hold, without limit, debt
instruments as well as cash and cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements. It is impossible to accurately predict for how long such
alternative strategies will be utilized. The Fund may also invest in closed-end
investment companies investing primarily in the emerging markets. Such
closed-end investment company investments will generally only be made when
market access or liquidity considerations restrict direct investment in the
market.
The Adviser takes a top-down approach to evaluating investments for the Fund,
using extensive fundamental and field research. The process begins with a study
of the economic fundamentals of each country and region as well as an
examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the Adviser to identify the industries and companies most likely
to benefit from the political, social and economic changes taking place in a
given region of the world.
Within a market, the Adviser looks for individual companies with exceptional
business prospects, which may be due to market dominance, unique franchises,
high growth potential, or innovative services, products or technologies. The
Adviser seeks to identify companies with favorable potential for appreciation
through growing earnings or greater market recognition over time. While these
companies may be among the largest in their local markets, they may be small by
the standards of U.S. stock market capitalization.
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LATIN AMERICA FUND. Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin American
issuers.
The Fund seeks to benefit from economic and political trends emerging throughout
Latin America. These trends are supported by governmental initiatives designed
to promote freer trade and market-oriented economies. The Adviser believes that
efforts by Latin American countries to, among other things, reduce government
spending and deficits, control inflation, lower trade barriers, stabilize
currency exchange rates, increase foreign and domestic investment and privatize
state-owned companies, will help support attractive investment returns over
time.
In seeking its objective to provide long-term capital appreciation, the Fund
normally invests at least 65% of its total assets in Latin American equity
securities. For purposes of this Statement of Additional Information, Latin
America is defined as Mexico, Central America, South America and the islands of
the Caribbean. The Fund defines securities of Latin American issuers as follows:
o Securities of companies organized under the laws of a Latin
American country or for which the principal securities trading
market is in Latin America;
o Securities issued or guaranteed by the government of a country
in Latin America, its agencies or instrumentalities, political
subdivisions or the central bank of such country;
o Securities of companies, wherever organized, when at least 50%
of an issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal
years represents (directly or indirectly through subsidiaries)
assets or activities located in Latin America; or
o Securities of Latin American issuers, as defined above, in the
form of depositary shares.
Although the Fund may participate in markets throughout Latin America, under
present conditions the Fund expects to focus its investments in Argentina,
Brazil, Chile, Colombia, Mexico and Peru. In the opinion of the Adviser, these
six countries offer the most developed capital markets in Latin America. The
Fund may invest in other countries in Latin America when the Adviser deems it
appropriate. The Fund intends to allocate investments among at least three
countries at all times and does not expect to concentrate investments in any
particular industry.
The Fund's equity investments include common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
restricted securities and may also be purchased through rights. Securities may
be listed on securities exchanges, traded over-the-counter, or have no organized
market.
The Fund may invest in debt securities when management anticipates that the
potential for capital appreciation is likely to equal or exceed that of equity
securities. Capital appreciation in debt securities may arise from a favorable
change in relative foreign exchange rates, in relative interest rate levels, or
in the creditworthiness of issuers. Receipt of income from such debt securities
is incidental to the Fund's objective of long-term capital appreciation. Most
debt securities in which the Fund invests are not rated. When debt securities
are rated, it is expected that such ratings will generally be below investment
grade; that is, rated below Baa by Moody's or below BBB by S&P, or deemed by the
Adviser to be of comparable quality (commonly referred to as "junk" bonds).
The Fund may invest up to 35% of its total assets in the equity securities of
U.S. and other non-Latin American issuers. In this regard, the Fund will focus
on larger, multinational corporations, which generally will comprise as much as
15% of the Fund's total assets. In evaluating non-Latin American investments,
the Adviser generally seeks investments where an issuer's Latin American
business activities and the impact of developments in Latin America may have a
positive and significant effect on the issuer's business results.
In selecting companies for investment, the Fund typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and
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cost of labor and raw materials. Investment decisions are made without regard to
arbitrary criteria as to minimum asset size, level of sales or the dividend
history of companies.
The allocation between equity and debt, and among countries in Latin America,
varies based on a number of factors, including: expected rates of economic and
corporate profit growth; past performance and current and comparative valuations
in Latin American capital markets; the level and anticipated direction of
interest rates; changes or anticipated changes in Latin American government
policy; and the condition of the balance of payments and changes in the terms of
trade. The Fund, in seeking undervalued markets or individual securities, also
considers the effects of past economic crises or ongoing financial and political
uncertainties.
To provide for redemptions, or in anticipation of investment in Latin American
securities, the Fund may hold cash or cash equivalents (in U.S. dollars or
foreign currencies) and other short-term securities, including money market
securities denominated in U.S. dollars or foreign currencies. In addition, to
provide for redemptions or distributions, the Fund may borrow from banks. The
Fund does not expect to borrow for investment purposes. The Fund may assume a
defensive position when, due to political or other factors, the Adviser
determines that opportunities for capital appreciation in Latin American markets
would be significantly limited over an extended period or that investing in
those markets poses undue risk to investors. The Fund may, for temporary
defensive purposes, invest up to 100% of its assets in cash and money market
instruments or invest all or a portion of its assets in securities of U.S. or
other non-Latin American issuers when the Adviser deems such a position
advisable in light of economic or market conditions. It is impossible to predict
accurately for how long such alternative strategies may be utilized. The Fund
may also invest in closed-end investment companies investing primarily in Latin
America. In addition, the Fund may invest in loan participations and
assignments, when-issued securities, convertible securities and repurchase
agreements and may engage in strategic transactions.
REPURCHASE AGREEMENTS. Each Fund, other than International Growth and Income
Fund and Emerging Markets Income Fund, may enter into repurchase agreements with
member banks of the Federal Reserve System, any foreign bank or with any
domestic or foreign broker/dealer which is recognized as a reporting government
securities dealer, if the creditworthiness of the bank or broker/dealer has been
determined by the Adviser to be at least as high as that of other obligations a
Fund may purchase.
International Growth and Income Fund may enter into repurchase agreements with
any member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investor Services Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P").
A repurchase agreement provides a means for a Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., a Fund) acquires a debt security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities is kept at least equal to the repurchase price
on a daily basis. The repurchase price may be higher than the purchase price,
the difference being income to a Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to a Fund, together with the
repurchase price on repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
physically held by the Fund's custodian or in the Federal Reserve Book Entry
system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the Obligation, subject to the repurchase agreement
and is therefore subject to that Fund's investment restrictions applicable to
loans. It is not clear whether a court would consider the Obligation purchased
by a Fund subject to a repurchase agreement as being owned by the Fund or as
being collateral for the loan by 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, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. If the court characterizes the transaction as a loan and a Fund has
not perfected a security interest in the Obligation, the Fund may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt instrument purchased for a Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation, in
which case the Fund may incur a loss if the proceeds to the Fund of the sale to
a third party are less than
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the repurchase price. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), a Fund will direct the seller of the Obligation to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that a Fund
will be unsuccessful in seeking to enforce the seller's contractual obligation
to deliver additional securities.
For Global Blue Chip Fund and Emerging Markets Income Fund, a repurchase
agreement with foreign banks may be available with respect to government
securities of the particular foreign jurisdiction, and such repurchase
agreements involve risks similar to repurchase agreements with U.S. entities.
REPURCHASE COMMITMENTS. Emerging Markets Income Fund and Latin America Fund may
enter into repurchase commitments with any party deemed creditworthy by the
Adviser, including foreign banks and broker/dealers, if the transaction is
entered into for investment purposes and the counterparty's creditworthiness is
at least equal to that of issuers of securities which a Fund may purchase. Such
transactions may not provide a Fund with collateral marked-to-market during the
term of the commitment.
COMMON STOCKS. Global Blue Chip Fund, International Growth and Income Fund,
Emerging Markets Growth Fund and Latin America Fund may invest in common stocks.
Common stock is issued by companies to raise cash for business purposes and
represents a proportionate interest in the issuing companies. Therefore, a Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors. An investment in common stock entails greater risk
of becoming valueless than does an investment in fixed-income securities.
Despite the risk of price volatility, however, common stock also offers the
greatest potential for long-term gain on investment, compared to other classes
of financial assets such as bonds or cash equivalents.
DEBT SECURITIES. Each Fund may purchase "investment-grade" bonds, which are
those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if
unrated, judged to be of equivalent quality as determined by the Adviser. Bonds
rated Baa or BBB may have speculative elements as well as investment-grade
characteristics. Securities rated below Baa by Moody's or below BBB by S&P
usually entail greater risk (including the possibility of default or bankruptcy
of the issuers of such securities), generally involve greater volatility of
price and risk of principal and income, and may be less liquid, than securities
in the higher rating categories. Securities rated C by Moody's or D by S&P may
be in default with respect to payment of principal or interest. Such securities
carry a high degree of risk and are considered speculative.(See "Appendix").
When the Adviser believes that it is appropriate to do so in order to achieve
the Fund's objective of long-term growth and current income, International
Growth and Income Fund may invest up to 20% of its net assets in debt securities
including bonds of foreign governments, supranational organizations and private
issuers, including bonds denominated in the ECU. The Fund may also invest up to
5% of its total assets in debt securities which are rated below investment-grade
and unrated securities. Portfolio debt investments will be selected on the basis
of, among other things, yield, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk.
Global Blue Chip Fund may not invest more than 5% of its total assets in
securities rated Baa/BBB or below or in unrated securities of equivalent quality
in the Adviser's judgment ("investment grade"). The Fund may invest in debt
securities which are rated as low as C by Moody's or D by S&P.
Emerging Markets Income Fund invests predominantly in debt securities that are
rated lower than Baa/BBB and in unrated securities judged to be of equivalent
quality as determined by the Adviser. On occasion, the Fund may invest up to 5%
of its net assets in non-performing securities rated as low as C by Moody's or D
by S&P.
Latin America Fund (subject to a limit of no more than 10% of its total assets
invested in bonds rated B or lower) and Emerging Markets Growth Fund may each
also purchase debt securities which are rated below investment-grade and may
invest in securities which are rated C by Moody's or D by S&P or securities of
comparable quality in the Adviser's judgment.
Emerging Markets Growth Fund will not purchase the securities of any issuer if,
as a result, more than 35% of the Fund's total assets would be invested in below
investment-grade securities or unrated securities of equivalent quality.
The Adviser expects that a significant portion of any of the Emerging Markets
Income Fund's and Emerging Markets Growth Fund's bond investments will be
purchased at a discount to par value. To the extent developments in emerging
markets result in
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improving credit fundamentals and rating upgrades for countries in emerging
markets, the Adviser believes that there is the potential for capital
appreciation as the improving fundamentals become reflected in the price of the
debt instruments. The Adviser also believes that a country's sovereign credit
rating (with respect to foreign currency-denominated issues) acts as a "ceiling"
on the rating of all debt issuers from that country. Thus, the ratings of
private sector companies cannot be higher than that of their home countries. The
Adviser believes, however, that many companies in emerging market countries, if
rated on a stand alone basis without regard to the rating of the home country,
possess fundamentals that could justify a higher credit rating, particularly if
they are major exporters and receive the bulk of their revenues in U.S. dollars
or other hard currencies. The Adviser seeks to identify such opportunities and
benefit from this type of market inefficiency.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Trading in debt obligations ("sovereign debt")
issued or guaranteed by Latin American governments or their agencies or
instrumentalities ("governmental entities") involves a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
willing or able to repay the principal and/or interest when due in accordance
with the terms of such obligations. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, dependence on expected
disbursements from third parties, the governmental entity's policy towards the
International Monetary Fund and the political constraints to which a
governmental entity may be subject. As a result, governmental entities may
default on their sovereign debt. Holders of sovereign debt (including Emerging
Markets Income Fund and Latin America Fund) may be requested to participate in
the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
HIGH YIELD, HIGH RISK SECURITIES. Below investment grade securities, commonly
referred to as "junk bonds," (rated below Baa by Moody's and below BBB by S&P)
or unrated securities of equivalent quality in the Adviser's judgment, carry a
high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities), generally involve greater volatility of price and
risk of principal and income, and may be less liquid, than securities in the
higher rating categories and are considered speculative. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. See the Appendix to this Statement of Additional Information for a
more complete description of the ratings assigned by ratings organizations and
their respective characteristics.
An economic downturn could disrupt the high-yield market and impair the ability
of issuers to repay principal and interest. Also, an increase in interest rates
would likely have a greater adverse impact on the value of such obligations than
on higher quality debt securities. During an economic downturn or period of
rising interest rates, highly leveraged issues may experience financial stress
which could adversely affect their ability to service their principal and
interest payment obligations. Prices and yields of high-yield securities will
fluctuate over time and, during periods of economic uncertainty, volatility of
high-yield securities may adversely affect a Fund's net asset value. In
addition, investments in high-yield zero coupon or pay-in-kind bonds, rather
than income-bearing high-yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high-yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may limit
the ability of a Fund to accurately value high-yield securities in its portfolio
and to dispose of those securities. Adverse publicity and investor perceptions
may decrease the values and liquidity of high-yield securities. These securities
may also involve special registration responsibilities, liabilities and costs,
and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of a Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
recent legislation restricts the issuer's tax deduction for interest payments on
these securities. Such legislation may significantly depress the prices of
outstanding securities of this type. For more information regarding tax issues
related to high-yield securities (see "TAXES").
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Global Blue Chip Fund will invest no more than 5% of its total assets in debt
securities rated BBB or Baa or below or in unrated securities. International
Growth and Income Fund will invest no more than 5% of its total assets in debt
securities rated below BBB or Baa or in unrated securities.
Emerging Markets Income Fund invests predominantly in debt securities that are
rated below investment-grade, or unrated but equivalent to those rated below
investment-grade by internationally recognized rating agencies such as S&P or
Moody's.
