Filed electronically with the Securities and Exchange Commission
on December 29, 1999
File No.333-42337
File No.811-08395
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_/
Pre-Effective Amendment No. /_/
Post-Effective Amendment No. 5 /X/
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /_/
Amendment No. 7 /X/
Kemper Global/International Series, Inc.
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza Street, Chicago, IL 60606
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 781-1121
--------------
Kathryn L. Quirk
Scudder Kemper Investments, Inc.
345 Park Avenue, New York, NY 10154
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/_/ Immediately upon filing pursuant to paragraph (b)
/_/ 60 days after filing pursuant to paragraph (a) (1)
/_/ 75 days after filing pursuant to paragraph (a) (2)
/_/ On March 1, 2000 pursuant to paragraph (b)
/X/ On March 1, 2000 pursuant to paragraph (a) (1)
/_/ On __________________ pursuant to paragraph (a) (2) of Rule 485.
If Appropriate, check the following box:
/_/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
March 1, 2000
Prospectus
[GRAPHIC OMITTED]
KEMPER GLOBAL/INTERNATIONAL FUNDS
Growth Fund Of Spain
Kemper Asian Growth Fund
Kemper Emerging Markets Growth Fund
Kemper Emerging Markets Income Fund
Kemper Global Blue Chip Fund
Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Growth and Income Fund
Kemper Latin America Fund
Kemper New Europe Fund
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
[LOGO] KEMPER FUNDS
<PAGE>
[GRAPHIC OMITTED]
HOW THE
FUNDS WORK
2 Growth Fund Of Spain
9 Kemper Asian Growth
Fund
15 Kemper Emerging
Markets Growth Fund
21 Kemper Emerging
Markets Income Fund
27 Kemper Global Blue
Chip Fund
33 Kemper Global
Discovery Fund
39 Kemper Global
Income Fund
45 Kemper International
Fund
51 Kemper International
Growth and Income
Fund
57 Kemper Latin America
Fund
63 Kemper New Europe
Fund
69 Other Policies and
Risks
71 Financial Highlights
INVESTING IN
THE FUNDS
73 Choosing A Share
Class
79 How To Buy Shares
80 How To Exchange
Or Sell Shares
81 Policies You
Should
Know About
87 Understanding
Distributions And
Taxes
<PAGE>
How The Funds Work
These funds invest mainly in foreign securities. Some funds invest mainly in
stocks, others mainly in bonds. Each fund focuses on a particular region of the
world or a particular investment theme, and follows its own investment goal.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money by investing
in them.
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Growth Fund Of Spain
FUND GOAL The fund seeks long-term capital appreciation.
2 GROWTH FUND OF SPAIN
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 65% of total assets in Spanish equities (equities that
are traded mainly on Spanish markets or are issued by companies that are based
in Spain or do more than half of their business there). The fund may invest up
to 35% of total assets in equities of Portuguese and other non-Spanish
companies.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with a history of
above-average growth, attractive prices relative to potential growth and
effective management, among other factors.
Growth orientation. The managers generally look for companies that seem to offer
the potential for sustainable above-average growth.
Top-down analysis. The managers consider the economic outlooks -- both
short-term and long-term -- for various sectors and industries.
The managers may favor securities from different industries and companies at
different times, while still maintaining variety in terms of the industries and
companies represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given industry.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund may invest up to 25% of total assets in unlisted securities (both
equity and debt) and may invest up to 35% of total assets in investment-grade
debt securities denominated in pesetas or U.S. dollars.
GROWTH FUND OF SPAIN 3
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
Investors who believe the Iberian countries (Spain and Portugal) may offer
attractive long-term growth opportunities may want to consider this fund.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how Iberian stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When Iberian stock prices fall, you should
expect the value of your investment to fall as well. The fact that the fund
concentrates on a single geographical region could affect fund performance. For
example, Iberian companies could be hurt by such factors as regional economic
downturns or difficulties in achieving economic unification with Europe.
Similarly, the fact that the fund is not diversified and may invest in
relatively few companies increases fund risk, because any factors affecting a
given company could affect performance.
Iberian stocks tend to be more volatile than their U.S. counterparts, for
reasons that include political and economic uncertainties, less liquidity in the
securities market and a higher risk that essential information may be incomplete
or wrong. Because a stock represents ownership in its issuer, stock prices can
be hurt by poor management, shrinking product demand and other business risks.
These may affect single companies as well as groups of companies. In addition,
changing currency rates could add to the fund's investment losses or reduce its
investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
4 GROWTH FUND OF SPAIN
<PAGE>
o at times, it could be hard to value some investments or to get an
attractive price for them; this risk is higher with unlisted securities
GROWTH FUND OF SPAIN 5
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
The performance of Class A shares shown in the bar chart and performance table
reflects the performance of the fund in closed-end form (without daily sales and
redemptions). The fund's performance may have been lower if it had operated as
an open-end fund during this period.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year* Since 5 Years Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
(1) 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.
* The one year average annual total return reflects the imposition of a 2%
redemption fee.
6 GROWTH FUND OF SPAIN
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Redemption fee** (as % of amount redeemed, if
applicable) 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses**** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** 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.
*** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
**** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
GROWTH FUND OF SPAIN 7
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Joan R. Gregory
Lead Portfolio Manager
o Began investment career in 1989
o Joined the advisor in 1992
o Joined the fund team in 1998
Nicholas Bratt
o Began investment career in 1974
o Joined the advisor in 1976
o Joined the fund team in 1998
8 GROWTH FUND OF SPAIN
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
Asian Growth Fund
FUND GOAL The fund seeks long-term capital growth.
KEMPER ASIAN GROWTH FUND 9
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 85% of total assets in Asian equities (equities that
are traded mainly on Asian markets or are issued by companies that are based in
Asia or do more than half of their business there). The fund generally focuses
on emerging Asian markets, such as China, Indonesia, Korea and Thailand.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with identifiable
market niches, attractive prices relative to potential growth and sound balance
sheets, among other factors.
Growth orientation. The managers generally look for companies that seem to offer
the potential for sustainable above-average growth.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, with an eye toward identifying countries,
industries and companies that may benefit from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given country or industry.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund may invest up to [15%] of total assets in debt securities of any issuer
or quality or in non-Asian equities.
10 KEMPER ASIAN GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
This fund may make sense for investors interested in diversifying a growth
portfolio with exposure to developing countries in Asia.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how Asian stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When Asian stock prices fall, you should
expect the value of your investment to fall as well. The fact that the fund
concentrates on a single geographical region could affect fund performance. For
example, Asian companies could be hurt by such factors as regional economic
downturns, currency devaluations or the inability of governments or banking
systems to bring about reforms.
Emerging markets, a category that includes most Asian countries, tend to be more
volatile than developed markets, for reasons ranging from political and economic
uncertainties to poor regulation to a higher risk that essential information may
be incomplete or wrong. Because a stock represents ownership in its issuer,
stock prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies. In addition, changing currency rates could add to the fund's
investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER ASIAN GROWTH FUND 11
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1997 1998 1999
00.00 00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
(1) Since 10/21/96. Index comparisons begin __/__/__.
12 KEMPER ASIAN GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
*** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER ASIAN GROWTH FUND 13
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Tien Yu Sieh
Lead Portfolio Manager
o Began investment career in 1990
o Joined the advisor in 1996
o Joined the fund team in 1999
Elizabeth J. Allan
o Began investment career in [YEAR]
o Joined the advisor in 1987
o Joined the fund team in 1998
Theresa Gusman
o Began investment career in 1983
o Joined the advisor in 1992
o Joined the fund team in 1998
14 KEMPER ASIAN GROWTH FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
Emerging Markets
Growth Fund
FUND GOAL The fund seeks long-term capital growth.
KEMPER EMERGING MARKETS GROWTH FUND 15
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 65% of total assets in equities from emerging markets,
such as Latin America, Asia, Africa, the Middle East and Eastern Europe.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have
exceptional business prospects (due to factors that may range from market
dominance to innovative products or services) and whose stocks are trading at
attractive prices relative to potential growth.
Growth orientation. The managers generally look for companies that seem to offer
the potential for sustainable above-average growth.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, with an eye toward identifying countries,
industries and companies that may benefit from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given country or industry.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund may invest up to 35% of total assets in developed foreign market
equities, emerging market debt securities or U.S. equities and debt securities,
including junk bonds. Compared to investment-grade bonds, junk bonds generally
pay higher yields and have higher volatility and risk of default.
16 KEMPER EMERGING MARKETS GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
This fund may make sense for investors interested in diversifying a growth
portfolio with exposure to countries located in emerging markets.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how emerging market stocks perform
- -- something that depends on a large number of factors, including economic,
political and demographic trends. When emerging market stock prices fall, you
should expect the value of your investment to fall as well. The fact that the
fund is not diversified and may invest in relatively few companies increases
fund risk, because any factors affecting a given company could affect
performance. Similarly, if the fund emphasizes a given market, such as Latin
America, factors affecting that market will affect performance.
Emerging markets tend to be more volatile than developed markets, for reasons
ranging from political and economic uncertainties to poor regulation to a higher
risk that essential information may be incomplete or wrong. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand and other business risks. These may affect single
companies as well as groups of companies. In addition, changing currency rates
could add to the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER EMERGING MARKETS GROWTH FUND 17
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1998 1999
00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: The IFC Emerging Markets Free Investable Index is __.
(1) Since 1/8/98. Index comparisons begin __/__/__.
18 KEMPER EMERGING MARKETS GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
*** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS GROWTH FUND 19
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Joyce E. Cornell
Lead Portfolio Manager
o Began investment career in 1987
o Joined the advisor in 1991
o Joined the fund team in 1998
Andre J. DeSimone
o Began investment career in 1981
o Joined the advisor in 1997
o Joined the fund team in 1998
Theresa Gusman
o Began investment career in 1983
o Joined the advisor in 1992
o Joined the fund team in 1998
Tara C. Kenney
o Began investment career in 1984 [verify]
o Joined the advisor in 1995
o Joined the fund team in 1998
20 KEMPER EMERGING MARKETS GROWTH FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
Emerging Markets
Income Fund
FUND GOAL The fund seeks high current income, with long-term capital
appreciation a secondary goal.