Emerging Markets Growth Fund may invest in debt securities with varying degrees
of credit quality. The Fund may invest in securities whose quality is comparable
to securities rated as low as D by S&P or C by Moody's. Latin America Fund will
invest no more than 10% of its net assets in securities rated B or lower by
Moody's or S&P, and may invest in securities rated C by Moody's or D by S&P.
ILLIQUID SECURITIES. Each 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 (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 a Fund to sell them promptly at an acceptable price. Each Fund
may have to bear the extra expense of registering such securities for resale and
the risk of substantial delay in effecting such registration. Also market
quotations are less readily available. The judgment of the Adviser may at times
play a greater role in valuing these securities than in the case of 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. A Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event a Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
ZERO COUPON SECURITIES. Each Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely 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 a Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. Each Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
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considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if a Fund is "diversified"
under the 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest are either fixed income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
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
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with options and/or redemption features exercisable by the holder of the
obligation entitling the holder to redeem the obligation and receive a defined
cash payment.
INDEXED SECURITIES. Emerging Markets Income Fund may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
Most indexed securities have maturities of three years or less.
Indexed securities differ from other types of debt securities in which the Fund
may invest in several respects. First, the interest rate or, unlike other debt
securities, the principal amount payable at maturity of an indexed security may
vary based on changes in one or more specified reference instruments, such as an
interest rate compared with a fixed interest rate or the currency exchange rates
between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).
Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
FOREIGN CURRENCIES. Each Fund has foreign currency exposure. In an attempt to
eliminate currency risk, Emerging Markets Income Fund invests exclusively in
U.S. dollar-denominated debt securities, or in foreign currency denominated debt
securities that are fully hedged back into the U.S. dollar. Because investments
in foreign securities usually will involve currencies of foreign countries, and
because a Fund may hold funds in bank deposits in foreign currencies during the
completion of investment programs and may purchase foreign currency, foreign
currency futures contracts, and options on foreign currencies and foreign
currency futures contracts, the value of the assets of a Fund as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and a Fund may incur
costs in connection with conversions between various currencies. Many Latin
American and Asian currencies have experienced significant devaluation relative
to the dollar. Although each Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer. Each Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into options or forward or futures contracts to purchase or sell foreign
currencies.
Because a Fund normally will be invested in foreign securities markets, changes
in the Fund's share price may have a low correlation with movements in the U.S.
markets. A Fund's share price will reflect the movements of both the different
stock and bond markets in which it is invested and of the currencies in which
the investments are denominated; the strength or weakness of the U.S. dollar
against foreign currencies may account for part of the Fund's investment
performance. U.S. and foreign securities markets do not always move in step with
each other, and the total returns from different markets may vary significantly.
The Funds invest in many securities markets around the world in an attempt to
take advantage of opportunities wherever they may arise.
DEPOSITARY RECEIPTS. Each Fund may invest directly in securities of emerging
market country issuers through sponsored or unsponsored American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary
Receipts ("IDRs") and other types of Depositary Receipts (which, together with
ADRs, GDRs and IDRs are hereinafter referred to as "Depositary Receipts").
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored Depositary Receipts are not obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of the Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
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corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may be issued by
United States banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation. Generally,
Depositary Receipts in registered form are designed for use in the United States
securities markets and Depositary Receipts in bearer form are designed for use
in securities markets outside the United States. For purposes of each Fund's
investment policies, a Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts 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.
LENDING OF PORTFOLIO SECURITIES. International Growth and Income Fund may lend
portfolio securities. Such loans may be made to registered broker/dealers or
other financial institutions and are required to be secured continuously by
collateral in cash and liquid assets maintained on a current basis at an amount
at least equal to the market value and accrued interest of the securities
loaned. The Fund has the right to call a loan and obtain the securities loaned
on five days' notice or, in connection with securities trading on foreign
markets, within such longer period of time which coincides with the normal
settlement period for purchases and sales of such securities in such foreign
markets. During the existence of a loan, the Fund will continue to receive the
equivalent of any distributions paid by the issuer on the securities loaned and
will also receive compensation based on investment of the collateral. The risks
in lending securities, as with other extensions of secured credit, consist of a
possible delay in recovery or even a loss of rights in the collateral should the
borrower of the securities fail financially. Loans will only be made to firms
deemed by the Adviser to be in good standing, and will not be made unless, in
the judgment of the Adviser, the consideration to be earned from such loans
would justify the risk. The value of the securities loaned will not exceed 3
1/3% of the value of a Fund's total assets at the time any loan is made. Upon
approval from the Board of Directors, each of the other Funds may seek to
increase its net income by lending portfolio securities.
WHEN-ISSUED SECURITIES. Each Fund may, from time to time, purchase securities on
a "when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by a Fund
to the issuer and no interest accrues to the Fund. To the extent that assets of
a Fund are held in cash pending the settlement of a purchase of securities, the
Fund would earn no income; however, it is the Fund's intention to be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued or forward delivery securities may be sold prior to the
settlement date, a Fund intends to purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time a Fund makes the commitment to purchase a security on a when-issued
or forward delivery basis, it will record the transaction and reflect the value
of the security in determining its net asset value. At the time of settlement,
the market value of the when-issued or forward delivery securities may be more
or less than the purchase price. A Fund does not believe that its net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis.
SYNTHETIC INVESTMENTS. In certain circumstances, the Emerging Markets Income
Fund may wish to obtain the price performance of a security without actually
purchasing the security in circumstances where, for example, the security is
illiquid, or is unavailable for direct investment or available only on less
attractive terms. In such circumstances, the Fund may invest in synthetic or
derivative alternative investments ("Synthetic Investments") that are based upon
or otherwise relate to the economic performance of the underlying securities.
Synthetic Investments may include swap transactions, notes or units with
variable redemption amounts, and other similar instruments and contracts.
Synthetic Investments typically do not represent beneficial ownership of the
underlying security, usually are not collateralized or otherwise secured by the
counterparty and may or may not have any credit enhancements attached to them.
Accordingly, Synthetic Investments involve exposure not only to the
creditworthiness of the issuer of the underlying security, changes in exchange
rates and future governmental actions taken by the jurisdiction in which the
underlying security is issued, but also to the creditworthiness and legal
standing of the counterparties involved. In addition, Synthetic Investments
typically are illiquid.
BRADY BONDS. Each Fund, with the exception of International Growth and Income
Fund, may invest in Brady Bonds, which are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Bulgaria, Brazil, Costa Rica,
Dominican Republic, Ecuador, Mexico, Morocco, Nigeria, the Philippines, Poland,
and Uruguay.
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Brady Bonds have been issued only recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the U.S. dollar) and are actively
traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the bonds. Interest
payments on many Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's rolling interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
SOVEREIGN DEBT. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy 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.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Emerging Markets Income Fund, Emerging
Markets Growth Fund and Latin America Fund may invest in fixed- and
floating-rate loans ("Loans") arranged through private negotiations between an
issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). Each Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in a Fund's having a contractual
relationship only with the Lender and not with the borrower. Each Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, a Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and a Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, a Fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation. In the event of the insolvency of the
Lender selling a Participation, a Fund may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and the
borrower. Each Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.
When a Fund purchases Assignments from Lenders, it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by a Fund as the purchaser of an
Assignment may differ from, and may be more limited than, those held by the
assigning Lender.
Each Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for these obligations typically exists, each Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on a Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a
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deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations may also make it more
difficult for a Fund to assign a value to those securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
FOREIGN SECURITIES. Each Fund is designed for investors who can accept currency
and other forms of international investment risk. In an attempt to eliminate
currency risk, however, Emerging Markets Income Fund invests exclusively in U.S.
dollar-denominated debt securities, or in foreign currency denominated debt
securities that are fully hedged back into the U.S. dollar. The Adviser believes
that diversification of assets on an international basis decreases the degree to
which events in any one country, including the U.S., will affect an investor's
entire investment holdings. In certain periods since World War II, many leading
foreign economies and foreign stock market indices have grown more rapidly than
the U.S. economy and leading U.S. stock market indices, although there can be no
assurance that this will be true in the future.
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect a Fund's performance. As foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic companies,
there may be less publicly available information about a foreign company than
about a domestic company. Many foreign securities markets, while growing in
volume of trading activity, have substantially less volume than the U.S. market,
and securities of some foreign issuers are less liquid and more volatile than
securities of domestic issuers. Similarly, volume and liquidity in most foreign
bond markets is less than in the U.S. and, at times, volatility of price can be
greater than in the U.S. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause that Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a Fund
due to subsequent declines in value of the portfolio security or, if a Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. Payment for securities without delivery may be required in
certain foreign markets. Fixed commissions on some foreign securities exchanges
and bid-to-asked spreads in foreign bond markets are generally higher than
commissions or bid-to-asked spreads on U.S. markets, although the Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. Further, a Fund may encounter difficulties or be unable to pursue
legal remedies and obtain judgments in foreign courts. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed companies than in the U.S. It may be more difficult for the Fund's agents
to keep currently informed about corporate actions which may affect the prices
of portfolio securities. Communications between the U.S. and foreign countries
may be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. In addition, with respect to certain foreign countries, there is the
possibility of nationalization, expropriation, the imposition of withholding or
confiscatory taxes, political, social, or economic instability, or diplomatic
developments which could affect United States investments in those countries.
Investments in foreign securities may also entail certain risks, such as
possible currency blockages or transfer restrictions, and the difficulty of
enforcing rights in other countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
Many of the currencies of Eastern European countries have experienced a steady
devaluation relative to western currencies. Any future devaluation may have a
detrimental impact on any investments made by a Fund in Eastern Europe. The
currencies of most Eastern European countries are not freely convertible into
other currencies and are not internationally traded. A Fund will not invest its
assets in non-convertible fixed income securities denominated in currencies that
are not freely convertible into other currencies at the time the investment is
made.
These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of each Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, none of the Funds will invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
18
<PAGE>
Trading in securities on European and Far Eastern securities exchanges is
normally completed before the close of regular trading on 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.
INVESTING IN EMERGING MARKETS. Each Fund, with the exception of International
Growth and Income Fund, may invest in securities of issuers in emerging markets.
Most emerging securities markets may have substantially less volume and are
subject to less government supervision than U.S. securities markets. Securities
of many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. In addition, there is less regulation
of securities exchanges, securities dealers, and listed and unlisted companies
in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Delays in settlement could result in
temporary periods when a portion of the assets of a Fund is uninvested and no
cash is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in U.S. securities.
Such transactions also involve additional costs for the purchase or sale of
foreign currency.
Foreign investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging markets debt obligations and
increase the costs and expenses of a Fund. Certain emerging markets require
prior governmental approval of investments by foreign persons, limit the amount
of investment by foreign persons in a particular company, limit the investment
by foreign persons only to a specific class of securities of a company that may
have less advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on foreign
investors.
Certain emerging markets require prior governmental approval of investments by
foreign persons, limit the amount of investment by foreign persons in a
particular company, limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors. Certain emerging markets may also
restrict investment opportunities in securities of issuers in industries deemed
important to national interest.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. A Fund could be adversely affected
by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
In the course of investment in emerging markets, a Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. Political changes in emerging market countries may
affect the willingness of an emerging market country governmental issuer to make
or provide for timely payments of its obligations. The country's economic
status, as reflected, among other things, in its inflation rate, the amount of
its external debt and its gross domestic product, also affect its ability to
honor its obligations. While each Fund manages its assets in a manner that will
seek to minimize the exposure to such risks, and will further reduce risk by
owning the bonds of many issuers, there can be no assurance that adverse
political, social or economic changes will not cause a Fund to suffer a loss of
value in respect of the securities in the Fund's portfolio.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for a Fund's securities in such markets may
not be readily available. The Corporation may suspend redemption of its shares
for any period during which an emergency exists, as determined by the SEC.
Accordingly if a Fund believes that appropriate circumstances exist, it will
promptly apply to the SEC for a determination that an emergency is present.
During the period commencing from the Fund's identification of such condition
until the date of the SEC action, the Fund's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Corporation's Board of Directors.
19
<PAGE>
Volume and liquidity in most foreign markets are less than in the U.S., and
securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although each Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect a Fund's investments in those countries. Moreover, individual
emerging market economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The chart below sets forth the risk ratings of selected emerging
market countries' sovereign debt securities.
<TABLE>
<CAPTION>
Sovereign Risk Ratings for Selected Emerging Market Countries as of February, 1999
Country Moody's* Standard & Poor's**
------- -------- -------------------
<S> <C> <C>
Chile Baa1 A-
Turkey B1 B
Mexico Ba2 BB
Czech Republic Baa1 A-
Hungary Baa2 BBB
Colombia Baa3 BBB-
Venezuela B2 B+
Morocco Ba1 BB
Argentina Ba3 BB
Brazil B2 B+
Poland Baa3 BBB-
Ivory Coast NR NR
* As of February 24, 1999. Source: Moody's Investors Service.
** As of February 19, 1999. Source: Standard & Poor's.
</TABLE>
A Fund may have limited legal recourse in the event of a default with respect to
certain debt obligations it holds. If the issuer of a fixed-income security
owned by a Fund defaults, the Fund may incur additional expenses to seek
recovery. Debt obligations issued by emerging market country governments differ
from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. A Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is,
therefore, somewhat diminished. Bankruptcy, moratorium and other similar laws
applicable to private issuers of debt obligations may be substantially different
from those of other countries. The political context, expressed as an emerging
market governmental issuer's willingness to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt may not contest
payments to the holders of debt obligations in the event of default under
commercial bank loan agreements. With four exceptions, (Panama, Cuba, Costa Rica
and Yugoslavia), no sovereign emerging markets borrower has defaulted on an
external bond issue since World War II.
Income from securities held by a Fund could be reduced by a withholding tax on
the source or other taxes imposed by the emerging market countries in which the
Fund makes its investments. A Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the Fund or to
entities in which the Fund has invested. The Adviser will consider the cost of
any taxes in determining whether to acquire any particular investments, but can
provide no assurance that the taxes will not be subject to change.
Many emerging markets have experienced substantial, and, in some periods,
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
20
<PAGE>
Emerging market governmental issuers are among the largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. Certain emerging market governmental issuers have not
been able to make payments of interest on or principal of debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given country. As a result, governmental actions in the future could have a
significant effect on economic conditions in emerging markets, which in turn,
may adversely affect companies in the private sector, general market conditions
and prices and yields of certain of the securities in a Fund's portfolio.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments have occurred frequently over
the history of certain emerging markets and could adversely affect a Fund's
assets should these conditions recur.
The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.
To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of emerging markets to these
forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of emerging market country
governmental issuers to make payments on their obligations. In addition, the
cost of servicing emerging market debt obligations can be affected by a change
in international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.
INVESTING IN LATIN AMERICA. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, a Fund
could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the U.S. Disclosure and regulatory standards are in many respects less
stringent than U.S. standards. Furthermore, there is a lower level of monitoring
and regulation of the markets and the activities of investors in such markets.
The limited size of many Latin American securities markets and limited trading
volume in the securities of Latin American issuers compared to the volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
Changes in the value of Latin American currencies against the U.S. dollar may
result in corresponding changes in the U.S. dollar value of the Fund's assets
denominated in those currencies.
Some Latin American countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
Latin American countries may restrict the free conversion of their currencies
into other currencies. Further, certain Latin American currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency
21
<PAGE>
and balance of payments position. Certain Latin American countries have
experienced high levels of inflation which can have a debilitating effect on an
economy, although some have begun to control inflation in recent years through
prudent economic policies. Furthermore, certain Latin American countries may
impose withholding taxes on dividends payable to a Fund at a higher rate than
those imposed by other foreign countries. This may reduce a Fund's investment
income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are among
the world's largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared moratoria on the payment
of principal and/or interest on outstanding debt.
Latin America is a region rich in natural resources such as oil, copper, tin,
silver, iron ore, forestry, fishing, livestock and agriculture. The region has a
large population (roughly 300 million) representing a large domestic market.
Economic growth was strong in the 1960s and 1970s, but slowed dramatically (and
in some instances was negative) in the 1980s as a result of poor economic
policies, higher international interest rates, and the denial of access to new
foreign capital. Although a number of Latin American countries are currently
experiencing lower rates of inflation and higher rates of real growth in gross
domestic product than they have in the past, other Latin American countries
continue to experience significant problems, including high inflation rates and
high interest rates. Capital flight has proven a persistent problem and external
debt has been forcibly restructured. Political turmoil, high inflation, capital
repatriation restrictions, and nationalization have further exacerbated
conditions.
Governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect or, in some cases, cause the entire loss of, a Fund's
investments in this region.
Changes in political leadership, the implementation of market oriented economic
policies, such as privatization, trade reform and fiscal and monetary reform are
among the recent steps taken to renew economic growth. External debt is being
restructured and flight capital (domestic capital that has left the home
country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free zone among Mexico, the U.S. and Canada and
another zone among four countries in the southernmost point of Latin America.
Currencies are typically weak, but most are now relatively free floating, and it
is not unusual for the currencies to undergo wide fluctuations in value over
short periods of time due to changes in the market.
INVESTING IN THE PACIFIC BASIN. Economies of individual Pacific Basin countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.
With respect to the Peoples Republic of China and other markets in which a Fund
may participate, there is the possibility of nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments that could adversely impact a Pacific
Basin country or a Fund's investment in the debt of that country.
Trading volume on Pacific Basin stock exchanges outside of Japan, although
increasing, is substantially less than in the U.S. stock market. Further,
securities of some Pacific Basin companies are less liquid and more volatile
than securities of comparable U.S. companies. Fixed commissions on Pacific Basin
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although a Fund endeavors to achieve the most favorable net results
on its portfolio transactions and may be able to purchase securities in which a
Fund may invest on other stock exchanges where commissions are negotiable.
Foreign companies, including Pacific Basin companies, are not generally subject
to uniform accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently,
22
<PAGE>
there may be less publicly available information about such companies than about
U.S. companies. Moreover, there is generally less government supervision and
regulation in the Pacific Basin than in the U.S.
These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of a Fund seeks to mitigate the risks associated with
the foregoing considerations through continuous professional management.
Recent conditions in the Pacific Basin region include political uncertainty,
economic overheating, erratic trade policies and extreme currency fluctuations
that have resulted in equity market decline. The conditions that have given rise
to these developments, however, are changeable, and there is no way to predict
if they will continue or the speed at which the economies of that region will
recover.
INVESTING IN EUROPE. Most Eastern European nations, including Hungary, Poland,
Czech Republic, Slovak Republic, and Romania have had centrally planned,
socialist economies since shortly after World War II. A number of their
governments, including those of Hungary, the Czech Republic, and Poland are
currently implementing or considering reforms directed at political and economic
liberalization, including efforts to foster multi-party political systems,
decentralize economic planning, and move toward free market economies. At
present, no Eastern European country has a developed stock market, but Poland,
Hungary, and the Czech Republic have small securities markets in operation.
Ethnic and civil conflict currently rage through the former Yugoslavia. The
outcome is uncertain.
Both the European Community (the "EC") and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.
The conditions that have given rise to these developments are changeable, and
there is no assurance that reforms will continue or that their goals will be
achieved.
Portugal is a genuinely emerging market which has experienced rapid growth since
the mid-1980s, except for a brief period of stagnation over 1990-91. Portugal's
government remains committed to privatization of the financial system away from
one dependent upon the banking system to a more balanced structure appropriate
for the requirements of a modern economy. Inflation continues to be about three
times the EC average.
Economic reforms launched in the 1980s continue to benefit Turkey in the 1990s.
Turkey's economy has grown steadily since the early 1980s, with real growth in
per capita Gross Domestic Product (the "GDP") increasing more than 6% annually.
Agriculture remains the most important economic sector, employing approximately
55% of the labor force, and accounting for nearly 20% of GDP and 20% of exports.
Inflation and interest rates remain high, and a large budget deficit will
continue to cause difficulties in Turkey's substantial transformation to a
dynamic free market economy.
Like many other Western economies, Greece suffered severely from the global oil
price hikes of the 1970s, with annual GDP growth plunging from 8% to 2% in the
1980s, and inflation, unemployment, and budget deficits rising sharply. The fall
of the socialist government in 1989 and the inability of the conservative
opposition to obtain a clear majority have led to business uncertainty and the
continued prospects for flat economic performance. Once Greece has sorted out
its political situation, it will have to face the challenges posed by the
steadily increasing integration of the EC, including the progressive lowering of
trade and investment barriers. Tourism continues as a major industry, providing
a vital offset to a sizable commodity trade deficit.
Securities traded in certain emerging European securities markets may be subject
to risks due to the inexperience of financial intermediaries, the lack of modern
technology and the lack of a sufficient capital base to expand business
operations. Additionally, former Communist regimes of a number of Eastern
European countries had expropriated a large amount of property, the claims of
which have not been entirely settled. There can be no assurance that a Fund's
investments in Eastern Europe would not also be expropriated, nationalized or
otherwise confiscated. Finally, any change in leadership or policies of Eastern
European countries, or countries that exercise a significant influence over
those countries, may halt the expansion of or reverse the liberalization of
foreign investment policies now occurring and adversely affect existing
investment opportunities.
23
<PAGE>
Investments in companies domiciled in Eastern European countries may be subject
to potentially greater risks than those of other foreign issuers. These risks
include (i) potentially less social, political and economic stability; (ii) the
small current size of the markets for such securities and the low volume of
trading, which result in less liquidity and in greater price volatility; (iii)
certain national policies which may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vii) the possibility that recent favorable
economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries, or in the countries
of the former Soviet Union.
Investments in such countries involve risks of nationalization, expropriation
and confiscatory taxation. The Communist governments of a number of East
European countries expropriated large amounts of private property in the past,
in many cases without adequate compensation, and there may be no assurance that
such expropriation will not occur in the future. In the event of such
expropriation, a Fund could lose a substantial portion of any investments it has
made in the affected countries. Further, no accounting standards exist in East
European countries. Finally, even though certain East European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to a Fund's shareholders.
INVESTING IN AFRICA. Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the percentage
of people who are over 15 years of age and who can read and write) are
relatively low, ranging from 20% to 60%. The primary industries include crude
oil, natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.
Many of the countries are fraught with political instability. However, there has
been a trend over the past five years toward democratization. Many countries are
moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.
Economically, the Northern Rim countries (including Morocco, Egypt and Algeria)
and Nigeria, Zimbabwe and South Africa are the wealthier countries on the
continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.
On the other end of the economic spectrum are countries, such as Burkina Faso,
Madagascar and Malawi, that are considered to be among the poorest or least
developed in the world. These countries are generally landlocked or have poor
natural resources. The economies of many African countries are heavily dependent
on international oil prices. Of all the African industries, oil has been the
most lucrative, accounting for 40% to 60% of many countries' GDP. However,
general decline in oil prices has had an adverse impact on many economies.
ECONOMIC GROWTH. Emerging markets are an increasingly important part of the
world's investment activity. In 1985, emerging markets accounted for only 2.7%
of the world's stock market trading value, compared to 17% in 1994.1 The chief
rationale for investing in emerging markets is the dramatic growth rates that
these economies continue to enjoy. Over the past decade, the annual percentage
change in the economic growth rates of emerging market countries has been
climbing above that of the mature markets.
- ------------------------
1 International Finance Corporation, 1995.
2 IMF World Economic Outlook, 1995.
3 International Finance Corporation, 1995.
24
<PAGE>
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
Ecomomic Growth
LINE CHART DATA:
OECD Emerging Economies
---- ------------------
1986 2.9 3.93
1987 3.2 4.45
1988 4.5 3.43
1989 3.2 3.4
1990 2.3 3.28
1991 0.8 3.58
1992 1.6 4.15
1993 1.4 4.1
1994 3.1 4
1995 2.3 4.55
1996 2.6 5.4
This growth translates into an average annual percentage change (as measured by
GDP) of 2.53% for mature economies, compared to 3.89% for developing
countries.^2 Emerging market economies are projected to grow at a 6.3% annual
rate -- more than double the expected growth of established countries in Europe,
Asia and North America (2.4%).^3
Increased integration and faster growth in China, India, Indonesia, Brazil, and
Russia -- five countries that today account for half the world's labor force but
only 8-9 percent of its GDP or international trade -- will likely redraw the
economic map of the world over the next quarter century.
STRATEGIC TRANSACTIONS AND DERIVATIVES. Each Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks , managing the effective maturity
or duration of the fixed-income securities in a Fund's portfolio, or enhancing
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. In the course of pursuing these investment strategies,
a Fund may purchase and sell exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other instruments,
purchase and sell futures contracts and options thereon, enter into various
transactions, such as swaps, caps, floors, collars, currency forward contracts,
currency futures contracts, currency swaps or options on currencies, currency
futures, and various other currency transactions (collectively, all the above
are called "Strategic Transactions"). In addition, strategic transactions may
also include new techniques, instruments or strategies that are permitted as
regulatory changes occur. Strategic Transactions may be used without limit to
attempt to protect against possible changes in the market value of securities
held in or to be purchased for a Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect a Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of the fixed-income securities in a Fund's portfolio, or to establish a position
in the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of a Fund's assets will be committed to Strategic
Transactions entered into for non-hedging purposes. Any or all of these
investment techniques may be used at any time and in any combination and there
is no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of a Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. Each Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments Strategic Transactions will not be used to alter the
fundamental investment purposes and characteristics of the Fund, and each Fund
will segregate assets (or as provided by applicable regulations, enter into
certain offering positions) to cover its obligations under options, futures and
swaps, to limit leveraging of the Fund.Strategic Transactions, including
derivative contracts have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to a Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation a Fund can
realize on its investments or cause a Fund to hold a security it might
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otherwise sell. The use of currency transactions can result in a Fund incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of a Fund creates the possibility that losses on the hedging instrument
may be greater than gains in the value of a Fund's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, a Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving a Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. A Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect a Fund against
an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. Each Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
Each Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A Fund
will only sell OTC options (other than OTC currency options) that are subject to
a buy-back provision permitting a Fund to require the Counterparty to sell the
option back to a Fund at a formula price within seven days. Each Fund expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. Each Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to a Fund's limitation on investing in
illiquid securities.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
Each Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
Each Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. None of the Funds will sell put options if, as a result, more than
50% of a Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that a Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
GENERAL CHARACTERISTICS OF FUTURES. Each Fund may enter into futures contracts
or purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management, and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed,
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by a Fund, as seller, to deliver to
the buyer the specific type of instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
Each Fund's use of futures and options thereon will in all cases be consistent
with applicable regulatory requirements and in particular the rules and
regulations of the Commodity Futures Trading Commission and will be entered into
for bona fide hedging, risk management (including duration management) or other
portfolio management and return enhancement purposes.
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Typically, maintaining a futures contract or selling an option thereon requires
a Fund to deposit with a financial intermediary as security for its obligations
an amount of cash or other specified assets (initial margin) which initially is
typically 1% to 10% of the face amount of the contract (but may be higher in
some circumstances). Additional cash or assets (variation margin) may be
required to be deposited thereafter on a daily basis as the mark to market value
of the contract fluctuates. The purchase of an option on futures involves
payment of a premium for the option without any further obligation on the part
of a Fund. If a Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
None of the Funds will enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of a Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. Each Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
CURRENCY TRANSACTIONS. Each Fund may engage in currency transactions with
Counterparties, primarily in order to hedge, or manage the risk of, the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. A Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.
Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
None of the Funds generally will enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a Fund has or in which a Fund expects to
have portfolio exposure.