KEMPER EMERGING MARKETS INCOME FUND 21
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 65% of total assets in high yield bonds and other debt
securities from governments and corporations in emerging markets, such as Latin
America, Asia, Africa, the Middle East and Eastern Europe. To help manage risk,
the fund invests exclusively in securities that are denominated in, or fully
hedged back to, the U.S. dollar, and does not invest more than 40% of total
assets in any one country. The fund may invest up to 35% of total assets in debt
or equity securities from developed markets and up to 20% of total assets in
U.S. debt securities.
In making their buy and sell decisions, the portfolio managers typically
consider a number of factors, including economic outlooks, interest rate
movements, inflation trends, security characteristics and changes in supply and
demand within global bond markets. In choosing individual bonds, the managers
use independent analysis to look for bonds that have attractive yields and good
credit. The managers may favor securities from different countries and issuers
at different times, while still maintaining variety in terms of countries and
types of issuers represented.
Although the managers may adjust the fund's duration (a measure of sensitivity
to interest rate), they generally intend to keep it between 0.0 and 0.0 years.
- --------------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests at least 65% of total assets in junk bonds, which are
those below the fourth credit grade (i.e., grade BB/Ba and below). Compared to
investment-grade bonds, junk bonds generally pay higher yields and have higher
volatility and risk of default.
The fund could put up to 35% of total assets in bonds with higher credit
quality, or may invest to a lesser degree in non-debt securities, but normally
invests less in them.
22 KEMPER EMERGING MARKETS INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks of Investing in the Fund
This fund is designed for investors who want more aggressive international
diversification for the income component of an investment portfolio.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
For this fund, the main factors are how emerging market economies perform and
credit risk. Because the companies that issue high yield bonds may be in
uncertain financial health, the prices of their bonds can be vulnerable to bad
economic news. In some cases, bonds may decline in credit quality or go into
default. Emerging markets tend to be more volatile than developed markets, for
reasons ranging from political and economic uncertainties to poor regulation to
a higher risk that essential information may be incomplete or wrong.
The fact that the fund is not diversified and may invest in securities of
relatively few issuers increases its risk, because any factors affecting a given
company could affect performance. Similarly, if the fund emphasizes a given
market, such as Latin America, or a given industry, factors affecting that
market or industry will affect performance.
A rise in interest rates generally means a fall in bond prices -- and, in turn,
a fall in the value of your investment. (As a rule, a 1% rise in interest rates
means a 1% fall in value for every year of duration.)
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, issuers, industries or other matters
o some types of bonds could be paid off earlier than expected, which would
hurt the fund's performance
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them.
o currency fluctuations could cause foreign investments to lose value
KEMPER EMERGING MARKETS INCOME FUND 23
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1998 1999
00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
(1) Since 12/31/97. Index comparisons begin __/__/__.
24 KEMPER EMERGING MARKETS INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
*** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER EMERGING MARKETS INCOME FUND 25
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
M. Isabel Saltzman
Lead Portfolio Manager
o Began investment career in 1979
o Joined the advisor in 1990
o Joined the fund team in 1997
Susan E. Dahl
o Began investment career in 1987
o Joined the advisor in 1987
o Joined the fund team in 1997
26 KEMPER EMERGING MARKETS INCOME FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
Global Blue Chip Fund
FUND GOAL The fund seeks long-term capital growth.
KEMPER GLOBAL BLUE CHIP FUND 27
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least [65%] of total assets in common stocks and other
equities of "blue chip" companies throughout the world. These are large, well
known companies that typically have an established earnings and dividends
history, extensive financial resources, solid positions in their industries and
strong management. Although the fund may invest in any country, it primarily
focuses on countries with developed economies (including the U.S.).
In choosing stocks, the portfolio managers look for those blue-chip companies
that appear likely to benefit from global economic trends or have promising new
technologies or products. The managers also consider a stock's valuation, and
may invest in companies whose stocks appear low compared to other measures of
value as well as stocks whose prices are not low but appear reasonable in light
of their business prospects.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, when its fundamental factors have changed or when adjusting its
exposure to a given country or industry.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in developed countries, it may invest up to 15% of
total assets in debt or equity securities of emerging markets, including
closed-end mutual funds that invest primarily in emerging market debt
securities.
28 KEMPER GLOBAL BLUE CHIP FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
If you are interested in large-cap stocks and want to look beyond U.S. markets,
this fund could be suitable for you.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how U.S. and foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When U.S. and foreign stock prices
fall, especially prices of large company stocks, you should expect the value of
your investment to fall as well.
Foreign stocks tend to be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Large company stocks may be
less risky than smaller company stocks, but at times may not perform as well.
Because a stock represents ownership in its issuer, stock prices can be hurt by
poor management, shrinking product demand and other business risks. These may
affect single companies as well as groups of companies. In addition, changing
currency rates could add to the fund's investment losses or reduce its
investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER GLOBAL BLUE CHIP FUND 29
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1998 1999
00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
(1) Since 12/31/97. Index comparisons begin __/__/__.
30 KEMPER GLOBAL BLUE CHIP FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
*** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER GLOBAL BLUE CHIP FUND 31
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Diego Espinosa
Lead Portfolio Manager
o Began investment career in 1991
o Joined the advisor in 1996
o Joined the fund team in 1998
Nicholas Bratt
o Began investment career in 1974
o Joined the advisor in 1976
o Joined the fund team in 1998
William E. Holzer
o Began investment career in 1970
o Joined the advisor in 1980
o Joined the fund team in 1998
32 KEMPER GLOBAL BLUE CHIP FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
Global Discovery Fund*
FUND GOAL The fund seeks above-average long-term capital appreciation.
* Kemper Global Discovery Fund is properly known as Global Discovery Fund.
KEMPER GLOBAL DISCOVERY FUND 33
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 65% of its total assets in common stocks and other
equities of small companies throughout the world (companies with market values
similar to the smallest 20% of the Salomon Brothers Broad Market Index). The
fund generally focuses on countries with developed economies (including the
U.S.).
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for companies that appear to have
effective management, strong competitive positioning, vigorous research and
development efforts and sound balance sheets.
Growth orientation. The managers prefer companies with above-average potential
for sustainable earnings growth compared to large companies, and whose market
value appears reasonable in light of their business prospects.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, seeking to identify stocks that may benefit
from them.
The managers may favor different securities at different times, while still
maintaining variety in terms of the countries and industries represented.
The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in common stocks of small companies, it may also
invest up to 35% of total assets in equities of large companies or in debt
securities.
34 KEMPER GLOBAL DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
This fund may interest long-term investors who want to diversify a large-cap or
domestic portfolio of investments.
There are several factors that could hurt the fund's performance, cause you to
lose money or make the fund perform less well than other investments.
The most important factor with this fund is how U.S. and foreign stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When U.S. and foreign stock prices
fall, you should expect the value of your investment to fall as well.
Foreign stocks tend to be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. These risks tend to be greater
in emerging markets. Compared to large company stocks, small and mid-size stocks
tend to be more volatile, in part because these companies tend to be less
established and the valuation of their stocks often depends on future
expectations. Because a stock represents ownership in its issuer, stock prices
can be hurt by poor management, shrinking product demand and other business
risks. These may affect single companies as well as groups of companies. In
addition, changing currency rates could add to the fund's investment losses or
reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER GLOBAL DISCOVERY FUND 35
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: The Salomon Brothers World Equity Extended Market Index is an unmanaged
small capitalization stock universe of 22 countries. Index returns assume
reinvestment of dividends and, unlike fund returns, do not reflect any fees or
expenses.
(1) Since 9/10/91. Index comparisons begin __/__/__.
36 KEMPER GLOBAL DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
*** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes assumes operating expenses
remain the same and that you invested $10,000, earned 5% annual returns and
reinvested all dividends and distributions. This is only an example; actual
expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER GLOBAL DISCOVERY FUND 37
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Gerald J. Moran
Lead Portfolio Manager
o Began investment career in [YEAR]
o Joined the advisor in 1968
o Joined the fund team in 1991
Sewall Hodges
o Began investment career in [YEAR]
o Joined the advisor in 1995
o Joined the fund team in 1996
Steven T. Stokes
o Began investment career in 1986
o Joined the advisor in 1996
o Joined the fund team in 1999
38 KEMPER GLOBAL DISCOVERY FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
Global Income Fund
FUND GOAL The fund seeks high current income consistent with prudent
management for total return.
KEMPER GLOBAL INCOME FUND 39
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 65% of total assets in foreign and U.S.
investment-grade bonds and other debt securities. While the fund may invest in
securities issued by any issuer and in any currency, it generally focuses on
issuers in developed markets, such as Australia, Canada, Japan, New Zealand, the
United States and Western Europe, and on securities of other countries that are
denominated in the currencies of these countries or the euro.
In making their buy and sell decisions, the portfolio managers typically
consider a number of factors, including economic outlooks, interest rate
movements, inflation trends, security characteristics and changes in supply and
demand within global bond markets. In choosing individual bonds, the managers
use independent analysis to look for bonds that have attractive yields and good
credit. The managers may favor securities from different countries and issuers
at different times, while still maintaining variety in terms of countries and
issuers represented.
- --------------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests at least 65% of total assets in investment-grade
bonds, which are those in the top four credit grades (i.e., as low as BBB/Baa).
40 KEMPER GLOBAL INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
This fund may make sense for investors seeking a less aggressive approach to
international income investing.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
For this fund, the main factor is global interest rates. A rise in interest
rates generally means a fall in bond prices -- and, in turn, a fall in the value
of your investment. (As a rule, a 1% rise in interest rates means a 1% fall in
value for every year of duration.)
Foreign markets tend to be more volatile than U.S. markets, for reasons ranging
from political and economic uncertainties to poor regulation to a higher risk
that essential information may be incomplete or wrong.
Another major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
The fact that the fund is not diversified and may invest in securities of
relatively few issuers increases its risk, because any factors affecting a given
company could affect performance. Similarly, if the fund emphasizes a given
market, such as Canada, or a given industry, factors affecting that market or
industry will affect performance.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, issuers, industries or other matters
o a bond could fall in credit quality or go into default
o some types of bonds could be paid off earlier than expected, which would
hurt the fund's performance
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER GLOBAL INCOME FUND 41
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since 5 Years Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
(1) Inception dates for Class A, B and C shares are 10/1/89, 5/31/94 and
5/31/94, respectively.
42 KEMPER GLOBAL INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER GLOBAL INCOME FUND 43
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-advisor for Kemper Global Income
Fund. Scudder Investments (U.K.) Limited has served as sub-advisor for mutual
funds since December, 1996 and investment advisor for certain institutional
accounts since August, 1998.