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To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, each Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Adviser believes that
the value of schillings will decline against the U.S. dollar, the Adviser may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
RISKS OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which a
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. Each Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. Each Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream a Fund may be
obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
Each Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as each Fund will
segregate assets (or enter into certain offsetting positions) to cover its
obligations under swaps, the Adviser and the Funds believe such obligations do
not constitute senior securities under the 1940
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Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. None of the Funds will enter into any swap, cap, floor or collar
transaction unless, at the time of entering into such transaction, the unsecured
long-term debt of the Counterparty, combined with any credit enhancements, is
rated at least A by S&P or Moody's or has an equivalent rating from a NRSRO or
is determined to be of equivalent credit quality by the Adviser. If there is a
default by the Counterparty, a Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
EURODOLLAR INSTRUMENTS. Each Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. Each Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that a Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a Fund to pay
or deliver securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid assets at least equal to the current
amount of the obligation must be segregated with the custodian. The segregated
assets cannot be sold or transferred unless equivalent assets are substituted in
their place or it is no longer necessary to segregate them. For example, a call
option written by a Fund will require the Fund to hold the securities subject to
the call (or securities convertible into the needed securities without
additional consideration) or to segregate cash or liquid assets sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by a Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate cash or liquid assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by a Fund requires the Fund to segregate cash or liquid assets
equal to the exercise price.
Except when a Fund enters into a forward contract for the purchase or sale of a
security denominated in a particular currency, which requires no segregation, a
currency contract which obligates a Fund to buy or sell currency will generally
require the Fund to hold an amount of that currency or liquid securities
denominated in that currency equal to the Fund's obligations or to segregate
cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by a Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery,
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or with an election of either physical delivery or cash settlement will be
treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, a Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the excess, if any,
of its obligations over its entitlements with respect to each swap on a daily
basis and will segregate an amount of cash or liquid assets having a value equal
to the accrued excess. Caps, floors and collars require segregation of assets
with a value equal to a Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. Each Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
NON-DIVERSIFIED INVESTMENT COMPANY. Emerging Markets Income Fund, Emerging
Markets Growth Fund and Latin America Fund is each classified as a
non-diversified investment company under the 1940 Act, which means that each
Fund is not limited by the 1940 Act in the percentage of its assets that it may
invest in the obligations of a single issuer. As a "non-diversified" investment
company, a Fund may be subject to greater market and credit risk than a more
broadly diversified portfolio. The investment of a large percentage of a Fund's
assets in the securities of a small number of issuers may cause a Fund's share
price to fluctuate more than that of a diversified investment company.
WARRANTS. Each Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. Each Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. A Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
BORROWING. Each Fund is authorized to borrow money for purposes of liquidity and
to provide for redemptions and distributions. Each Fund will borrow only when
the Adviser believes that borrowing will benefit the Fund after taking into
account considerations such as the costs of the borrowing. Borrowing by each
Fund will involve special risk considerations. Although the principal of each
Fund's borrowings will be fixed, a Fund's assets may change in value during the
time a borrowing is outstanding, thus increasing exposure to capital risk.
In addition, Emerging Markets Income Fund anticipates borrowing
opportunistically up to 20% of its total assets (including the amount borrowed)
for investment purposes. The borrowings would constitute leverage, which is a
speculative characteristic. Leveraging will magnify declines as well as
increases in the net asset and in the yield of the Fund's portfolio. If the
income earned on the assets obtained with borrowed funds exceeds the interest
and other expenses paid on the borrowing, the Fund's net income will be greater
than if borrowings were not used. Conversely, however, if the income on the
assets is insufficient to cover the cost of borrowing, the Fund's net income
will be less than if borrowings were not used.
31
<PAGE>
INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be
acquired by each Fund, to the extent permitted under the 1940 Act. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by a Fund in shares of other
investment companies may be subject to such duplicate expenses.
INVESTING IN SMALL COMPANIES. There is typically less publicly available
information concerning foreign and smaller companies than for domestic and
larger, more established companies. Some small companies have limited product
lines, distribution channels and financial and managerial resources. Also,
because smaller companies normally have fewer shares outstanding than larger
companies and trade less frequently, it may be more difficult for a Fund to buy
and sell significant amounts of such shares without an unfavorable impact on
prevailing market prices. Some of the companies in which a Fund may invest may
distribute, sell or produce products which have recently been brought to market
and may be dependent on key personnel with varying degrees of experience.
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 a Fund's portfolio is to obtain the most favorable net results
taking into account such factors as price, commission (negotiable in the case of
U.S. national securities exchange transactions) where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Adviser seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through its familiarity with commissions charged
on comparable transactions, as well as by comparing commissions paid by the Fund
to reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
Each Fund's purchases and sales of fixed-income securities are generally placed
by the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes or who supply research, market and
statistical information to a Fund. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. The Adviser is authorized when placing
portfolio transactions for a Fund to pay a brokerage commission in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a particular
transaction, the Adviser may give consideration to those firms that have sold or
are selling shares of a Fund managed by the Adviser.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements its own research effort since
the information must still be analyzed, weighed and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Funds and not all such information is used by the Adviser
in connection with the Funds. Conversely, such information provided to the
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Fund.
The Directors for the Funds review from time to time whether the recapture for
the benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition
32
<PAGE>
of one year or less. A higher rate involves greater brokerage transaction
expenses to a Fund and may result in the realization of greater net short-term
or long-term capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. Under normal
investment conditions, it is anticipated that the portfolio turnover rate in
each Fund's initial fiscal year will not exceed 75%, with the exception of
Emerging Markets Income Fund, which may exceed 100%.
The table below shows total brokerage commissions paid by each Fund for the most
recent fiscal period and the percentage thereof that was allocated to firms
based upon research information provided.
<TABLE>
<CAPTION>
Total
Brokerage Total Amount of Percentage
Total Brokerage Commissions Commissions Allocated to
Commissions Paid in Paid to Firms Paid to Firms Based on
Fund Fiscal 1998* Based on Research Affiliates Research
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Blue Chip Fund $23,222 20,993 0 90%
International Growth and Income Fund $17,885 17,885 0 100%
Emerging Markets Income Fund N/A N/A N/A N/A
Emerging Markets Growth Fund $14,700 14,077 0 96%
Latin America Fund $ 5,941 5,881 0 99%
</TABLE>
* For the period from commencement of operations on December 31, 1997
(January 8, 1998, in the case of Emerging Markets Growth Fund) to
October 31, 1998.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), Two International Place, Boston, Massachusetts, is each 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.
In 1953 the Adviser introduced Scudder International Fund, Inc., the first
mutual fund available in the U.S. investing internationally in securities of
issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Adviser's
predecessor entered into an agreement with Zurich Insurance Company ("Zurich")
pursuant to which the predecessor and Zurich agreed to form an alliance.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
Pursuant to investment management agreements, the Adviser acts as each Fund's
investment adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical and administrative
services, and permits any of its officers or employees to serve without
compensation as directors or officers of the Fund if elected to such positions.
The investment management agreement provides that each Fund pays the charges and
expenses of its operations, including the fees and expenses of 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 and maintaining all accounting records thereto,
taxes and membership dues. Each 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 a
Fund's shares for sale under the securities laws of the various states.
33
<PAGE>
At December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich formed a new global organization by combining
Scudder with Zurich Kemper Investments, Inc. ("ZKI"), a former subsidiary of
Zurich and the former investment manager to each Fund, and Scudder changed its
name to Scudder Kemper Investments, Inc. As a result of the transaction, Zurich
owned approximately 70% of the Adviser, with the balance owned by the Adviser's
officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in Scudder Kemper) and the financial services businesses of B.A.T Industries
p.l.c. ("B.A.T") were combined to form a new global insurance and financial
services company known as Zurich Financial Services, Inc. By way of a dual
holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, each Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved new investment management
agreements with Scudder Kemper, which are substantially identical to the current
investment management agreements, except for the dates of execution and
termination. These agreements became effective upon the termination of the then
current investment management agreements and were approved by shareholders at
special meetings held in December 1998.
Each investment management agreement provides that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by the Fund
in connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Scudder Kemper in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under each agreement.
Certain investments may be appropriate for a Fund and also for other clients
advised by the Adviser. Investment decisions for a Fund and other clients are
made with a view toward achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same date. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a Fund. Purchase and sale orders for a Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The Investment Management Agreements (the "Agreements") between the Corporation,
on behalf of each Fund, and the Adviser were approved by the Directors of the
Corporation on September 22, 1998. Each Agreement is dated September 7, 1998 and
will continue in effect until September 30, 1999 and from year to year
thereafter only if its continuance is approved annually by the vote of a
majority of those Directors who are not parties to such Agreement or interested
persons of the Adviser or the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and by a majority vote either of the Fund's
Directors or of the outstanding voting securities of the Fund. Each 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 each Agreement, the Adviser provides the particular Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Fund's Articles of
Incorporation and By-Laws, the 1940 Act and the Code and to the Fund's
investment objectives, policies and restrictions and subject, further, to such
policies and instructions as the Directors of the Corporation may from time to
time establish. The Adviser also advises and assists the officers of the
Corporation in taking such steps as are necessary or appropriate to carry out
the decisions of its Directors and the appropriate committees of the Directors
regarding the conduct of the business of a Fund.
The Adviser also renders significant administrative services (not otherwise
provided by third parties) necessary for each Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Directors and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Funds' transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of each Fund's federal, state
34
<PAGE>
and local tax returns; preparing and filing each Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value; monitoring the
registration of shares of each Fund under applicable federal and state
securities laws; maintaining each Fund's books and records to the extent not
otherwise maintained by a third party; assisting in establishing accounting
policies of each Fund; assisting in the resolution of accounting and legal
issues; establishing and monitoring each Fund's operating budget; processing the
payment of each Fund's bills; assisting each Fund in, and otherwise arranging
for, the payment of distributions and dividends; and otherwise assisting each
Fund in the conduct of its business, subject to the direction and control of the
Directors.
The Adviser pays the compensation and expenses 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.
The Funds each pay the Adviser an investment management fee, payable monthly, at
the annual rates shown below.
<TABLE>
<CAPTION>
<S> <C> <C>
Global Blue Chip Fund......................................... 1.00% for the first $250 million
0.95% for the next $750 million
0.90% over $1 billion
International Growth and Income Fund.......................... 1.00%
Emerging Markets Income Fund.................................. 1.00%
Emerging Markets Growth Fund.................................. 1.25%
Latin America Fund............................................ 1.25% for the first $250 million
1.20% for the next $750 million
1.15% over $1 billion
For a one-year period ending on December 31, 1999, the Adviser has agreed to
maintain its annual management fee for each Fund at the following rates:
Global Blue Chip Fund........................................................................ 0.85%
International Growth and Income Fund......................................................... 0.70%
Emerging Markets Income Fund................................................................. 0.30%
Emerging Markets Growth Fund................................................................. 0.90%
Latin America Fund........................................................................... 0.90%
</TABLE>
The expenses of each Fund, and of other investment companies investing in
foreign securities can be expected to be higher than for investment companies
investing primarily in domestic securities since the costs of operation are
higher, including custody and transaction costs for foreign securities and
investment management fees.
Under the Agreement each Fund is responsible for all of its other expenses
including organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; fees and expenses of each Fund's
accounting agent; brokers' commissions; legal, auditing and accounting expenses;
the fees and expenses of the Transfer Agent; and any other expenses of issue,
sale, underwriting, distribution, redemption or repurchase of shares; the
expenses of and the fees for registering or qualifying securities for sale; the
fees and expenses of Directors, officers and employees of the Corporation who
are not affiliated with the Adviser; the cost of printing and distributing
reports and notices to shareholders; and the fees and disbursements of
custodians. Each Fund may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Fund. Each
Fund is also responsible for its expenses of shareholder meetings, the cost of
responding to shareholders' inquiries, and 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.
Each Agreement expressly provides that the Adviser shall not be required to pay
a pricing agent of a particular Fund for portfolio pricing services, if any.
35
<PAGE>
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 each Fund's expense.
Officers and employees of the Adviser from time to time may have transactions
with various banks, including the Funds' custodian bank. It is the Adviser's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Directors of the Corporation may have dealings with the
Corporation as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of the Corporation.
Employees of the Adviser and certain of its subsidiaries are permitted to make
personal securities transactions, subject to requirements and restrictions set
forth in the Adviser's Code of Ethics. The Code of Ethics contains provisions
and requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as those of each 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.
The Adviser may serve as adviser to other funds with similar investment
objectives and policies to those of the Funds 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. ("KDI"), 222
South Riverside Plaza, Chicago, Illinois, 60606, a subsidiary of the Adviser, is
the principal underwriter and distributor for the shares of each Fund and acts
as agent of each Fund in the continuous offering of its shares. KDI bears all of
its expenses of providing services pursuant to the distribution agreement,
including the payment of any commissions. Each Fund pays the cost for the
prospectus and shareholder reports to be set in type and printed for existing
shareholders, and 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 each Fund, including the Directors who are not interested
persons of each Fund and who have no direct or indirect financial interest in
the agreement. The distribution agreement automatically terminates in the event
of its assignment and may be terminated for a class at any time without penalty
by each Fund or by KDI upon 60 days' notice. Termination by each Fund with
respect to a class may be by vote of a majority of the Board of Directors, or a
majority of the Directors who are not interested persons of each Fund and who
have no direct or indirect financial interest in the distribution agreement, or
a "majority of the outstanding voting securities" of the class of each Fund, as
defined under the 1940 Act. The distribution agreement may be amended for a
class by the Board of Directors in the manner described above with respect to
the continuation of the distribution agreement. The provisions concerning the
continuation, amendment and termination of the distribution agreement are on a
class by class basis.
Class A Shares. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase and
Redemption of Shares," KDI retains the sales charge upon the purchase of shares
and pays out a portion of this sales charge or allows concessions or discounts
to firms for the sale of each Fund's Class A shares.