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of the 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 of the portion of the average daily net assets of the fund
allocated by the investment manager to the sub-advisor for management.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Jan C. Faller
Co-Lead Portfolio Manager
o Began investment career in 1988
o Joined the advisor in 1999
o Joined the fund team in 1999
Robert Stirling
Co-Lead Portfolio Manager
o Began investment career in [YEAR]
o Joined the advisor in [YEAR]
o Joined the fund team in 1999
Jeremy L. Ragus
o Began investment career in 1977
o Joined the advisor in 1990
o Joined the fund team in 1999
44 KEMPER GLOBAL INCOME FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
International Fund
FUND GOAL The fund seeks total return through a combination of capital growth
and income.
KEMPER INTERNATIONAL FUND 45
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 80% of total assets in foreign securities (securities
issued by foreign-based issuers). The fund generally focuses on common stocks of
established foreign companies. The fund may invest more than 25% of total assets
in any given developed country that the manager believes poses no unique
investment risk.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have sound
financial strength, good business prospects and strong competitive positioning
and above-average earnings growth, among other factors.
Top-down analysis. The managers consider the economic outlooks for various
countries and geographical areas, favoring those they believe have sound
economic conditions and open markets.
Analysis of global themes. The managers look for significant changes in the
business environment, with an eye toward identifying industries that may benefit
from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, its underlying investment theme has matured or the reasons for
originally investing no longer apply.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund may invest up to [20%] of net assets in foreign or domestic debt
securities of any credit quality, including junk bonds (i.e., grade BB and
below). Compared to investment-grade bonds, junk bonds generally pay higher
yields and have higher volatility and risk of default.
46 KEMPER INTERNATIONAL FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
Investors who are looking for a broadly diversified international fund may want
to consider this fund.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how foreign stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When foreign stock prices fall, you should
expect the value of your investment to fall as well.
Foreign stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o bond investments could be hurt by rising interest rates or declines in
credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER INTERNATIONAL FUND 47
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since 5 Years Since 10 Years
- --------------------------------------------------------------------------------
Class A 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
48 KEMPER INTERNATIONAL FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND 49
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
Scudder Investments (U.K.) Limited, 1 South Place, London, U.K., an affiliate of
Scudder Kemper Investments, Inc., is the sub-advisor for Kemper International
Fund. Scudder Investments (U.K.) Limited has served as sub-advisor for mutual
funds since December, 1996 and investment advisor for certain institutional
accounts since August, 1998.
Scudder Investments (U.K.) Limited renders investment advisory and management
services with regard to the portion of the 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 0.35% for Kemper
International Fund of the portion of the average daily net assets of the fund
allocated by the investment manager to the sub-advisor for management.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Irene Cheng
Lead Portfolio Manager
o Began investment career in 1985
o Joined the advisor in 1993
o Joined the fund team in 1999
Marc Slendebroek
Began investment career in 1990
o Joined the advisor in 1994
o Joined the fund team in 1998
50 KEMPER INTERNATIONAL FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
International Growth
And Income Fund
FUND GOAL The fund seeks long-term growth of capital and current income.
KEMPER INTERNATIONAL GROWTH AND INCOME FUND 51
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 80% of net assets in foreign equities (equities issued
by foreign-based companies and listed on foreign exchanges). The fund generally
focuses on common stocks of established companies in countries with developed
economies (other than the United States).
In choosing stocks, the portfolio managers begin by screening for yields. Each
month, they examine a universe of about 1,200 stocks, seeking those with
dividends at least 25% above the stock's three-year average or the median for
the stock's local market.
To further narrow the pool of potential stocks, the managers use bottom-up
analysis, looking for companies with sound balance sheets, good business
prospects, strong competitive positioning and effective management. The managers
assemble the fund's portfolio from among the qualifying stocks, drawing on
analysis of economic outlooks for various countries and industries.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when its dividends are 25% lower than the
stock's own three-year average or the median for the stock's local market. It
may also sell a stock when it reaches a target price or when the managers
believe other investments offer better opportunities.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund may invest up to 20% of net assets in foreign debt securities,
primarily investment grade (i.e. in the top four credit grades).
52 KEMPER INTERNATIONAL GROWTH AND INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
Investors who are looking for a broadly diversified international fund with
current income may want to consider this fund.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how foreign stock markets perform --
something that depends on a large number of factors, including economic,
political and demographic trends. When foreign stock prices fall, you should
expect the value of your investment to fall as well.
Foreign stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o to the extent that the fund focuses on income, it may end up avoiding
opportunities in faster-growing industries or companies
o bond investments could be hurt by rising interest rates or declines in
credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER INTERNATIONAL GROWTH AND INCOME FUND 53
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1998 1999
00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
1 Year Since Inception(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
(1) Inception date for Class A, B and C shares is 12/31/97.
54 KEMPER INTERNATIONAL GROWTH AND INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
*** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL GROWTH AND INCOME FUND 55
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Sheridan P. Reilly
Lead Portfolio Manager
o Began investment career in 1987
o Joined the advisor in 1995
o Joined the fund team in 1998
Irene Cheng
o Began investment career in 1985
o Joined the advisor in 1993
o Joined the fund team in 1998
Lauren C. Lambert
o Began investment career in 1987
o Joined the advisor in 1994
o Joined the fund team in 1999
56 KEMPER INTERNATIONAL GROWTH AND INCOME FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
Latin America Fund
FUND GOAL The fund seeks long-term capital appreciation.
KEMPER LATIN AMERICA FUND 57
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 65% of total assets in Latin American equities
(equities that are traded mainly on Latin American markets or are issued by
companies that are based in Latin America or do more than half of their business
there). The fund generally focuses on Argentina, Brazil, Chile, Colombia, Mexico
and Peru.
In choosing stocks, the portfolio managers use a combination of two analytical
disciplines:
Bottom-up research. The managers look for individual companies with competitive
business positions, good technologies, attractive prices relative to potential
growth and sound balance sheets, among other factors. The managers also consider
the quality of management, the impact of government regulations and trade
initiatives and the cost of labor and raw materials.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, with an eye toward identifying countries,
industries and companies that may benefit from these changes.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when the managers believe it has reached its
fair value, other investments offer better opportunities or when adjusting its
exposure to a given country or industry.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund may invest up to 35% of total assets in non-Latin American [debt] and
equity securities, including bonds that the managers believe may offer
attractive appreciation and stocks that may benefit from Latin American
developments.
58 KEMPER LATIN AMERICA FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
This fund may interest investors who believe in the long-term growth potential
of stocks from Mexico, Central America, South America and the Caribbean, and can
accept above-average risks.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how Latin American stock markets
perform -- something that depends on a large number of factors, including
economic, political and demographic trends. When Latin American stock prices
fall, you should expect the value of your investment to fall as well. The fact
that the fund concentrates on a single geographical region could affect fund
performance. For example, Latin American companies could be hurt by such factors
as currency devaluations or shifts in government policy. Similarly, the fact
that the fund is not diversified and may invest in relatively few companies
increases its risk, because any factors affecting a given company could affect
performance.
Emerging markets, including Latin American countries, tend to be more volatile
than developed markets, for reasons ranging from political and economic
uncertainties to poor regulation to a higher risk that essential information may
be incomplete or wrong. Stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o bond investments could be hurt by rising interest rates or declines in
credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER LATIN AMERICA FUND 59
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A shares
- --------------------------------------------------------------------------------
1998 1999
00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year Since Life of Class(1)
- --------------------------------------------------------------------------------
Class A 00.00% 00.00%
- --------------------------------------------------------------------------------
Class B 00.00 00.00
- --------------------------------------------------------------------------------
Class C 00.00 00.00
- --------------------------------------------------------------------------------
Index 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: 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.
(1) Inception date for Class A, B and C shares is 12/31/97.
60 KEMPER LATIN AMERICA FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
*** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER LATIN AMERICA FUND 61
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Tara C. Kenney
Lead Portfolio Manager
o Began investment career in 1984 [verify]
o Joined the advisor in 1995
o Joined the fund team in 1996
Edmund B. Games, Jr.
o Began investment career in 1960
o Joined the advisor in 1960
o Joined the fund team in 1992
Paul H. Rogers
o Began investment career in 1985
o Joined the advisor in 1994
o Joined the fund team in 1996
62 KEMPER LATIN AMERICA FUND
<PAGE>
TICKER SYMBOLS CLASS: A) XXXXX B) XXXXX C) XXXXX
Kemper
New Europe Fund
FUND GOAL The fund seeks long-term capital appreciation.
KEMPER NEW EUROPE FUND 63
<PAGE>
- --------------------------------------------------------------------------------
The Fund's Main Strategy
The fund invests at least 65% of total assets in European equities (equities
that are traded mainly on European markets or are issued by companies that are
based in Europe or do more than half of their business there). The fund
generally focuses on common stocks of companies in the more established markets
of Western and Southern Europe.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with a history of
above-average growth and new or dominant products or technologies, among other
factors.
Growth orientation. The managers look for stocks that seem to offer the
potential for sustainable above-average growth and whose market prices are
reasonable in light of their potential growth.
Top-down analysis. The managers consider the outlook for economic, political,
industrial and demographic trends and how they may affect various countries,
sectors and industries.
The managers may favor securities from different countries and industries at
different times, while still maintaining variety in terms of the countries and
industries represented.
The fund will normally sell a stock when it has reached a target price, the
managers believe other investments offer better opportunities or when adjusting
its exposure to a given country or industry.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
The fund may invest up to 20% of total assets in European debt securities of any
credit quality, including junk bonds (i.e., grade BB and below). Compared to
investment-grade bonds, junk bonds generally pay higher yields and have higher
volatility and risk of default.
64 KEMPER NEW EUROPE FUND
<PAGE>
- --------------------------------------------------------------------------------
The Main Risks Of Investing In The Fund
This fund may appeal to investors who seek long-term growth and want to gain
exposure to Europe's established markets.
There are several factors that could hurt fund performance, cause you to lose
money or make the fund perform less well than other investments.
The most important factor with this fund is how European stock markets perform
- -- something that depends on a large number of factors, including economic,
political and demographic trends. When European stock prices fall, you should
expect the value of your investment to fall as well. The fact that the fund
concentrates on a single geographical region could affect fund performance. For
example, European companies could be hurt by such factors as regional economic
downturns or difficulties in achieving economic unification. Similarly, the fact
that the fund is not diversified and may invest in relatively few companies
increases its risk, because any factors affecting a given company could affect
performance.
European stocks may at times be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. Because a stock represents
ownership in its issuer, stock prices can be hurt by poor management, shrinking
product demand and other business risks. These may affect single companies as
well as groups of companies. In addition, changing currency rates could add to
the fund's investment losses or reduce its investment gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
countries, industries, companies or other matters
o growth stocks may be out of favor for certain periods
o bond investments could be hurt by rising interest rates or declines in
credit quality
o derivatives could produce disproportionate losses
o at times, it could be hard to value some investments or to get an
attractive price for them
KEMPER NEW EUROPE FUND 65
<PAGE>
- --------------------------------------------------------------------------------
Performance
The bar chart shows how the total returns for the fund's Class M shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
The performance of Class M shares shown in the bar chart and performance table
reflects the performance of the fund in closed-end form (without daily sales and
redemptions). The fund's performance may have been lower if it had operated as
an open-end fund during this period.
For comparison, the table has a broad-based market index (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
[The following table was depicted as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class M shares
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
- --------------------------------------------------------------------------------
Best quarter: 0.00%, Q0 '00 YTD return as of : 0.00%
Worst quarter: -0.00%, Q0 '00
- --------------------------------------------------------------------------------
Average Annual Total Returns (12/31/1999)
- --------------------------------------------------------------------------------
Since 1 Year* Since 5 Years Since 10 Years
- --------------------------------------------------------------------------------
Class M 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Index 00.00% 00.00% 00.00%
- --------------------------------------------------------------------------------
Index: The Morgan Stanley Capital International Europe Index is an unmanaged
index that is generally representative of the equity securities of the European
markets. Index returns assume reinvestment of dividends and unlike the fund's
returns, do not reflect any fees, expenses or sales charges.
* The one year average annual total return reflects the imposition of a 2%
redemption fee.
66 KEMPER NEW EUROPE FUND
<PAGE>
- --------------------------------------------------------------------------------
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed On Purchases
(as % of offering price) 0.00% None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as % of
redemption proceeds) 0.00%* 0.00% 0.00%
- --------------------------------------------------------------------------------
Redemption fee** (as % of amount redeemed, if
applicable) 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund
assets 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Management Fee 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.00 0.00
- --------------------------------------------------------------------------------
Other Expenses*** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Expense Reimbursement 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Net Annual Operating Expenses**** 0.00 0.00 0.00
- --------------------------------------------------------------------------------
* Only on shares bought without sales charge and sold within a year. See
"Choosing A Share Class, Class A Shares."
** 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.
*** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
**** By contract, total operating expenses are capped at 0.00% through
00/00/0000.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $0,000 $0,000 $0,000 $0,000
- --------------------------------------------------------------------------------
Class B shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
Class C shares 0,000 0,000 0,000 0,000
- --------------------------------------------------------------------------------
KEMPER NEW EUROPE FUND 67
<PAGE>
- --------------------------------------------------------------------------------
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds and currently has more than $290 billion in
assets under management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was 0.00% of its average daily net assets.
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
FUND MANAGERS
The following people handle the fund's day-to-day management:
Carol L. Franklin
Lead Portfolio Manager
o Began investment career in 1975
o Joined the advisor in 1981
o Joined the fund team in 1990
Joan R. Gregory
o Began investment career in 1989
o Joined the advisor in 1992
o Joined the fund team in 1992
Marc Slendebroek
o Began investment career in 1990
o Joined the advisor in 1994
o Joined the fund team in 1998
68 KEMPER NEW EUROPE FUND
<PAGE>
- --------------------------------------------------------------------------------
Other Policies And Risks
This prospectus doesn't tell you about every policy or risk of investing in a
fund. For more information, you may want to request a copy of the Statement of
Additional Information (the back cover tells you how to do this).
While the previous pages describe the main points of each fund's strategy and
risks, there are a few other issues to know about:
o Although major changes tend to be rare, each fund's Board could change
that fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, any of these funds could shift up to
100% of assets into investments such as money market securities. This
could prevent losses, but would mean that the fund would not be pursuing
its goal.
o Scudder Kemper establishes a security's credit quality when it buys the
security, using independent ratings or, for unrated securities, its own
credit ratings. When ratings don't agree, a fund may use the higher
rating. If a security's credit quality falls, the advisor will determine
whether selling it would be in the shareholders' best interests.
o Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, commodities,
currencies or securities), the managers don't intend to use them as
principal investments, and may not use them at all. With derivatives there
is a risk that they could produce disproportionate losses.
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
OTHER POLICIES AND RISKS 69
<PAGE>
Year 2000 and euro readiness
Like all mutual funds, these funds could be affected by the inability of some
computer systems to recognize the year 2000. Also, because they invest in
foreign securities, the funds could be affected by accounting differences,
changes in tax treatment or other issues related to the conversion of certain
European currencies into the euro, which is already underway. Scudder Kemper has
readiness programs designed to address these problems, and is also researching
the readiness of suppliers and business partners as well as issuers of
securities the funds own. Still, there's some risk that one or both of these
problems could materially affect a fund's operations (such as its ability to
calculate net asset value and to handle purchases and redemptions), its
investments or securities markets in general.
70 OTHER POLICIES AND RISKS
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned (or lost), assuming all
dividends and distributions were reinvested. This information has been audited
by Ernst & Young LLP, whose report, along with each fund's financial statements,
is included in that fund's annual report (see "Shareholder reports" on the back
cover).
Growth Fund Of Spain
Kemper Asian Growth Fund
Kemper Emerging Markets Growth Fund
Kemper Emerging Markets Income Fund
Kemper Global Blue Chip Fund
Kemper Global Discovery Fund
Kemper Global Income Fund
Kemper International Fund
Kemper International Growth and Income Fund
Kemper Latin America Fund
Kemper New Europe Fund
FINANCIAL HIGHLIGHTS 71
<PAGE>
Investing In The Funds
[GRAPHIC OMITTED]
The following pages tell you about many of the services, choices and
benefits of being a Kemper Funds shareholder. You'll also find information on
how to check the status of your account using the method that's most convenient
for you.
You can find out more about the topics covered here by speaking with your
financial representative or other investment provider, such as a workplace
retirement plan.
<PAGE>
- --------------------------------------------------------------------------------
Choosing A Share Class
In this prospectus, there are three share classes for each fund. Each class has
its own fees and expenses, offering you a choice of cost structures.
Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.
We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.
- --------------------------------------- ---------------------------------------
Classes and features Points to help you compare
- --------------------------------------- ---------------------------------------
Class A
o Sales charges of up to 5.75%, o Some investors may be able to
charged when you buy shares reduce or eliminate their sales
charges; see next page
o In most cases, no charges when you
sell shares o Annual operating expenses are
lower than those for Class B or
o No distribution fee Class C
- --------------------------------------- ---------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate
falls to zero after six years
o Deferred sales charge of up to
4.00%, charged when you sell o Shares automatically convert to
shares you bought within the last Class A after six years, which
six years means lower annual expenses going
forward
o 0.75% distribution fee
- --------------------------------------- ---------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never
o Deferred sales charge of 1.00%, convert to Class A, so annual
charged when you sell shares you expenses remain higher
bought within the last year
o 0.75% distribution fee
- --------------------------------------- ---------------------------------------
CHOOSING A SHARE CLASS 73
<PAGE>
Class A shares
All funds, except Kemper Global Income Fund and Kemper Emerging Markets Income
Fund
Class A shares have a sales charge that varies with the amount you invest:
Sales charge Sales charge
as a % of as a % of your
Your investment offering price net investment
- ---------------------------------------------------------
Up to $50,000 5.75% 6.10%
- ---------------------------------------------------------
$50,000-$99,999 4.50 4.71
- ---------------------------------------------------------
$100,000-$249,999 3.50 3.63
- ---------------------------------------------------------
$250,000-$499,999 2.60 2.67
- ---------------------------------------------------------
$500,000-$999,999 2.00 2.04
- ---------------------------------------------------------
$1 million or more See below and next page
- ---------------------------------------------------------
The offering price includes the sales charge.
Class A shares -- Kemper Global Income Fund and Kemper Emerging Markets Income
Fund
Amount of purchase Offering price Amount 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.
74 CHOOSING A SHARE CLASS
<PAGE>
You may be able to lower your Class A sales charges if:
o you plan to invest at least $50,000 ($100,000 for Kemper Global Income
Fund and Kemper Emerging Markets Income Fund) over the next 24 months
("letter of intent")
o the amount of Kemper shares you already own (including shares in certain
other Kemper funds) plus the amount you're investing now is at least
$50,000 ($100,000 for Kemper Global Income Fund and Kemper Emerging
Markets Income Fund) ("cumulative discount")
o you are investing a total of $50,000 ($100,000 for Kemper Global Income
Fund and Kemper Emerging Markets Income Fund) or more in several Kemper
funds at once ("combined purchases")
The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.
CHOOSING A SHARE CLASS 75
<PAGE>
You may be able to buy Class A shares without sales charges when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under which you pay a fee
to an investment advisor or other firm for portfolio management services
There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper can answer
your questions and help you determine if you are eligible.
If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper can answer your questions and help you determine if
you're eligible.
Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.
76 CHOOSING A SHARE CLASS
<PAGE>
Class B shares
With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% is deducted
from fund assets each year. This means the annual expenses for Class B shares
are somewhat higher (and their performance correspondingly lower) compared to
Class A shares, which don't have a 12b-1 fee. After six years, Class B shares
automatically convert to Class A, which has the net effect of lowering the
annual expenses from the seventh year on.
Class B shares have a contingent deferred sales charge (CDSC). This charge
declines over the years you own shares, and disappears completely after six
years of ownership. But for any shares you sell within those six years, you may
be charged as follows:
Year after you bought shares CDSC on shares you sell
- -----------------------------------------------------------
First year 4.00%
- -----------------------------------------------------------
Second or third year 3.00
- -----------------------------------------------------------
Fourth or fifth year 2.00
- -----------------------------------------------------------
Sixth year 1.00
- -----------------------------------------------------------
Seventh year and later None (automatic conversion
to Class A)
- -----------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class B shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
Class B shares can be a logical choice for long-term investors who would prefer
to see all of their investment go to work right away, and can accept somewhat
higher annual expenses in exchange.