The following information concerns the underwriting commissions paid in
connection with each Fund's Class A shares for the fiscal period ended October
31, 1998:
36
<PAGE>
<TABLE>
<CAPTION>
Commissions Commissions
Commissions Allowed by KDI Paid to KDI
Fund Fiscal Year* Retained by KDI to Firms Affiliated Firms
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Blue Chip Fund 1998 $3,024 136,361 0
International Growth and Income Fund 1998 $1,636 46,649 0
Emerging Markets Income Fund 1998 $1,306 10,642 0
Emerging Markets Growth Fund 1998 $1,066 13,730 0
Latin America Fund 1998 $ 129 3,103 0
</TABLE>
*For the period from commencement of operations on December 31, 1997 (January 8,
1998, in the case of Emerging Markets Growth Fund) to October 31, 1998.
Rule 12b-1 Plans. The Fund has adopted, in accordance with Rule 12b-1 under the
1940 Act, separate Rule 12b-1 distribution plans pertaining to each Fund's Class
B and Class C shares. Since each Fund's 12b-1 Plan (the "Plan") provides for
fees payable as an expense of each of the Class B shares and the Class C shares
that are used by KDI to pay for distribution services for those classes, each
agreement is approved and reviewed separately for the Class B shares and the
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which regulates
the manner in which an investment company may, directly or indirectly, bear the
expenses of distributing its shares. Because 12b-1 fees are paid out of fund
assets on an ongoing basis, they will, over time, increase the cost of the
investment and may cost more than other types of sales charges. As of December
31, 1997, each Fund's Plan has been separated from its distribution agreement
Class B Shares. For its services under each Plan, KDI receives a fee from each
Fund, payable monthly, at the annual rate of 0.75% of each Fund's average daily
net assets 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 "Purchase and Redemption 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 each Plan, KDI receives a fee from each
Fund, payable monthly, at the annual rate of 0.75% of average daily net assets
of each Fund attributable to its Class C shares. This fee is accrued daily as an
expense of Class C shares. KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm and
the fee continues until terminated by KDI or a Fund. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of Shares
Contingent Deferred Sales Charges - Class C Shares."
If the 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.)
Expenses of the Fund and of KDI, in connection with the Rule 12b-1 Plans for the
Class B and Class C shares for the period ended October 31, 1998 are set forth
below. A portion of the marketing, sales and operating expenses shown below
could be considered overhead expenses.
37
<PAGE>
<TABLE>
<CAPTION>
Distribution
Distribution Contingent Commissions Fees Paid by
Fees Paid by Deferred Sales Paid by Underwriter
Fiscal Fund to Charges Paid to Underwriter to to Affiliated
Fund Year* Underwriter** Underwriter Firms Firms
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class B Shares
Global Blue Chip 1998 $0 426 93,220 0
Fund
International 1998 $0 160 44,522 0
Growth and
Income Fund
Emerging Markets 1998 $0 0 16,345 0
Income Fund
Emerging Markets 1998 $0 0 16,199 0
Growth Fund
Latin America 1998 $0 17 9,521 0
Fund
Other Distribution Expenses Paid by Underwriter
Advertising Marketing Misc.
and Prospectus and Sales Operating Interest
Fund Literature Printing Expenses Expenses Expense
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class B Shares
Global Blue Chip 4,946 777 13,165 13,180 4,165
Fund
International 1,925 352 5,529 10,413 2,494
Growth and
Income Fund
Emerging Markets 832 144 2,104 8,241 430
Income Fund
Emerging Markets 809 140 2,213 12,876 875
Growth Fund
Latin America 460 68 1,174 25,732 801
Fund
Distribution
Distribution Contingent Commissions Fees Paid by
Fees Paid by Deferred Sales Paid by Underwriter
Fiscal Fund to Charges Paid to Underwriter to to Affiliated
Fund Year* Underwriter** Underwriter Firms Firms
- -------------------------------------------------------------------------------------------------------
Class C Shares
Global Blue Chip 1998 $0 92 5,568 0
Fund
International 1998 $0 0 2,568 0
Growth and
Income Fund
Emerging Markets 1998 $0 116 855 0
Income Fund
Emerging Markets 1998 $0 5 987 0
Growth Fund
Latin America 1998 $0 72 418 0
Fund
Advertising Misc.
and Prospectus Marketing and Operating Interest
Fund Literature Printing Sales Expenses xpenses Expense
- -----------------------------------------------------------------------------------------
Class C Shares
Global Blue Chip 1,757 257 4,385 9,322 287
Fund
International 965 115 1,667 7,799 119
Growth and
Income Fund
Emerging Markets 407 49 885 6,619 41
Income Fund
Emerging Markets 298 69 925 13,102 106
Growth Fund
Latin America 126 21 309 23,297 32
Fund
* For the period from commencement of operations on December 31, 1997
(January 8, 1998, in the case of Emerging Markets Growth Fund) to
October 31, 1998
** Amounts shown reflect fee waiver in effect.
</TABLE>
38
<PAGE>
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and each Fund, including the payment of service fees. For
the services under the administrative agreement, each Fund's pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of each Fund.
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 a Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding a Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. KDI pays these
firms based on assets of Fund accounts the firms service. 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 each
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 a 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 each Fund's
records and it is intended that KDI will pay all the administrative services fee
that it receives from a Fund to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of a Fund
while this procedure is in effect will depend upon the proportion of Fund assets
that is in accounts for which there is a firm of record. The Board of Directors
of each Fund, in its discretion, may approve basing the fee to KDI on all Fund
assets in the future. In addition, KDI may, from time to time, from its own
resources, pay certain firms additional amounts for ongoing administrative
services and assistance provided to their customers and clients who are
shareholders of the Funds.
Certain directors or officers of the Corporation are also directors or officers
of the Adviser or KDI, as indicated under "Officers and Directors."
The funds incurred no administrative services fees for the period ended October
31, 1998, after fee waivers by the Adviser. During the period ended October 31,
1998, KDI paid fees to various firms in the following amounts: $9,416, $4,617,
$3,481, $1,557 and $1,228 for Global Blue Chip Fund, International Growth and
Income Fund, Emerging Markets Income Fund, Emerging Markets Growth Fund and
Latin America Fund, respectively.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110-4103, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
each Fund and maintaining all accounting records related thereto
Each Fund, with the exception of Emerging Markets Income 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. Emerging Markets Income
Fund pays an annual fee of 0.08% on the first $150 million, 0.06% on the next
$850 million and 0.04% over $1 billion. The minimum on all funds is $50,000.
There is a 1.66% multi-class premium imposed on asset fees for these funds.
The funds incurred no accounting fees for the period ended October 31, 1998,
after fee waivers by the Adviser in the following amounts: $41,667 for Global
Blue Chip Fund, Emerging Markets Income Fund and Latin American Fund; and
$43,910 and $48,584 for International Growth and Income Fund and Emerging
Markets Growth Fund, respectively.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Brown Brothers Harriman
& Co., 40 Water Street, Boston, Massachusetts 02109, as custodian has custody of
all securities and cash of each Fund. The Custodian attends to the collection of
principal and income, and payment for and collection of proceeds of securities
bought and sold by
39
<PAGE>
each Fund. Pursuant to a services agreement between the Fund and Kemper Service
Company ("KSvC"), 811 Main Street, Kansas City, Missouri, a subsidiary of the
Adviser, KSvC serves as "Shareholder Service Agent" of the Funds and, as such,
performs all of the duties as transfer agent and dividend-paying agent for each
Fund's Class A, B and C shares. KSvC receives as transfer agent the following:
prior to January 1, 1999, annual account fees at a maximum rate of $6 per
account, plus account set up, transaction and maintenance charges, annual fees
associated with the contingent deferred sales charge (Class B Shares only) and
out-of- pocket expense reimbursement; and, effective January 1, 1999 (for all
funds except Emerging Markets Income Fund), annual account fees of $10.00
($18.00 for retirement accounts), plus set up charges, annual fees associated
with the contingent deferred sales charges (Class B only), an asset-based fee of
0.08% and out-of-pocket reimbursement; and, for Emerging Markets Income Fund,
annual account fees of $14.00 ($23.00 for retirement accounts), plus set up
charges, annual fees associated with the contingent deferred sales charges
(Class B only), an asset-based fee of 0.05% and out-of-pocket reimbursement. For
a description of transfer agent and shareholder service agent fees payable to
KSvC and the Shareholder Service Agent, see "Investment Manager and
Underwriter".
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. Each Fund's independent
auditors, Ernst & Young, LLP, 200 Clarendon Street, Boston, MA 02116, audit and
report on each Fund's annual financial statements, review certain regulatory
reports and each Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by a Fund. Shareholders will receive annual audited financial statements and
semi-annual unaudited financial statements.
PURCHASE, REDEMPTION and repurchase OF SHARES
PURCHASE OF SHARES
Alternative Purchase Arrangements. Class A shares of each Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of None Initial sales charge waived or reduced
5.75% of the public offering price for certain purchases (1)
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares six
charge of 4% of redemption proceeds; years after issuance
declines to zero after six years
Class C Contingent deferred sales charge of 0.75% No conversion feature
1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
40
<PAGE>
- -------------------
(1) Class A shares purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent deferred sales charge
if redeemed within one year of purchase and a 0.50% contingent deferred
sales charge if redeemed during the second year of purchase.
The minimum initial investment for each class of each Fund is $1,000 and the
minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond value of 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative - Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge Portion Allowed by
As a As a KDI to Dealers as a
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000......................................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000............................ 4.50 4.71 4.00
$100,000 but less than $250,000........................... 3.50 3.63 3.00
$250,000 but less than $500,000........................... 2.60 2.67 2.25
$500,000 but less than $1 million......................... 2.00 2.04 1.75
$1 million and over....................................... 0.00** 0.00** ***
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as discussed below.
*** Commission is payable by KDI as discussed below.
</TABLE>
Each Fund receives the entire net asset value of all its shares sold. KDI, the
Funds' principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow up to the full applicable sales charge, as shown in
the above table, during periods and for transactions specified in such notice
and such reallowances may be based upon attainment of minimum sales levels.
During periods when 90% or more of the sales charge is reallowed, such dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933.
41
<PAGE>
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Funds
listed under "Special Features - Class A Shares - Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares_Contingent Deferred Sales
Charge_Large Order NAV Purchase Privilege."
KDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount record keeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in a Fund and other Kemper Funds
listed under "Special Features - Class A Shares - Combined Purchases," including
purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above. The privilege of purchasing
Class A shares of a Fund at net asset value under the Large Order NAV Purchase
Privilege is not available if another net asset value purchase privilege is also
applicable.
As of February 1, 1996, Class A shares of a Fund or any other Kemper Fund listed
under "Special Features Class A Shares - Combined Purchases" may be purchased at
net asset value in any amount by members of the plaintiff class in the
proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is
generally non-transferable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
a Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Funds,
for themselves or their spouses or dependent children; (c) shareholders who
owned shares of Kemper Value 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
42
<PAGE>
participating employer groups. Class A shares may be sold at net asset value in
any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Funds for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase a Fund's Class A shares at net asset value through reinvestment
programs described in the prospectuses of such trusts that have such programs.
Class A shares of a Fund may be sold at net asset value through certain
investment advisers registered under the Investment Advisers Act of 1940 and
other financial services firms, acting solely as agent for their clients, that
adhere to certain standards established by KDI, including a requirement that
such shares be purchased for the benefit of their clients participating in an
investment advisory program under which such clients pay a fee to the investment
adviser or other firm for portfolio management and other services. Such shares
are sold for investment purposes and on the condition that they will not be
resold except through redemption or repurchase by the Funds. The Funds may also
issue Class A shares at net asset value in connection with the acquisition of
the assets of or merger or consolidation with another investment company, or to
shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension, profit-
sharing or other employee benefit plan whether or not qualified under Section
401 of the Code; or other organized group of persons whether incorporated or
not, provided the organization has been in existence for at least six months and
has some purpose other than the purchase of redeemable securities of a
registered investment company at a discount. In order to qualify for a lower
sales charge, all orders from an organized group will have to be placed through
a single investment dealer or other firm and identified as originating from a
qualifying purchaser.
Deferred Sales Charge Alternative - Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares - Contingent Deferred
Sales Charge Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share of the Class B shares. The purpose of the conversion feature is to
relieve holders of Class B shares from the distribution services fee when the
shares have been outstanding long enough for KDI to have been compensated for
distribution related expenses. For purposes of conversion to Class A shares,
shares purchased through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's Fund account will be
converted to Class A shares on a pro rata basis.
Purchase of Class C Shares. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares - Contingent Deferred Sales Charge -
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
43
<PAGE>
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash to firms that sell shares of the Funds. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Funds, or other funds underwritten by
KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt in good order
by KDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). Each Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing.
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Funds through the Shareholder Service Agent for
these services. This Statement of Additional Information should be read in
connection with such firms' material regarding their fees and services.
Each Fund reserves the right to withdraw all or any part of the offering made by
this Statement of Additional Information and to reject purchase orders for any
reason. Also, from time to time, each Fund may temporarily suspend the offering
of any class of its shares to new investors. During the period of such
suspension, persons who are already shareholders of such class of such Fund
normally are permitted to continue to purchase additional shares of such class
and to have dividends reinvested.
Each Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than KDI, to accept purchase and
redemption orders for the Fund's shares. Those brokers may also designate other
parties to accept purchase and redemption orders on the Fund's behalf. Orders
for purchase or redemption will be deemed to have been
44
<PAGE>
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the Fund and the broker,
ordinarily orders will be priced as the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the Fund's shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
member may, at its discretion, charge a fee for that service. The Board of
Directors (the "Board") of the Fund and KDI each has the right to limit the
amount of purchases by, and to refuse to sell to, any person. The Board and KDI
may suspend or terminate the offering of shares of the Fund at any time for any
reason.
Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires each Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. Each Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also reserves
the right, following 30 days' notice, to redeem all shares in accounts without a
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period. Shareholders should
direct their inquiries to Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105-2005 or to the firm from which they received this Statement of
Additional Information.