CHOOSING A SHARE CLASS 77
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and have a
12b-1 plan under which a distribution fee of 0.75% is deducted from fund assets
each year. Because of this fee, the annual expenses for Class C shares are
similar to those of Class B shares, but higher than those for Class A shares
(and the performance of Class C shares is correspondingly lower than that of
Class A).
Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.
Class C shares have a contingent deferred sales charge (CDSC), but only on
shares you sell within one year of buying them:
Year after you bought shares CDSC on shares you sell
- ----------------------------------------------------------
First year 1.00%
- ----------------------------------------------------------
Second year and later None
- ----------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class C shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.
78 CHOOSING A SHARE CLASS
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares
Once you've chosen a share class, use these instructions to make investments.
Make out any checks to "Kemper Funds."
- -------------------------------------- ----------------------------------------
First investment Additional investments
- -------------------------------------- ----------------------------------------
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- -------------------------------------- ----------------------------------------
Through a financial representative
o Contact your representative using o Contact your representative using
method that's most convenient for the method that's most convenient
the you for you
- -------------------------------------- ----------------------------------------
By mail or express mail (see below)
o Fill out and sign an application o Send a check and a Kemper
investment slip to us at the
o Send it to us at the appropriate appropriate address below
address, along with an investment
check o If you don't have an investment
slip, simply include a letter with
your name, account number, the
full name of the fund and the
share class and your investment
instructions
- -------------------------------------- ----------------------------------------
By wire
o Call (800) 621-1048 for o Call (800) 621-1048 for
instructions instructions
- -------------------------------------- ----------------------------------------
By phone
- -- o Call (800) 621-1048 for
instructions
- -------------------------------------- ----------------------------------------
With an automatic investment plan
- -- o To set up regular investments,
call (800) 621-1048
- -------------------------------------- ----------------------------------------
On the internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- -------------------------------------- ----------------------------------------
Regular mail: Kemper Funds, PO Box 219415, Kansas City, MO 64121-9415
Express, registered, or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: 800-818-7526 (for exchanging and selling only)
HOW TO BUY SHARES 79
<PAGE>
- --------------------------------------------------------------------------------
How to Exchange Or Sell Shares
Use these instructions to exchange or sell shares in your account.
- -------------------------------------- ----------------------------------------
Exchanging into another fund Selling shares
- -------------------------------------- ----------------------------------------
$1,000 or more to open a new account Some transactions, including most for
over $50,000, can only be ordered in
$100 or more for exchanges between writing with a signature guarantee;
existing accounts if you're in doubt, see page 00
- -------------------------------------- ----------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by the
method that's most convenient for method that's most convenient for
you you
- -------------------------------------- ----------------------------------------
By phone or wire
o Call (800) 621-1048 for o Call (800) 621-1048 for
instructions instructions
- -------------------------------------- ----------------------------------------
By mail, express mail or fax
(see previous page)
Write a letter that includes: Write a letter that includes:
o the fund, class and account number o the fund, class and account number
you're exchanging out of from which you want to sell shares
o the dollar amount or number of o the dollar amount or number of
shares you want to exchange shares you want to sell
o the name and class of the fund you o your name(s), signature(s) and
want to exchange into address, as they appear on your
account
o your name(s), signature(s) and
address, as they appear on your o a daytime telephone number
account
o a daytime telephone number
- -------------------------------------- ----------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments
Kemper fund account, call (800) from a Kemper fund account, call
621-1048 (800) 621-1048
- -------------------------------------- ----------------------------------------
On the internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- -------------------------------------- ----------------------------------------
80 HOW TO EXCHANGE OR SELL SHARES
<PAGE>
- --------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder.
If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.
Policies about transactions
The funds are open for business on each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.
KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper funds generally and on accounts held directly at Kemper. You can also use
it to make exchanges and sell shares.
POLICIES YOU SHOULD KNOW ABOUT 81
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The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www. kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
EXPRESS-Transfer lets you set up a link between a Kemper account and a bank
account. Once this link is in place, you can move money between the two with a
phone call. You'll need to make sure your bank has Automated Clearing House
(ACH) services. Transactions take two to three days to be completed, and there
is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the account
application; to add it to an existing account, call (800) 621-1048.
Share certificates are available on written request. However, we don't recommend
them unless you want them for a specific purpose, because they can only be sold
by mailing them in, and if they're ever lost they're difficult and expensive to
replace.
When you call us to sell shares, we may record the call, ask you for certain
information or take other steps designed to prevent fraudulent orders. It's
important to understand that, with respect to certain pre-authorized
transactions, as long as we take reasonable steps to ensure that an order
appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are completed within 24 hours. The funds can only send or
accept wires of $1,000 or more.
Exchanges among Kemper funds are an option for most shareholders. Exchanges are
a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject or limit purchase orders, for
these or other reasons.
82 POLICIES YOU SHOULD KNOW ABOUT
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If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
When you want to sell more than $50,000 worth of shares, or send the proceeds to
a third party or to a new address, you'll usually need to place your order in
writing and include a signature guarantee. The only exception is if you want
money wired to a bank account that is already on file with us; in that case, you
don't need a signature guarantee. Also, you don't need a signature guarantee for
an exchange, although we may require one in certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers and
most banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
When you sell shares that have a contingent deferred sales charge (CDSC), we
calculate the CDSC as a percentage of what you paid for the shares or what you
are selling them for -- whichever results in the lowest charge to you. In
processing orders to sell shares, we turn to the shares with the lowest CDSC
first. Exchanges from one Kemper fund into another don't affect CDSCs: for each
investment you make, the date you first bought Kemper shares is the date we use
to calculate a CDSC on that particular investment.
There are certain cases in which you may be exempt from a CDSC. These include:
o the death or disability of an account owner (including a joint owner)
o withdrawals made through a systematic withdrawal plan
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship provisions or returns of
excess contributions from retirement plans
POLICIES YOU SHOULD KNOW ABOUT 83
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In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper can answer your questions and help you determine if you are eligible.
If you sell shares in a Kemper fund and then decide to invest with Kemper again
within six months, you can take advantage of the "reinstatement feature." With
this feature, you can put your money back into the same class of a Kemper fund
at its current NAV and for purposes of sales charges it will be treated as if it
had never left Kemper. You'll be reimbursed (in the form of fund shares) for any
CDSC you paid when you sold. Future CDSC calculations will be based on your
original investment date, rather than your reinstatement date. There is also an
option that lets investors who sold Class B shares buy Class A shares with no
sales charge, although they won't be reimbursed for any CDSC they paid. You can
only use the reinstatement feature once for any given group of shares. To take
advantage of this feature, contact Kemper or your financial representative.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.
84 POLICIES YOU SHOULD KNOW ABOUT
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How the funds calculate share price
For each fund in this prospectus, the price at which you buy shares is as
follows:
Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing A Share Class")
Class B and Class C shares -- net asset value per share, or NAV
To calculate NAV, each share class of each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For each fund and share class in this prospectus, the price at which you sell
shares is also the NAV, although a contingent deferred sales charge may be taken
out of the proceeds (see "Choosing A Share Class").
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.
POLICIES YOU SHOULD KNOW ABOUT 85
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Other rights we reserve
For each fund in this prospectus, you should be aware that we may do any of the
following:
o withhold 31% of your distributions as federal income tax if we have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened,
we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$1,000 for the entire quarter; this policy doesn't apply to most
retirement accounts or if you have an automatic investment plan
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for
you to liquidate) rather than cash; in most cases, a fund won't make a
redemption in kind unless your requests over a 90-day period total more
than $250,000 or 1% of the fund's assets, whichever is less
o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)
86 POLICIES YOU SHOULD KNOW ABOUT
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Understanding Distributions And Taxes
Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its shareholders in
November or December, and if necessary may do so at other times as well.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you by check or have them
invested in a different fund. Tell us your preference on your application. If
you don't indicate a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans, reinvestment is the only
option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
UNDERSTANDING DISTRIBUTIONS AND TAXES 87
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The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- --------------------------------------------------------------------------------
o short-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o income dividends you receive from a fund
- --------------------------------------------------------------------------------
o short-term capital gains distributions received from a fund
- --------------------------------------------------------------------------------
Generally taxed at capital gains rates
- --------------------------------------------------------------------------------
o long-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o long-term capital gains distributions received from a fund
- --------------------------------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.
Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends- received deduction for a portion
of income dividends they receive.
88 UNDERSTANDING DISTRIBUTIONS AND TAXES
<PAGE>
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To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we mail one copy per
household. For more copies, call (800) 621-1048.
Statement of Additional Information (SAI) -- This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Kemper or the SEC (see below). Materials you
get from Kemper are free; those from the SEC involve a copying fee. If you like,
you can look over these materials in person at the SEC's Public Reference Room
in Washington, DC.
SEC
450 Fifth Street, N.W.
Washington, DC 20549-6009
www.sec.gov
Tel (800) SEC-0330
Kemper Funds
222 South Riverside Plaza
Chicago, IL 60606-5808
www.kemper.com
Tel (800) 621-1048
SEC File Numbers
Growth Fund Of Spain 000-000
Kemper Asian Growth Fund 000-000
Kemper Emerging Markets Growth Fund 000-000
Kemper Emerging Markets Income Fund 000-000
Kemper Global Blue Chip Fund 000-000
Global Discovery Fund 000-000
Kemper Global Income Fund 000-000
Kemper International Fund 000-000
Kemper International Growth and Income Fund 000-000
Kemper Latin America Fund 000-000
Kemper New Europe Fund 000-000
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
[LOGO] KEMPER FUNDS
Long-term investing in a short-term world(SM)
[Recycle Logo] Printed on recycled paper. XXX-O (00/00) 000000
<PAGE>
KEMPER GLOBAL and INTERNATIONAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2000
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, 2000. 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
<TABLE>
<S> <C>
INVESTMENT RESTRICTIONS.....................................................................................................4
PORTFOLIO TRANSACTIONS.....................................................................................................35
INVESTMENT MANAGER AND UNDERWRITER.........................................................................................37
PURCHASE, REDEMPTION and repurchase OF SHARES..............................................................................45
DIVIDENDS, DISTRIBUTIONS AND TAXES.........................................................................................58
RETIREMENT PLANS...........................................................................................................63
PERFORMANCE................................................................................................................64
OFFICERS AND DIRECTORS.....................................................................................................66
SHAREHOLDER RIGHTS.........................................................................................................72
APPENDIX -- RATINGS OF FIXED INCOME INVESTMENTS............................................................................76
</TABLE>
<PAGE>
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, and
may be obtained without charge by calling 1-800-621-1048.
Scudder Kemper Investments, Inc. (the "Adviser") serves as each Fund's
investment manager.
2
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3
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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;
4
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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
5
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market to market, Blue Chip companies around the worldare generally identified
by the Adviser as having substantial capitalization, established financial
history, ready access to credit, good industry position and superior management
structure. While these companies may be among the largest in their local
markets, they may be small by the standards of U.S. stock market capitalization.
Global Blue Chip companies are believed to generally exhibit less investment
risk and less price volatility, on average, than companies lacking these
characteristics, such as smaller, less-seasoned companies. In addition, the
large market of publicly held shares for such companies and the generally higher
trading volume in those shares generally result in a relatively high degree of
liquidity for such investments.
The Fund invests in companies that the Adviser believes will benefit from global
economic trends, promising technologies or products and specific country
opportunities resulting from changing geopolitical, currency or economic
relationships. The Fund's global framework allows it to take advantage of
investment opportunities created by the growing integration of economies around
the world. The Fund offers investors access to opportunities wherever they
arise, without being constrained by location of a company's headquarters or the
trading market for its shares.
It is expected that investments will be spread broadly around the world with an
emphasis on developed economies and capital markets. The Fund will usually be
invested in securities of issuers located in at least three countries, one of
which may be the U.S. The Fund may be invested 100% in non-U.S. issues, and for
temporary defensive 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
6
<PAGE>
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 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).
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The second stage of portfolio construction involves a fundamental analysis of
each company's financial strength, profitability, projected earnings,
competitive positioning and ability of management. During this step, the
Adviser's research team identifies what it believes are the most promising
stocks for the Fund's portfolio.
The third stage of the investment process involves diversifying the portfolio
among different industry sectors. The key element of this stage is evaluating
how the stocks in different sectors react to economic factors such as interest
rates, inflation, Gross Domestic Product and consumer spending, and then
attaining a proper balance of stocks in these sectors based on the Adviser's
economic forecast.
The fourth and final stage of this ongoing process is diversifying the portfolio
among different countries. The Adviser will seek to have broad country
representation, favoring those countries that it believes have sound economic
conditions and open markets. The Fund's strategy is to manage risk and create
opportunity at each of its four stages in the investment process, starting with
the focus on stocks with high relative yields.
EMERGING MARKETS INCOME FUND. Emerging Markets Income Fund has dual investment
objectives. The Fund's primary investment objective is to provide investors with
high current income. As a secondary objective, the Fund seeks long-term capital
appreciation. In pursuing these goals, the Fund invests primarily in
high-yielding debt securities issued by governments and corporations in emerging
markets. Many developing regions of the world have undertaken sweeping political
and economic changes that favor increased business activity and demand for
capital. In the opinion of the Adviser, these changes present attractive
investment opportunities, both in terms of income and appreciation potential,
for long-term investors. 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
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instruments issued by government or government-related entities in emerging
markets; and debt obligations issued by supranational organizations such as the
Asian Development Bank and the Inter-American Development Bank, among others.
The Fund may also consider for purchase debt securities issued by commercial
banks and companies in emerging markets. The Fund may invest in both fixed- and
floating-rate issues. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments and trust interests. The
Fund may invest regularly in "Brady Bonds," which are debt securities issued
under the framework of the Brady Plan as a mechanism for debtor countries to
restructure their outstanding bank loans. Some "Brady Bonds" have their
principal collateralized by zero coupon U.S. Treasury bonds.
The Fund is not restricted by limits on weighted average portfolio maturity or
the maturity of an individual issue. Debt securities in which the Fund may
invest may have stated maturities from overnight to 30 years or longer. The
weighted average maturity of the Fund's portfolio is actively managed and will
vary from period to period based 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.
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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.
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.
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The Adviser takes a top-down approach to evaluating investments for the Fund,
using extensive fundamental and field research. The process begins with a study
of the economic fundamentals of each country and region as well as an
examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the Adviser to identify the industries and companies most likely
to benefit from the political, social and economic changes taking place in a
given region of the world.
Within a market, the Adviser looks for individual companies with exceptional
business prospects, which may be due to market dominance, unique franchises,
high growth potential, or innovative services, products or technologies. The
Adviser seeks to identify companies with favorable potential for appreciation
through growing earnings or greater market recognition over time. While these
companies may be among the largest in their local markets, they may be small by
the standards of U.S. stock market capitalization.
LATIN AMERICA FUND. Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin American
issuers.
The Fund seeks to benefit from economic and political trends emerging throughout
Latin America. These trends are supported by governmental initiatives designed
to promote freer trade and market-oriented economies. The Adviser believes that
efforts by Latin American countries to, among other things, reduce government
spending and deficits, control inflation, lower trade barriers, stabilize
currency exchange rates, increase foreign and domestic investment and privatize
state-owned companies, will help support attractive investment returns over
time.
In seeking its objective to provide long-term capital appreciation, the Fund
normally invests at least 65% of its total assets in Latin American equity
securities. For purposes of this 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
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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 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
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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 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.
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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 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.
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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").
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.
INVESTMENT COMPANY SECURITIES. Except for Kemper Emerging Markets Income Fund,
each Fund may acquire securities of other investment companies to the extent
consistent with its investment objective and subject to the limitations of the
1940 Act. The Fund will indirectly bear its proportionate share of any
management fees and other expenses paid by such other investment companies.
For example, the Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate
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in accordance with both changes in the market value of their underlying
portfolio securities and due to supply and demand for the instruments on the
exchanges on which they are traded (which may result in their trading at a
discount or premium to their NAVs). Index-based investments may not replicate
exactly the performance of their specified index because of transaction costs
and because of the temporary unavailability of certain component securities of
the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
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
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securities have stated that, for federal tax and securities purposes, in their
opinion purchasers of such certificates, such as a Fund, most likely will be
deemed the beneficial holder of the underlying U.S. Government securities. Each
Fund understands that the staff of the Division of Investment Management of the
Securities and Exchange Commission (the "SEC") no longer considers such
privately stripped obligations to be U.S. Government securities, as defined in
the 1940 Act; therefore, the Fund intends to adhere to this staff position and
will not treat such privately stripped obligations to be U.S. Government
securities for the purpose of determining if a Fund is "diversified" under the
1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest are either fixed income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
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
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opportunity for capital appreciation as increases (or decreases) in market value
of such securities closely follow the movements in the market value of the
underlying common stock. Zero coupon convertible securities generally are
expected to be less volatile than the underlying common stocks as they usually
are issued with shorter maturities (15 years or less) and are issued with
options and/or redemption features exercisable by the holder of the obligation
entitling the holder to redeem the obligation and receive a defined cash
payment.
INDEXED SECURITIES. Emerging Markets Income Fund may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
Most indexed securities have maturities of three years or less.
Indexed securities differ from other types of debt securities in which the Fund
may invest in several respects. First, the interest rate or, unlike other debt
securities, the principal amount payable at maturity of an indexed security may
vary based on changes in one or more specified reference instruments, such as an
interest rate compared with a fixed interest rate or the currency exchange rates
between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a U.S.
dollar denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively indexed;
that is, its value may increase or decrease if the value of the reference
instrument increases. Further, the change in the principal amount payable or the
interest rate of an indexed security may be a multiple of the percentage change
(positive or negative) in the value of the underlying reference instrument(s).
Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
FOREIGN CURRENCIES. 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
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currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored Depositary Receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the Depositary Receipts. ADRs are Depositary Receipts typically issued by a U.S.
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. GDRs, IDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they also may be
issued by United States banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a United States corporation.
Generally, Depositary Receipts in registered form are designed for use in the
United States securities markets and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. For purposes
of each Fund's investment policies, a Fund's investments in ADRs, GDRs and other
types of Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts 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
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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.
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.
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Each Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for these obligations typically exists, each Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on a Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for a Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
FOREIGN SECURITIES. Each Fund is designed for investors who can accept currency
and other forms of international investment risk. In an attempt to eliminate
currency risk, however, Emerging Markets Income Fund invests exclusively in U.S.
dollar-denominated debt securities, 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
21
<PAGE>
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.
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
22
<PAGE>
the date of the SEC action, the Fund's securities in the affected markets will
be valued at fair value determined in good faith by or under the direction of
the Corporation's Board of Directors.
Volume and liquidity in most foreign markets are less than in the U.S., and
securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although each Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect a Fund's investments in those countries. Moreover, individual
emerging market economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The chart below sets forth the risk ratings of selected emerging
market countries' sovereign debt securities.
Sovereign Risk Ratings for Selected Emerging Market Countries
as of February, 1999
<TABLE>
<CAPTION>
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
</TABLE>
* As of February 24, 1999. Source: Moody's Investors Service.
** As of February 19, 1999. Source: Standard & Poor's.
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
23
<PAGE>
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. Certain emerging market governmental issuers have not
been able to make payments of interest on or principal of debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and continue to
exercise substantial influence over many aspects of the private sector through
the ownership or control of many companies, including some of the largest in any
given country. As a result, governmental actions in the future could have a
significant effect on economic conditions in emerging markets, which in turn,
may adversely affect companies in the private sector, general market conditions
and prices and yields of certain of the securities in a Fund's portfolio.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments have 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.
24
<PAGE>
The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy, although some have begun to control inflation
in recent years through prudent economic policies. Furthermore, certain Latin
American countries may impose withholding taxes on dividends payable to a Fund
at a higher rate than those imposed by other foreign countries. This may reduce
a Fund's investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are among
the world's largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared moratoria on the payment
of principal and/or interest on outstanding debt.
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.
25
<PAGE>
Foreign companies, including Pacific Basin companies, are not generally subject
to uniform accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently, there may be less publicly available information about such
companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation in the Pacific Basin than in the U.S.
These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of 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
26
<PAGE>
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.
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.