PURCHASE AND REDEMPTION OF SHARES
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 each Fund is $1,000 and the minimum subsequent
investment is $100 but such minimum amounts may be changed at any time. A Fund
may waive the minimum for purchases by directors, directors, officers or
employees of a Fund or the Adviser and its affiliates. An order for the purchase
of shares that is accompanied by a check drawn on a foreign bank (other than a
check drawn on a Canadian bank in U.S. Dollars) will not be considered in proper
form and will not be processed unless and until a Fund determines that it has
received payment of the proceeds of the check. The time required for such a
determination will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of the particular class of the Fund.
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.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange, Inc. (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of each Fund' investments is
not reasonably practicable, or (ii) it is not reasonably practicable for a Fund
to determine the value of its net assets, or (c) for such other periods as the
SEC may by order permit for the protection of the Fund's shareholders.
Although it is each Fund's present policy to redeem in cash, if the Board of
Directors determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules of
the SEC, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Directors may
deem fair and equitable. If such a distribution occurred, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be so liquid as a redemption entirely in cash.
The conversion of Class B shares of a Fund to Class A shares of a Fund may be
subject to the continuing availability of an opinion of counsel, ruling by the
Internal Revenue Service or other assurance acceptable to a Fund to the effect
that (a) the assessment of the distribution services fee with respect to Class B
shares and not Class A shares does not result in a Fund's dividends constituting
"preferential dividends" under the 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
45
<PAGE>
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.
Shareholders can request the following telephone privileges: EXPRESS-Transfer
transactions (see "Special Features"), expedited wire transfer redemptions and
exchange transactions for individual and institutional accounts and pre-
authorized telephone redemption transactions for certain institutional accounts.
Shareholders may choose these privileges on the account application or by
contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor, guardian and custodial account
holders , provided the trustee, executor, guardian or custodian is named in the
account registration. Other institutional account holders and guardian account
holders of custodial accounts for gifts and transfers to minors may exercise
this special privilege of redeeming shares by telephone request or written
request without signature guarantee subject to the same conditions as individual
account holders and subject to the limitations on liability described under
"General" above, provided that this privilege has been pre-authorized by the
institutional account holder or guardian account holder by written instruction
to the Shareholder Service Agent with signatures guaranteed. Telephone requests
may be made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS- Transfer or Bank Direct Deposit may not be redeemed under this
privilege of redeeming shares by telephone request until such shares have been
owned for at least 10 days. This privilege of redeeming shares by telephone
request or by written request without a signature guarantee may not be used to
redeem shares held in certificated form and may not be used if the shareholder's
account has had an address change within 30 days of the redemption request.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone redemption privilege,
although investors can still redeem by mail. Each Fund reserves the right to
terminate or modify this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of a class of
the Fund effective on that day and normally the proceeds will be sent to the
designated account the following business day. Delivery of the proceeds of a
wire redemption of $250,000 or more may be delayed by the Fund for up to seven
days if the Fund or the Shareholder Servicing Agent deems it appropriate under
then-current market conditions. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048 or in writing,
subject to the limitations on liability described under "General" above. No Fund
is responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. Each Fund currently does not charge
the account holder for wire transfers. The account holder is responsible for any
charges imposed by the account holder's firm or bank. There is a $1,000 wire
redemption minimum (including any contingent deferred sales charge). To change
the designated account to receive wire redemption proceeds, send a written
request to the Shareholder Service Agent with
46
<PAGE>
signatures guaranteed as described above or contact the firm through which
shares of the Fund were purchased. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this privilege to redeem shares held in certificated form. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the expedited wire transfer redemption privilege. Each
Fund reserves the right to terminate or modify this privilege at any time.
Contingent Deferred Sales Charge - Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a participant-
directed qualified retirement plan described in Code Section 403(b)(7) which is
not sponsored by a K-12 school district; (b) redemptions by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent; (c) redemption of shares of a shareholder
(including a registered joint owner) who has died; (d) redemption of shares of a
shareholder (including a registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as evidenced by a determination
by the federal Social Security Administration); (e) redemptions under a Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
of the account; and (f) redemptions of shares whose dealer of record at the time
of the investment notifies KDI that the dealer waives the discretionary
commission applicable to such Large Order NAV Purchase.
Contingent Deferred Sales Charge - Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
Contingent Deferred
Year of Redemption After Purchase Sales Charge
- --------------------------------------------------------------------------------------------------
<S> <C>
First............................................................ 4%
Second........................................................... 3%
Third............................................................ 3%
Fourth........................................................... 2%
Fifth............................................................ 2%
Sixth............................................................ 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
- - Systematic Withdrawal Plan" below), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions
to satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in a Fund), (c) redemptions in connection with distributions qualifying
under the hardship provisions of the Internal Revenue Code and (d) redemptions
representing returns of excess contributions to such plans.
Contingent Deferred Sales Charge - Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not
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<PAGE>
subject to the charge. The contingent deferred sales charge will be waived: (a)
in the event of the total disability (as evidenced by a determination by the
federal Social Security Administration) of the shareholder (including a
registered joint owner) occurring after the purchase of the shares being
redeemed, (b) in the event of the death of the shareholder (including a
registered joint owner), (c) for redemptions made pursuant to a systematic
withdrawal plan (limited to 10% of the net asset value of the account during the
first year, see "Special Features - Systematic Withdrawal Plan"), (d) for
redemptions made pursuant to any IRA systematic withdrawal based on the
shareholder's life expectancy including, but not limited to, substantially equal
periodic payments described in Internal Revenue Code Section 72(t)(2)(A)(iv)
prior to age 59 1/2, (e) for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account (with the maximum amount
subject to this waiver being based only upon the shareholder's Kemper IRA
accounts), (f) for any participant-directed redemption of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent, and (g) for
redemption of shares by an employer sponsored employee benefit plan that (i)
offers funds in addition to Kemper Funds (i.e., "multi- manager"), and (ii)
whose dealer of record has waived the advance of the first year administrative
service and distribution fees applicable to such shares and agrees to receive
such fees quarterly.
Contingent Deferred Sales Charge - General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of a Fund's Class B shares and that
16 months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of a Fund
or any other Kemper Fund listed under "Special Features - Class A Shares -
Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Funds. A shareholder of a Fund or other
Kemper Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares - Initial Sales Charge Alternative -
Class A Shares") or Class B shares or Class C shares and incurs a contingent
deferred sales charge may reinvest up to the full amount redeemed at net asset
value at the time of the reinvestment, in the same class of shares as the case
may be, of a Fund or of other Kemper Funds. The amount of any contingent
deferred sales charge also will be reinvested. These reinvested shares will
retain their original cost and purchase date for purposes of the contingent
deferred sales charge schedule. Also, a holder of Class B shares who has
redeemed shares may reinvest up to the full amount redeemed, less any applicable
contingent deferred sales charge that may have been imposed upon the redemption
of such shares, at net asset value in Class A shares of a Fund or of the other
Kemper Funds listed under "Special Features - Class A Shares Combined
Purchases." Purchases through the reinvestment privilege are subject to the
minimum investment requirements applicable to the shares being purchased and may
only be made for Kemper Funds available for sale in the shareholder's state of
residence as listed under "Special Features - Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of shares of a Fund, the reinvestment in shares of a
Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. In addition, upon a reinvestment, the shareholder
may not be permitted to take into account sales charges incurred on the original
purchase of shares in computing their taxable gain or loss. The reinvestment
privilege may be terminated or modified at any time.
Redemption in Kind. Although it is each Fund's present policy to redeem in cash,
if the Board of Directors determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Directors may deem fair and
equitable. If such a distribution
48
<PAGE>
occurred, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash.
SPECIAL FEATURES
Class A Shares - Combined Purchases. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Strategic Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, 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 Equity
Trust, Kemper Funds Trust and Kemper Income Trust, Kemper Horizon Fund, Kemper
Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive Growth Fund, Kemper
Global/International Series, Inc., Kemper Equity Trust, Kemper Funds Trust and
Kemper Income Trust, ("Kemper Funds"). Except as noted below, there is no
combined purchase credit for direct purchases of shares of Zurich Money Funds,
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Investors Municipal Cash Fund or Investors Cash Trust ("Money Market
Funds"), which are not considered "Kemper Funds" for purposes hereof. For
purposes of the Combined Purchases feature described above as well as for the
Letter of Intent and Cumulative Discount features described below, employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent may include: (a) Money Market
Funds as "Kemper Funds", (b) all classes of shares of any Kemper Fund and (c)
the value of any other plan investment, such as guaranteed investment contracts
and employer stock, maintained on such subaccount record keeping system.
Class A Shares - Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included in this privilege.
Class A Shares - Cumulative Discount. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.
Class A Shares - Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
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<PAGE>
Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features- Class A Shares - Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund, Tax-
Exempt California Money Market Fund, Cash Account Trust, Investor's Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Fund or a Money Market
Fund under the exchange privilege described above without paying any contingent
deferred sales charge at the time of exchange. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of
calculating the contingent deferred sales charge.
Class B Shares. Class B shares of a Fund and Class B shares of any other Kemper
Fund listed under "Special Features - Class A Shares - Combined Purchases" may
be exchanged for each other at their relative net asset values. Class B shares
may be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of calculating the contingent deferred sales
charge that may be imposed upon the redemption of the Class B shares received on
exchange, amounts exchanged retain their original cost and purchase date.
Class C Shares. Class C shares of a Fund and Class C shares of any other Kemper
Fund listed under "Special Features - Class A Shares - Combined Purchases" may
be exchanged for each other at their relative net asset values. Class C shares
may be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For determining whether there is a contingent deferred sales
charge that may be imposed upon the 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"). Effective June 1, 1999, each fund
reserves the right to invoke the 15-Day Hold Policy for accounts of $1,000,000
or less if, in the investment manager's judgement, the exchange activity may
have an adverse effect on the Fund. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the Fund and,
therefore, may be subject to the 15-Day Hold Policy.
For purposes of determining whether the 15-Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, discretion or advice, including without limitation accounts
administered by a financial services firm offering market timing, asset
allocation or similar services. The total value of shares being exchanged must
at least equal the minimum investment requirement of the Kemper Fund into which
they are being exchanged. Exchanges are made based on relative dollar values of
the shares involved in the exchange. There is no service fee for an exchange;
however, dealers or other firms may charge for their services in effecting
exchange transactions. Exchanges will be effected by redemption of shares of the
fund held and purchase of shares of the other fund. For federal income tax
purposes, any such exchange constitutes a sale upon which a gain or loss may be
realized, depending upon whether the value of the shares being exchanged is more
or less than the shareholder's adjusted cost basis of such shares. Shareholders
interested in exercising the exchange privilege may obtain prospectuses of the
other funds from dealers, other firms or KDI. Exchanges may be accomplished by a
written request to Kemper Service Company, Attention: Exchange Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557, or by telephone if the shareholder
has given authorization. Once the authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048, subject to the
limitations on liability under "Redemption or Repurchase of Shares - General."
Any share certificates must be deposited prior to any exchange of such shares.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time. Exchanges may only be made for funds that are available for sale in
the shareholder's state of residence. Currently, Tax-Exempt California Money
Market Fund is available for sale only in California and Investors Municipal
Cash Fund is available for sale only in New York, Connecticut, New Jersey and
Pennsylvania. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
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Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares - General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination by a shareholder will become effective
within thirty days after the Shareholder Service Agent has received the request.
A Fund may immediately terminate a shareholder's Plan in the event that any item
is unpaid by the shareholder's financial institution. The Funds may terminate or
modify this privilege at any time.
Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be redeemed
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in their first year following the purchase) under a systematic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments
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<PAGE>
of less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Funds.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts
("IRAs"). This includes 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.
NET ASSET VALUE
The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A shares of a Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of a Fund is computed as of the close of regular trading
(the "value time") 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, Dr. Martin Luther King, Jr. 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 as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board.
With respect to the Funds with securities listed primarily on foreign exchanges,
such securities may trade on days when the Fund's net asset value is not
computed; and therefore, the net asset value of a Fund may be significantly
affected on days when the investor has no access to the Fund.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The National Association of
Securities Dealers Automated Quotation , ("Nasdaq") System, 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 a pricing agent(s) which
reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board 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 investment manager of the particular fund may calculate the price
of that debt security, subject to limitations established by the Board.
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An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Board of Trustees, the
value of a portfolio asset as determined in accordance with these procedures
does not represent the fair market value of the portfolio asset, the value of
the portfolio asset is taken to be an amount which, in the opinion of the
Valuation Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is determined
in a manner which, in the discretion of the Valuation Committee, most fairly
reflects market value of the property on the valuation date.
Following the valuations of securities or other portfolios 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. Each Fund intends to follow the practice of distributing
substantially all of its investment company taxable income which includes any
excess of net realized short-term capital gains over net realized long-term
capital losses. A Fund may follow the practice of distributing the entire excess
of net realized long-term capital gains over net realized short-term capital
losses. However, a Fund may retain all or part of such gain for reinvestment,
after paying the related federal taxes for which shareholders may then be able
to claim a credit against their federal tax liability. If a Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
Each of Emerging Markets Growth Fund, Global Blue Chip Fund and Latin America
Fund normally distributes annual dividends of net investment income. Any net
realized short-term and long-term capital gains for the Funds are distributed at
least annually. International Growth and Income Fund and Emerging Markets Income
Fund distribute net investment income on a semi-annual and monthly basis,
respectively. Income and capital gain dividends of a Fund are automatically
reinvested in additional shares of the Fund, without a sales charge, unless the
investor makes an election otherwise. Distributions of net capital gains
realized during each fiscal year will be made at least annually before the end
of each Fund's fiscal year on 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.