27
<PAGE>
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%).2
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 fixed-income securities in the Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
In the course of pursuing these investment strategies, each Fund may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect a Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in a Fund's portfolio, or to establish a position in the derivatives
markets as a substitute for purchasing or selling particular securities. Some
Strategic Transactions may also be used to enhance potential gain although no
more than 5% of the Fund's assets will be committed to Strategic Transactions
entered into for non-hedging purposes. Any or all of these investment techniques
may be used at any time and in any combination, and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. Each Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions will not be used to alter fundamental
investment purposes and characteristics of a Fund, and a Fund will segregate
assets (or as provided by applicable regulations, enter into certain offsetting
positions) to cover its obligations under options, futures and swaps to limit
leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to a Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Fund can realize on its investments or cause
a Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of
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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 a Fund's 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. Each 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.
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. Each
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.
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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 no
more than 15% of its net assets in illiquid securities.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase a 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, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by a Fund must be
"covered" (i.e., a 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 a Fund exposes a 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 a 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. Each Fund will not sell put options if, as a result, more than 50%
of a Fund's total assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that 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 financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
Each Fund's use of futures and options thereon will in all cases be consistent
with applicable regulatory requirements and in particular the rules and
regulations of the Commodity Futures Trading Commission and will be entered into
for bona fide hedging, risk management (including duration management) or other
portfolio and return enhancement management purposes. Typically, maintaining a
futures contract or selling an option thereon requires 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
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an option on financial futures involves payment of a premium for the option
without any further obligation on the part of a Fund. If a Fund exercises an
option on a futures contract it will be obligated to post initial margin (and
potential subsequent variation margin) for the resulting futures position just
as it would for any position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction but there can be no
assurance that the position can be offset prior to settlement at an advantageous
price, nor that delivery will occur.
Each Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of 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. Each Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the 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 except as described below. 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.
Each Fund generally will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
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 a 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 a 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 a Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, a 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 a 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.
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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 a Fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. Each Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, 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 a Fund's 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 a Fund to hold an amount of that currency or liquid assets denominated
in that currency equal to the Fund's obligations or to segregate cash or liquid
assets equal to the amount of a 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 a Fund
sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by a 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
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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 a
Fund other than those above generally settle with physical delivery, or with an
election of either physical delivery or cash settlement and a Fund will
segregate an amount of cash or liquid assets equal to the full value of the
option. OTC options settling with physical delivery, or with an election of
either physical delivery or cash settlement will be treated the same as other
options settling with physical delivery.
In the case of a futures contract or an option thereon, a Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash or liquid assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, 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 cash or liquid assets if a
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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.
34
<PAGE>
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.
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 is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Funds' 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 a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or a
Fund. The term "research services" 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, if applicable, for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research services. The Adviser has negotiated arrangements, which
are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or a Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser may place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
35
<PAGE>
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
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%.
36
<PAGE>
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 Brokerage Commissions Total Amount of Percentage
Commissions Paid in Paid to Firms Commissions Paid Allocated to Firms
Fiscal 1999* Based on Research to Based on Research
Fund Affiliates
- ----------------------------------------------- -------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Global Blue Chip Fund $ %
International Growth and Income Fund $ %
Emerging Markets Income Fund
Emerging Markets Growth Fund $ %
Latin America Fund $ %
</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, 1999
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.
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.
37
<PAGE>
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
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
38
<PAGE>
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>
<S> <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
</TABLE>
For a one-year period ending on December 31, 2000, the Adviser has agreed to
maintain its annual management fee for each Fund at the following rates:
<TABLE>
<S> <C>
Global Blue Chip Fund........................................................................ 0.%
International Growth and Income Fund......................................................... 0.%
Emerging Markets Income Fund................................................................. 0.%
Emerging Markets Growth Fund................................................................. 0.%
Latin America Fund........................................................................... 0.%
</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.
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.
39
<PAGE>
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:
<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 1999 $
International Growth and Income Fund 1999 $
40
<PAGE>
Emerging Markets Income Fund 1999 $
Emerging Markets Growth Fund 1999 $
Latin America Fund 1999 $
</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, 1999.
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, 1999, 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, 1999 are set forth
below. A portion of the marketing, sales and operating expenses shown below
could be considered overhead expenses.
41
<PAGE>
<TABLE>
<CAPTION>
Contingent Commissions Distribution
Distribution Deferred Sales Paid by Fees Paid by
Fiscal Fees Paid by Charges Paid to Underwriter to Underwriter to
Fund Year* Fund to Underwriter Firms Affiliated
Underwriter** Firms
- ------------------- ----------- ------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Class B Shares
Global Blue Chip 1999
Fund
International 1999
Growth and
Income Fund
Emerging Markets 1999
Income Fund
Emerging Markets 1999
Growth Fund
Latin America 1999
Fund
Other Distribution Expenses Paid by Underwriter
Advertising Misc.
Fiscal and Prospectus Marketing and Operating Interest
Fund Year* Literature Printing Sales Expenses Expenses Expense
- ------------------- ----------- ------------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Class B Shares
Global Blue Chip 1999
Fund
International 1999
Growth and
Income Fund
Emerging Markets 1999
Income Fund
Emerging Markets 1999
Growth Fund
Latin America 1999
Fund
Contingent Commissions Distribution
Distribution Deferred Sales Paid by Fees Paid by
Fiscal Fees Paid by Charges Paid to Underwriter to Underwriter to
Fund Year* Fund to Underwriter Firms Affiliated
Underwriter** Firms
- ------------------- ----------- ------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Class C Shares
Global Blue Chip 1999
Fund
International 1999
Growth and
Income Fund
Emerging Markets 1999
Income Fund
Emerging Markets 1999
Growth Fund
Latin America 1999
Fund
Advertising Misc.
Fiscal and Prospectus Marketing and Operating Interest
Fund Year* Literature Printing Sales Expenses Expenses Expense
- ------------------- ----------- -------------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Class C Shares
Global Blue Chip 1999
Fund
International 1999
Growth and
Income Fund
Emerging Markets 1999
Income Fund
Emerging Markets 1999
Growth Fund
Latin America 1999
Fund
</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, 1999
** Amounts shown reflect fee waiver in effect.
43
<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, 1999, after fee waivers by the Adviser. During the period ended October 31,
1999, KDI paid fees to various firms in the following amounts: $_____, $_____,
$_____, $_____ and $_____ 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, 1999,
after fee waivers by the Adviser in the following amounts: $_____ for Global
Blue Chip Fund, Emerging Markets Income Fund and Latin American Fund; and $_____
and $______ 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
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<PAGE>
attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by 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 5.75% of None Initial sales charge waived or
the public offering price reduced for certain purchases(1)
Class B Maximum contingent deferred sales charge 0.75% Shares convert to Class A shares
of 4% of redemption proceeds; declines to six years after issuance
zero after six years
Class C Contingent deferred sales charge of 1% of 0.75% No conversion feature
redemption proceeds for redemptions made
during first year after purchase
</TABLE>
45
<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 -- All Funds, Kemper Emerging
Markets Income Fund. 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** ***
</TABLE>
Class A Shares --Kemper Emerging Markets Income Fund.
Public Offering Price. Including Sales Charge
<TABLE>
<CAPTION>
Portion Allowed by
Sales Charge Sales Charge KDI to Dealers as a
As a % of As a % of Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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**
</TABLE>
<TABLE>
<S> <C>
* 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
46
<PAGE>
the above table. Upon notice to all dealers with whom it has sales agreements,
KDI may re-allow up to the full applicable sales charge, as shown in the above
table, during periods and for transactions specified in such notice and such
reallowances may be based upon attainment of minimum sales levels. During
periods when 90% or more of the sales charge is reallowed, such dealers may be
deemed to be underwriters as that term is defined in the Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value 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;
47
<PAGE>
(c) shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on
September 8, 1995, and have continuously owned shares of KVS (or a Kemper Fund
acquired by exchange of KVS shares) since that date, for themselves or members
of their families; (d) any trust, pension, profit-sharing or other benefit plan
for only such persons; (e) persons who purchase such shares through bank trust
departments that process such trades through an automated, integrated mutual
fund clearing program provided by a third party clearing firm; and (f) persons
who purchase shares of the Fund through KDI as part of an automated billing and
wage deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups. Class A shares may be sold at net
asset value in any amount to selected employees (including their spouses and
dependent children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Funds for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase 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
48
<PAGE>
Shares - Contingent Deferred Sales Charge - Class C Shares." KDI currently
advances to firms the first year distribution fee at a rate of 0.75% of the
purchase price of such shares. For periods after the first year, KDI currently
intends to pay firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm. KDI is compensated by each Fund for
services as distributor and principal underwriter for Class C shares. See
"Investment Manager and Underwriter."
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks 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
49
<PAGE>
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 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.
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<PAGE>
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 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
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by telephone at 1-800-621-1048 or in writing, subject to the limitations on
liability described under "General" above. No Fund is responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. Each Fund currently does not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum
(including any contingent deferred sales charge). To change the designated
account to receive wire redemption proceeds, send a written request to the
Shareholder Service Agent with signatures guaranteed as described above or
contact the firm through which shares of the Fund were purchased. Shares
purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may not be
redeemed by wire transfer until such shares have been owned for at least 10
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
wire transfer redemption privilege. Each Fund reserves the right to terminate or
modify this privilege at any time.
Contingent Deferred Sales Charge - Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a participant-
directed qualified retirement plan described in Code Section 403(b)(7) which is
not sponsored by a K-12 school district; (b) redemptions by employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent; (c) redemption of shares of a shareholder
(including a registered joint owner) who has died; (d) redemption of shares of a
shareholder (including a registered joint owner) who after purchase of the
shares being redeemed becomes totally disabled (as evidenced by a determination
by the federal Social Security Administration); (e) redemptions under a Fund's
Systematic Withdrawal Plan at a maximum of 10% per year of the net asset value
of the account; and (f) redemptions of shares whose dealer of record at the time
of the investment notifies 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
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value of plan assets invested in a Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
Contingent Deferred Sales Charge - Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special Features -
Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any IRA
systematic withdrawal based on the shareholder's life expectancy including, but
not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent, and (g) for redemption of shares by an employer sponsored employee
benefit plan that (i) offers funds in addition to Kemper Funds (i.e., "multi-
manager"), and (ii) whose dealer of record has waived the advance of the first
year administrative service and distribution fees applicable to such shares and
agrees to receive such fees quarterly.
Contingent Deferred Sales Charge - General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of a Fund's Class B shares and that
16 months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. 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
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<PAGE>
incurred on the original purchase of shares in computing their taxable gain or
loss. The reinvestment privilege may be terminated or modified at any time.