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive dividends from income and short-term capital gain in
cash and net capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested
in shares of the same class of that same Fund. However, upon written request to
the Shareholder Service Agent, a shareholder may elect to have dividends of a
Fund invested in
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shares of the same class of another Kemper Fund at the net asset value of such
class of such other fund. See "Special Features_Class A Shares_Combined
Purchases" for a list of such other Kemper Funds. To use this privilege of
investing dividends of a Fund in shares of another Kemper Fund, shareholders
must maintain a minimum account value of $1,000 in the Fund distributing the
dividends. The Funds will reinvest dividend checks (and future dividends) in
shares of that same Fund and class if checks are returned as undeliverable.
Dividends and other distributions of a Fund in the aggregate amount of $10 or
less are automatically reinvested in shares of the Fund unless the shareholder
requests that such policy not be applied to the shareholder's account.
TAXES. Each Fund intends to 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, each Fund must satisfy certain income and asset diversification
requirements, and must distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gains in
excess of net long-term capital losses).
Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's ordinary income for each calendar year, at least 98% of the excess
of its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending October 31 during such year, and all
ordinary income and capital gains for prior years that were not previously
distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of a Fund.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by a Fund for reinvestment, requiring federal income
taxes to be paid thereon by 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 a Fund on such
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on Fund shares by the difference
between such reported gains and the individual tax credit.
Dividends from domestic corporations may comprise a substantial part of the
gross income of Global Blue Chip Fund, International Growth and Income Fund,
Emerging Markets Growth Fund and Latin America Fund. To the extent that such
dividends constitute a portion of a Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of a Fund with respect to which the dividends are received are
treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
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 a Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
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
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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 a Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
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 a Fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
Each 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) Each 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 a 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.
Each Fund may invest in shares of certain foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). If
a Fund receives a so-called "excess distribution" with respect to PFIC stock,
the Fund itself may be subject to a tax on a portion of the excess distribution.
Certain distributions from a PFIC as well as gains from the sale of the PFIC
shares are treated as "excess distributions." In general, under the PFIC rules,
an excess distribution is treated as having been realized ratably over the
period during which a Fund held the PFIC shares. Each Fund will be subject to
tax on the portion, if any, of an excess distribution that is allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. Excess distributions allocated
to the current taxable year are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions might have
been classified as capital gain.
A Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary loss to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock) written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on a Fund's holding period for the option and, in
the case of an exercise of the option, on a Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or substantially identical security in a Fund's
portfolio. If a Fund writes a call option, no gain is recognized upon its
receipt of a premium. If the option
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lapses or is closed out, any gain or loss is treated as a short-term capital
gain or loss. If a call option is exercised, any resulting gain or loss is
short-term or long-term capital gain or loss depending on the holding period of
the underlying security. The exercise of a put option written by a Fund is not a
taxable transaction for a Fund.
Many futures and forward contracts entered into by a Fund and all listed
nonequity options written or purchased by a Fund (including covered call options
written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of a Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by a Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in a
Fund's portfolio.
Positions of a Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes a Fund's risk of loss with respect to such stock could be treated as
a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by a Fund.
Positions of a Fund consisting of at least one position not governed by Section
1256 and at least one future, forward, or nonequity option contract which is
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
the Code, certain tax elections exist for them which reduce or eliminate the
operation of these rules. A Fund will monitor its transactions in options and
futures and may make certain tax elections in connection with these investments.
Notwithstanding any of the foregoing, recent tax law changes may require a Fund
to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting 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 a Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency and the time a Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, and on disposition of certain futures, forward or options
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contracts and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.
If a Fund holds zero coupon securities or other securities which are issued at a
discount a portion of the difference between the issue price and the face value
of such securities ("original issue discount") will be treated as income to a
Fund each year, even though a Fund will not receive cash interest payments from
these securities. This original issue discount (imputed income) will comprise a
part of the investment company taxable income of a Fund which must be
distributed to shareholders in order to maintain the qualification of a Fund as
a regulated investment company and to avoid federal income tax at a Fund level.
In addition, if a Fund invest in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such an event, properly designated dividends of
investment company taxable income received from the Fund by its corporate
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shareholders, to the extent attributable to such portion of the accrued original
issue discount, may be eligible for the deduction received by corporations.
If a Fund acquires a debt instrument at a market discount, a portion of the gain
recognized (if any) on disposition of such instrument may be treated as ordinary
income.
Each Fund will be required to report to the Internal Revenue Service ("IRS") all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss held by the shareholder as a capital asset,
and may be long-term or short-term depending upon the shareholder's holding
period for the shares. A shareholder who has redeemed shares of a Fund or any
other Kemper Mutual Fund (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. If redeemed shares were held less than 91 days, then the lesser of
(a) the sales charge waived on the reinvested shares, or (b) the sales charge
incurred on the redeemed shares, is included in the basis of the reinvested
shares and is not included in the basis of the redeemed shares. If a shareholder
realizes a loss on the redemption or exchange of a Fund's shares and reinvests
in shares of the same Fund within 30 days before or after the redemption or
exchange, the transactions may be subject to the wash sale rules resulting in a
postponement of the recognition of such loss for federal income tax purposes. An
exchange of a Fund's shares for shares of another fund is treated as a
redemption and reinvestment for federal income tax purposes upon which gain or
loss may be recognized.
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 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. In January of each year a Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should conside`r the U.S. and foreign tax consequences of
ownership of shares of a Fund, including the possibility that such a shareholder
may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from U.S.
sources under the Code.
Shareholders of a Fund may be subject to state, local and foreign taxes on Fund
distributions and disposition of Fund shares. Shareholders should consult their
tax advisers about the application of the provisions of tax law in light of
their particular tax situations.
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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.
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 make a
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.
The contribution will be fully deductible if neither the individual nor his or
her spouse is an active participant in an employer's retirement plan. If an
individual is (or has a spouse who is) an active participant in an
employer-sponsored retirement plan , the amount, if any, of IRA contributions
that are deductible by such an individual is determined by the individual's (or,
if married filing jointly, the couple's) adjusted gross income for the year.
Even if an individual's contributions to an IRA for a taxable year are not
deductible, the individual nonetheless may make nondeductible contributions up
to $2,000, or 100% of earned income if less, for that year. A higher-earning
spouse also may contribute up to $2,000 per year to the lower-earning spouse's
own IRA, whether or not the lower-earning spouse has earned income of less than
$2,000, as long as the spouses' joint earned income is at least equal to the
combined amount of the spouses' IRA contributions for the year. There are
special rules for determining how withdrawals are to be taxed if an IRA contains
both deductible and nondeductible amounts. In general, a proportionate amount of
each withdrawal will be deemed to be made from nondeductible contributions;
amounts treated as a return of nondeductible contributions will not be taxable.
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
adjusted gross income for the year is less than $95,000 ,or, if married filing
jointly, the couple's adjusted gross income is less than $150,000. 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. No distributions are required to be taken prior to the death of the
original account holder. 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 (post-secondary) 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 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-IRAs) and SIMPLE IRAs,
they permit employers to maintain a retirement program for their employees
without being subject to a number of the record keeping and testing requirements
applicable to qualified plans.
Qualified Retirement Plans. Fund shares also may be held in profit sharing,
money purchase pension, and 401(k) plan accounts. An employer, whether a
corporation, partnership or other kind of business entity, generally may
maintain one or more qualified retirement plans for its employees. These plans,
which are qualified plans under Code Section 401(a), are subject to numerous
rules relating to such matters as the maximum contribution that can be allocated
to participant's accounts, nondiscrimination, and distributions from the plan,
as well as being subject in many cases to the fiduciary duty and other
provisions of the Employee Retirement Income Securities Act of 1974, as amended.
Businesses considering adopting a qualified retirment plan are encouraged to
seek competent professional advice before adopting one of these plans.
403(b) Plan Accounts. Fund shares also may be purchased as an investment for
Code Section 403(b)(7) custodial accounts. In general, employees of tax-exempt
organizations described in Code Section 501(c)(3) and of public school systems
are
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eligible to participate in 403(b) accounts. These arrangements may permit
employer contributions and/or employee salary reduction contributions, and are
subject to rules relating to such matters as the maximum contribution than can
be made to a participant's account, nondiscrimination, and distributions from
the account.
General Information. Please call the Fund to obtain information regarding the
establishment of IRAs or other retirement plans. 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.
PERFORMANCE
The Funds 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, Class C and Class
I shares. Each of these figures is based upon historical results and is not
representative of the future performance of any class of the shares. A Fund with
fees or expenses being waived or absorbed by Scudder Kemper may also advertise
performance information before and after the effect of the fee waiver or expense
absorption.
A Fund's historical performance or return for a class of shares may be shown in
the form of "average annual total return" and "total return" figures. These
measures of performance are described below. Performance information will be
computed separately for each class. The Adviser has agreed to a reduction of its
management fee for each Fund to the extent specified in the prospectus. See
"Investment Manager and Underwriter." This fee reduction will improve the
performance results of a Fund.
Average annual total return and total return measure both the net investment
income generated by, and the effect of any realized or unrealized appreciation
or depreciation of, the underlying investments in a Fund's portfolio. Each
Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual total
return for each class of a Fund for a specific period is found by first taking a
hypothetical $1,000 investment ("initial investment") in the class' shares on
the first day of the period, adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "redeemable value" of that
investment at the end of the period. Average annual return quotations will be
determined to the nearest 1/100th of 1%. The redeemable value in the case of
Class B shares or Class C shares include the effect of the applicable contingent
deferred sales charge that may be imposed at the end of the period. The
redeemable value is then divided by the initial investment, and this quotient is
taken to the Nth root (N representing the number of years in the period) and 1
is subtracted from the result, which is then expressed as a percentage. Average
annual return calculated in accordance with this formula does not take into
account any required payments for federal of state income taxes. Such quotations
for Class B shares of a Fund for periods over six years will reflect conversion
of such shares to Class A of that Fund shares at the end of the sixth year. The
calculation assumes that all income and capital gains dividends paid by a Fund
have been reinvested at net asset value on the reinvestment dates during the
period. Average annual total return may also be calculated in a manner not
consistent with the standard formula described above, without deducting the
maximum sales charge or contingent deferred sales charge.
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.
Average Annual Total Return for Period Ended October 31, 1998*
<TABLE>
<CAPTION>
Fund Class A Shares Class B Shares Class C Shares
59
<PAGE>
<S> <C> <C> <C>
Global Blue Chip Fund 1.29% 2.63 5.74
International Growth and Income Fund -2.54% -1.36 1.65
Emerging Markets Growth Fund -22.62% -21.79 -19.13
Emerging Markets Income Fund -41.17% -41.13 -39.32
Latin America Fund -27.48% -26.64 -24.34
* Since the Funds' commencement of operations on December 31, 1997 (January 8, 1998, in the case of Emerging
Markets Growth Fund).
</TABLE>
Note: If the Adviser had not maintained expenses, the total returns would have
been lower. Calculation of a Fund's total return is not subject to a
standardized formula, except when calculated for a Fund's "Financial Highlights"
table in each Fund's financial statements and prospectus. Total return
performance for a specific period is calculated by first taking a hypothetical
investment ("initial investment") in a Fund's shares on the first day of the
period, either adjusting or not adjusting to deduct the maximum sales charge (in
the case of Class A shares), and computing the "ending value" of that investment
at the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of a 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 a Fund have been reinvested at net
asset value on the reinvestment dates during the period. Total return may also
be shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge for a 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.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund for the
period in question, assuming the reinvestment of all dividends. Thus, these
figures reflect the change in the value of an investment in a Fund during a
specified period. Average annual total return will be quoted for at least the
one-, five- and ten-year periods ending on a recent calendar quarter (or if such
periods have not yet elapsed, at the end of a shorter period corresponding to
the life of a Fund for performance purposes). Average annual total return
figures represent the average annual percentage change over the period in
question. Total return figures represent the aggregate percentage or dollar
value change over the period in question.
A Fund's yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. The yields are shown below
based upon the one-month period ended October 31, 1998:
A Fund's yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[((a - b)/cd + 1)^6 - 1]
Where:
<TABLE>
<CAPTION>
<S> <C> <C>
a = Dividends and interest earned during the period, including amortization
of market premium or accretion of market discount
b = Expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
</TABLE>
Each Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. Each Fund's Class A shares are
sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C shares are sold at net asset value. Redemption of a
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
60
<PAGE>
and becomes zero after six years. Redemption of a Fund's Class C shares may be
subject to a 1% contingent deferred sales charge in the first year following the
purchase. Returns and net asset value will fluctuate. Factors affecting a Fund's
performance include general market conditions, operating expenses and investment
management. Any additional fees charged by a dealer or other financial services
firm would reduce returns described in this section. Shares of a Fund are
redeemable at the then current net asset value, which may be more or less than
original cost.
There are differences and similarities between the investments which a Fund may
purchase and the investments measured by the indices which are described herein.
The Consumer Price Index is generally considered to be a measure of inflation.
The Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index are
indices of common stocks which are considered to be generally representative of
the U.S. stock market. The Financial Times/Standard & Poor's Actuaries World
Index-Europe(TM) is a managed index that is generally representative of the
equity securities of European markets. The foregoing indices are unmanaged. The
net asset value and returns of a Fund will fluctuate.
Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC/Donoghue's Money Fund Averages(R) (All
Taxable). As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.
OFFICERS AND DIRECTORS
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 listed below. All persons named as directors also
serve in similar capacities for other funds advised by the Adviser:
DANIEL PIERCE, (3/18/34)* Director and Chairman of the Board, Two International
Place, Boston, Massachusetts; Managing Director, Scudder Kemper Investments,
Inc.
MARK S. CASADY (9/21/60)* President, Two International Place, Boston,
Massachusetts, Managing Director, Adviser; formerly, Institutional Sales Manager
of an unaffiliated mutual fund distributor.
JAMES E. AKINS (10/15/26) Director (15), 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 (15), 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. Donnelly Corp.
FREDERICK T. KELSEY (4/25/27) Director (15), 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 Northern Institutional Funds,
formerly, Trustee of the Pilot Fund.
61
<PAGE>
THOMAS W. LITTAUER (4/26/55)* Director, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
FRED B. RENWICK (2/1/30) Director (15), 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.
KATHRYN L. QUIRK (12/3/52), Director*, 345 Park Avenue, New York, New York;
Managing Director, Adviser
JOHN B. TINGLEFF (5/4/35) Director (15), 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 (15), 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.
PHILIP J. COLLORA (11/15/45)* Vice President and Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President and Assistant Secretary,
Adviser.
JOYCE E. CORNELL (3/26/44)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, 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.
TARA C. KENNEY (10/7/60)* Vice President, 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.
SHERIDAN P. REILLY (2/27/52)* Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
M. ISABEL SALTZMAN (12/22/54)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
CORNELIA M. SMALL (7/28/44)* Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
LINDA J. WONDRACK (9/12/64)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
BRENDA LYONS (2/21/63), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser; 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).
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Adviser; formerly, Associate,
Dechert Price & Rhoads
62
<PAGE>
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 Funds. The table below shows amounts paid or
accrued to those Directors who are not designated "interested persons" by the
Corporation, during the 1998 fiscal year.
<TABLE>
<CAPTION>
Aggregate
Compensation
From all Funds in the Total
Kemper Global/ Compensation
International Series, Total Compensation From Kemper Fund
Inc., Except for from Growth Fund of Complex Paid to
Name of Board Member Growth Fund of Spain(1) Spain(2) Board Members (3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James E. Akins........................... $7,000 $7,500 $130,000
Arthur R. Gottschalk(4).................. 7,000 9,000 133,200
Frederick T. Kelsey...................... 7,000 7,900 130,500
Fred B. Renwick.......................... 7,000 8,000 130,500
John B. Tingleff......................... 7,000 8,000 134,800
John G. Weithers......................... 7,000 8,000 134,800
</TABLE>
(1) The Adviser currently assumes responsibility for payment of Directors fees
on behalf of all Funds in the Series except for Growth Fund of Spain, which
did not join the Series until after the Series most recent fiscal year end.
(2) Directors fees are paid directly by the Fund.
(3) Includes compensation for service on the boards of 15 Kemper funds with 53
portfolios. Each board member currently serves as a board member of 15
Kemper Funds with 53 fund portfolios.
(4) 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.
Total deferred amounts and interest accrued for the latest fiscal year
amounted to $5,345 for Mr. Gottschalk.
As of January 29, 1999, the Directors and Officers as a group owned less than 1%
of each Fund's shares , and the following entities owned of record greater than
5% of the outstanding shares of a particular class of each Fund:
<TABLE>
<CAPTION>
Name and Address Class(es) Percentage of Shares Owned
---------------- --------- --------------------------
<S> <C> <C> <C>
Global Blue Chip Fund
National Financial Services Corp. A 9.13
200 Liberty Street
New York, NY 10281
63
<PAGE>
Name and Address Class(es) Percentage of Shares Owned
---------------- --------- --------------------------
Global Blue Chip Fund (cont.)
SSC Investment Corporation A 14.66
345 Park Avenue
New York, NY 10154
Donaldson Lufkin & Jenrette B 8.94
1 Pershing Plaza
Jersey City, NJ 07399
Margie Humphrey C 5.23
1146 North Central Avenue
Glendale, CA 91202
Prudential Securities, Inc. C 5.53
One New York Plaza
New York, NY 10004
Raymond James & Associates, Inc. C 5.66
2360 Declaration Drive
Raleigh, NC 27615
Terry Sanchez and Donna Sanchez C 5.20
JTWROS
1852 Samarkand Place
Glendale, CA 91208
International Growth & Income Fund
Donaldson Lufkin & Jenrette A 8.18
1 Pershing Plaza C 14.82
Jersey City, NJ 07399
Marion Armstrong Craft A 5.57
TTEE
907 Huisache Street
Refugio, TX
National Financial Services Corp. B 12.99
200 Liberty Street
New York, NY 10281
SSC Investment Corporation A 93.08
345 Park Avenue C 20.45
New York, NY 10154
Gary L. Strausberg B 5.19
2204 Rogene Drive
Baltimore, MD 21209
64
<PAGE>
Name and Address Class(es) Percentage of Shares Owned
- ---------------- --------- --------------------------
International Growth & Income Fund (cont.)
MLPF&S for the Sole Benefit of ITS Customers C 18.60
4800 Deer Lake Drive East
Jacksonville, FL 32246
Investors Fiduciary Trust Co. Trust C 9.56
35215 West 379th Street
Osawatomie. KS 66064
Emerging Markets Income Fund
Donaldson Lufkin & Jenrette A 6.39
1 Pershing Plaza B 33.78
Jersey City, NJ 07399 C 12.20
SSC Investment Corporation A 76.56
345 Park Avenue
New York, NY 10154
Everen Securities B 11.94
77 West Wacker Drive
Chicago, IL 60601
MLPF&S for the Sole Benefit of ITS Customers B 5.64
4800 Deer Lake Drive East C 35.42
Jacksonville, FL 32246
Painewebber B 5.58
1000 Harbor Boulevard C 28.30
Weehawken. NJ 07087
Trent & Co. B 5.84
c/o Old Kent Bank
4420 44th Street, Southeast
Grand Rapids, MI 49512
Elmer Richard Widmann C 10.97
501 Esplanade Street
Redondo Beach, CA 90277
65
<PAGE>
Name and Address Class(es) Percentage of Shares Owned
- ---------------- --------- --------------------------
Emerging Markets Growth Fund
Allen Electric Supply Co. 401K A 7.64
Norman Horowitz TTEE
22533 South Bellwood Drive
Southfield, MI 48034
SSC Investment Corporation A 33.62
345 Park Avenue
New York, NY 10154
Winward Capital Management 401K A 7.36
Anthony Almy TTEE
Come Cock Road
Greenwich. CT 06830
Donaldson Lufkin & Jenrette B 20.91
1 Pershing Plaza
Jersey City, NJ 07399
First Clearing Corporation B 14.85
Deleware Char. Guar. & Tr. TTEE
423 Jane Court
Lemont, IL 60439
Terry Sanchez and Donna Sanchez C 5.60
JTWROS
1852 Samarkand Place
Glendale, CA 91208
Louis Scott C 7.76
201 West Passaic Street
Rochelle Park, NJ 07662
Talaris System, Inc. 401K C 7.46
Gail McBeth/C. E. Burgart TTEES
10491 Manila Avenue
San Diego, CA 92126
Wick's Truck Trailers, Inc. 401K C 21.10
Gale L. Wickersham TTEE
16725 H Circle
Omaha, NE 68135
66
<PAGE>
Name and Address Class(es) Percentage of Shares Owned
- ---------------- --------- --------------------------
Latin America Fund
National Financial Services Corp. A 5.29
200 Liberty Street B 12.42
New York, NY 10281
SSC Investment Corporation A 70.39
345 Park Avenue C 11.51
New York, NY 10154
Mary Deyesu B 5.11
67 Crystal Courte
Bel Air, MD 21014
Donaldson Lufkin & Jenrette B 18.91
1 Pershing Plaza C 54.43
Jersey City, NJ 07399
Gary L. Strausberg B 29.52
2204 Rogene Drive
Baltimore, MD 21209
Raymond James & Associates, Inc. C 10.04
Custodian
27 Padin Close Chalford
Stroud Gloss G16
8FB United Kingdom
</TABLE>
SHAREHOLDER RIGHTS
The Funds are series of the Corporation, an open-end management investment
company registered under the 1940 Act. The Corporation was organized as a
corporation under the laws of Maryland on October 2, 1997.
The Corporation may issue an indefinite amount of shares of capital stock, all
having $.001 par value, which may be divided by the Board of Directors into
classes of shares. Initially, 100,000,000 shares were classified for each, at
that time, of the Corporation's five series. Currently, each Fund offers three
classes of shares. These are Class A, Class B and Class C shares. The Board of
Directors may authorize the issuance of additional classes and additional series
or Funds if deemed desirable, each with its own investment objectives, policies
and restrictions. Since the Corporation may offer multiple Funds, each is known
as a "series company." Shares of a Fund have equal noncumulative voting rights
except that Class B and Class C shares have separate and exclusive voting rights
with respect to each such class' Rule 12b-1 Plan. Shares of each class also have
equal rights with respect to dividends, assets and liquidation of such Fund
subject to any preferences (such as resulting from different Rule 12b-1
distribution fees), rights or privileges of any classes of shares of the Fund.
Shares of each Fund are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
Each Fund's activities are supervised by the Corporation's Board of Directors.
The Corporation is not required to hold and has no current intention of holding
annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment management contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.
Each Fund's activities are supervised by the Corporation's Board of Directors.
Each Fund is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes such
as electing or
67
<PAGE>
removing Directors, changing fundamental investment policies or approving an
investment advisory contract. Shareholders will be assisted in communicating
with other shareholders in connection with removing a Director as if Section
16(c) of the 1940 Act were applicable.
Each director serves until the next meeting of shareholders, if any, called for
the purpose of electing directors and until the election and qualification of a
successor or until such director sooner dies, resigns, retires or is removed by
a majority vote of the shares entitled to vote (as described below) or a
majority of the directors.
A majority of the Directors shall be present in person at any regular or special
meeting of the Directors in order to constitute a quorum for the transaction of
business at such meeting and, except as otherwise required by law, the act of a
majority of the Directors present at any such meeting, at which a quorum is
present, shall be the act of the Directors.
Any matter shall be deemed to have been effectively acted upon with respect to a
Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Corporation's Articles of Incorporation. As used in
the 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 Funds and all additional
portfolios (e.g., election of directors), means the vote of the lesser of (i)
67% of the Corporation's shares represented at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Corporation's outstanding shares. The term "majority", when
referring to the approvals to be obtained from shareholders in connection with
matters affecting a single Fund or any other single portfolio (e.g., annual
approval of investment management contracts), means the vote of the lesser of
(i) 67% of the shares of the portfolio represented at a meeting if the holders
of more than 50% of the outstanding shares of the portfolio are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of the
portfolio.
In the event of the liquidation or dissolution of the Corporation, shares of a
Fund are entitled to receive the assets attributable to that Fund that are
available for distribution, and a proportionate distribution, based upon the
relative net assets of the Funds, of any general assets not attributable to a
Fund that are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid and non-assessable by the Corporation.
MASTER/FEEDER FUND STRUCTURE. The Board of Directors may determine, without
further shareholder approval, in the future that the objectives of each Fund
would be achieved more effectively by investing in a master fund in a
master/feeder fund structure. A master/feeder fund structure is one in which a
fund (a "feeder fund"), instead of investing directly in a portfolio of
securities, invests all of its investment assets in a separate registered
investment company (the "master fund") with substantially the same investment
objective and policies as the feeder fund. Such a structure permits the pooling
of assets of two or more feeder funds in the master fund in an effort to achieve
possible economies of scale and efficiencies in portfolio management, while
preserving separate identities or distribution channels at the feeder fund
level. An existing investment company is able to convert to a feeder fund by
selling all of its investments, which involves brokerage and other transaction
costs and the realization of taxable gain or loss, or by contributing its assets
to the master fund and possibly avoiding transaction costs and, in certain
circumstances, the realization of taxable gain or loss.
68
<PAGE>
ADDITIONAL INFORMATION
Other Information
<TABLE>
<CAPTION>
<S> <C>
The CUSIP number of the Class A shares of Global Blue Chip Fund is 487916 10 8
The CUSIP number of the Class B shares of Global Blue Chip Fund is 487916 60 3.
The CUSIP number of the Class C shares of Global Blue Chip Fund is 487916 70 2.
The CUSIP number of the Class A shares of International Growth and Income Fund is 487916 20 7.
The CUSIP number of the Class B shares of International Growth and Income Fund is 487916 80 1.
The CUSIP number of the Class C shares of International Growth and Income Fund is 487916 88 4.
The CUSIP number of the Class A shares of Emerging Markets Income Fund is 487916 30 6.
The CUSIP number of the Class B shares of Emerging Markets Income Fund is 487916 87 6.
The CUSIP number of the Class C shares of Emerging Markets Income Fund is 487916 86 8.
The CUSIP number of the Class A shares of Emerging Markets Growth Fund is 487916 40 5.
The CUSIP number of the Class B shares of Emerging Markets Growth Fund is 487916 85 0.
The CUSIP number of the Class C shares of Emerging Markets Growth Fund is 487916 84 3.
The CUSIP number of the Class A shares of Latin America Fund is 487916 50 4.
The CUSIP number of the Class B shares of Latin America Fund is 487916 83 5.
The CUSIP number of the Class C shares of Latin America Fund is 487916 82 7.
Each Fund has a fiscal year ending October 31.
</TABLE>
Many of the investment changes in a Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of a Fund. These transactions will reflect investment decisions
made by the Adviser in light of a Fund's investment objectives and policies, its
other portfolio holdings and tax considerations, and should not be construed as
recommendations for similar action by other investors.
Costs of $15,000 incurred by each Fund, in conjunction with its organization,
are amortized over the five year period beginning December 31, 1997.
Portfolio securities of each Fund are held separately pursuant to a custodian
agreement, by the Fund's custodian, Brown Brothers Harriman & Co.
The law firm of Dechert Price & Rhoads is counsel to the Funds.
The Funds' prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement and its amendments which the
Funds have filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to each 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.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolios of each Fund,
together with the Report of Independent Accountants, financial highlights and
notes to financial statements in each Fund's Annual Report to Shareholders dated
October 31, 1998, are incorporated herein by reference and are hereby deemed to
be a part of this Statement of Additional Information.
69
<PAGE>
APPENDIX -- RATINGS OF FIXED INCOME INVESTMENTS
Standard & Poor's Corporation Bond Ratings
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Moody's Investors Service, Inc. Bond Ratings
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
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.
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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.
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