Redemption in Kind. Although it is each Fund's present policy to redeem in cash,
if the Board of Directors determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Directors may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and selling them could receive less than the redemption value of such securities
and in addition would incur certain transaction costs. Such a redemption would
not be as liquid as a redemption entirely in cash.
SPECIAL FEATURES
Class A Shares - Combined Purchases. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper 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.
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<PAGE>
Class A Shares - Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features- Class A Shares - Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund, Tax-
Exempt California Money Market Fund, Cash Account Trust, Investor's Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Fund or a Money Market
Fund under the exchange privilege described above without paying any contingent
deferred sales charge at the time of exchange. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of
calculating the contingent deferred sales charge.
Class B Shares. Class B shares of a Fund and Class B shares of any other Kemper
Fund listed under "Special Features - Class A Shares - Combined Purchases" may
be exchanged for each other at their relative net asset values. Class B shares
may be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of calculating the contingent deferred sales
charge that may be imposed upon the redemption of the Class B shares received on
exchange, amounts exchanged retain their original cost and purchase date.
Class C Shares. Class C shares of a Fund and Class C shares of any other Kemper
Fund listed under "Special Features - Class A Shares - Combined Purchases" may
be exchanged for each other at their relative net asset values. Class C shares
may be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For determining whether there is a contingent deferred sales
charge that may be imposed upon the 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.
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<PAGE>
Once the authorization is on file, the Shareholder Service Agent will honor
requests by telephone at 1-800-621-1048, subject to the limitations on liability
under "Redemption or Repurchase of Shares - General." Any share certificates
must be deposited prior to any exchange of such shares. During periods when it
is difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Exchanges may
only be made for funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Investors Municipal Cash Fund is available for sale
only in New York, Connecticut, New Jersey and Pennsylvania. Except as otherwise
permitted by applicable regulations, 60 days' prior written notice of any
termination or material change will be provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase 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
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rate at which Class B shares may be redeemed (and Class A shares purchased under
the Large Order NAV Purchase Privilege and Class C shares in their first year
following the purchase) under a systematic withdrawal plan is 10% of the net
asset value of the account. Shares are redeemed so that the payee will receive
payment approximately the first of the month. Any income and capital gain
dividends will be automatically reinvested at net asset value. A sufficient
number of full and fractional shares will be redeemed to make the designated
payment. Depending upon the size of the payments requested and fluctuations in
the net asset value of the shares redeemed, redemptions for the purpose of
making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or the Funds.
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
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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.
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.
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Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive dividends from income and short-term capital gain in
cash and net capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested normally will be reinvested
in shares of the same class of that same Fund. However, upon written request to
the Shareholder Service Agent, a shareholder may elect to have dividends of a
Fund invested in shares of the same class of another Kemper Fund at the net
asset value of such class of such other fund. See "Special Features -Class A
Shares - Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Funds will reinvest dividend checks (and future
dividends) in shares of that same Fund and class if checks are returned as
undeliverable. Dividends and other distributions of a Fund in the aggregate
amount of $10 or less are automatically reinvested in shares of the Fund unless
the shareholder requests that such policy not be applied to the shareholder's
account.
TAXES. Each Fund intends to 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
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shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
If shares are held in a tax-deferred account, such as a retirement plan, income
and gain will not be taxable each year. Instead, the taxable portion of amounts
held in a tax-deferred account generally will be subject to tax as ordinary
income only when distributed from that account.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by 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
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income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares; any mark to market losses and
any loss from an actual disposition of shares would be deductible as ordinary
loss to the extent of any net mark to market gains included in income in prior
years. The effect of the election would be to treat excess distributions and
gain on dispositions as ordinary income which is not subject to a fund level tax
when distributed to shareholders as a dividend. Alternatively, the Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.
Equity options (including covered call options on portfolio stock) written or
purchased by a Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by a Fund upon payment of a premium in connection
with the purchase of a put or call option. The character of any gain or loss
recognized (i.e., long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on a Fund's holding period for the option and, in
the case of an exercise of the option, on a Fund's holding period for the
underlying security. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or substantially identical security in a Fund's
portfolio. If a Fund writes a call option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as a short-term capital gain or loss. If a call option is exercised, any
resulting gain or loss is short-term or long-term capital gain or loss depending
on the holding period of the underlying security. The exercise of a put option
written by a Fund is not a taxable transaction for a Fund.
Many futures and forward contracts entered into by a Fund and all listed
nonequity options written or purchased by a Fund (including covered call options
written on debt securities and options purchased or written on futures
contracts) will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term, and on
the last trading day of a Fund's fiscal year (and generally, on October 31 for
purposes of the 4% excise tax), all outstanding Section 1256 positions will be
marked-to-market (i.e., treated as if such positions were closed out at their
closing price on such day), with any resulting gain or loss recognized as 60%
long-term and 40% short-term. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by a Fund will be treated as ordinary income or loss. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in a
Fund's portfolio.
Positions of a Fund consisting of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes a Fund's risk of loss with respect to such stock could be treated as
a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for any "qualified covered
call options" on stock written by a Fund.
Positions of a Fund consisting of at least one position not governed by Section
1256 and at least one future, forward, or nonequity option contract which is
governed by Section 1256 which substantially diminishes a Fund's risk of loss
with respect to such other position will be treated as a "mixed straddle."
Although mixed straddles are subject to the straddle rules of Section 1092 of
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
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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
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.
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The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
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.
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
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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 retirement 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 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.
64
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return = (ERV/P)^1/n - 1
Where:
<S> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return for Period Ended October 31, 1999*
Fund Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Global Blue Chip Fund %
International Growth and Income Fund %
Emerging Markets Growth Fund %
Emerging Markets Income Fund %
Latin America Fund %
</TABLE>
* Since the Funds' commencement of operations on December 31, 1997
(January 8, 1998, in the case of Emerging Markets Growth Fund).
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, 1999:
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:
65
<PAGE>
<TABLE>
<CAPTION>
YIELD = 2[((a - b)/cd + 1)^6 - 1]
Where:
<S> <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 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:
66
<PAGE>
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.
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 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.
67
<PAGE>
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
* 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 1999 fiscal year.
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<PAGE>
<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.............................................
Arthur R. Gottschalk(4)...........................
Frederick T. Kelsey...............................
Fred B. Renwick...................................
John G. Weithers..................................
</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, 2000, 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>
69
<PAGE>
70
<PAGE>
71
<PAGE>
</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
72
<PAGE>
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 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.
Interfund Borrowing and Lending Program. The Corporation's Board of Directors
has approved the filing of an application for exemptive relief with the SEC
which would permit the Funds to participate in an interfund lending program
among certain investment companies advised by the Adviser. If the Funds receive
the requested relief, the interfund lending program would allow the
participating funds to borrow money from and loan money to each other for
temporary or emergency purposes. The program would be subject to a number of
conditions designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable interest rate than a rate approximating the
lowest interest rate at which bank loans would be available to any of the
participating funds under a loan agreement; and (2) no fund may lend money
through the program unless it receives a more favorable return than that
available from an investment in repurchase agreements and, to the extent
applicable, money market cash sweep arrangements. In addition, a fund would
participate in the program only if and to the extent that such participation is
consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings would extend overnight,
but could have a maximum duration of seven days. Loans could be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of
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<PAGE>
the participating funds. To the extent the Funds are actually engaged in
borrowing through the interfund lending program, the Funds, as a matter of
non-fundamental policy, may not borrow for other than temporary or emergency
purposes (and not for leveraging)[, except that the Fund[s] may engage in
reverse repurchase agreements [and dollar rolls] for any purpose]*.
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.
ADDITIONAL INFORMATION
Other Information
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.
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
74
<PAGE>
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, 1999, are incorporated herein by reference and are hereby deemed to
be a part of this Statement of Additional Information.
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<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.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
<PAGE>
GROWTH FUND OF SPAIN
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2000
Kemper Global/International Series, Inc.
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for the Growth Fund Of Spain (the "Fund"), a
series of Kemper Global/International Series, Inc. (the "Corporation"), an
open-end management investment company. It should be read in conjunction with
the combined prospectus of the Fund dated March 1, 2000. A prospectus may be
obtained without charge from the Fund and is also available, along with other
related materials, at the SEC's Internet web site (http://www.sec.gov).
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TABLE OF CONTENTS
Page
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INVESTMENT RESTRICTIONS......................................................2
INVESTMENT POLICIES AND TECHNIQUES...........................................3
PORTFOLIO TRANSACTIONS......................................................24
INVESTMENT MANAGER AND UNDERWRITER..........................................26
PURCHASE, REDEMPTION OR REPURCHASE OF SHARES................................32
NET ASSET VALUE.............................................................44
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................45
PERFORMANCE.................................................................53
OFFICERS AND DIRECTORS......................................................55
SHAREHOLDER RIGHTS..........................................................58
FINANCIAL STATEMENTS........................................................59
ADDITIONAL INFORMATION......................................................60
APPENDIX A --RATINGS OF FIXED INCOME INVESTMENTS............................61
APPENDIX B --INFORMATION ABOUT SPAIN AND PORTUGAL...........................63
The financial statements appearing in the Fund's 1999 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document. Scudder Kemper Investments, Inc. (the "Adviser")
serves as the Fund's investment manager.
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which
cannot be changed without approval of a majority of its outstanding voting
shares, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). This means the lesser of the vote of (a) 67% of the shares of the Fund
present at a meeting where more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the outstanding shares of the
Fund.
The Fund has elected to be classified as a non-diversified series of an
open-end management investment company.
As a matter of fundamental policy, the Fund will not:
(a) make loans except to the extent that the purchase of portfolio
securities consistent with the Fund's investment objective and
policies or the acquisition of securities subject to
repurchase agreements may be deemed to be loans;
(b) borrow money or issue senior securities, except as permitted
under the 1940 Act and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(c) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings or in connection
with hedging and risk management strategies as described under
"Investment Policies and Techniques" herein;
(d) invest in companies for the purpose of exercising control or
participation in management;
(e) make short sales of securities or maintain a short position in
any security except as described under "Investment Policies
and Techniques" herein;
(f) (i) purchase or sell real estate, except that it may purchase
and sell securities of companies which deal in real estate or
interests therein, (ii) purchase or sell commodities or
commodity contracts except that the Fund may enter into
foreign currency and stock index futures contracts and options
thereon and may buy or sell forward currency contracts and
options on foreign currencies, (iii) invest in interests in
oil, gas, or other mineral exploration or development
programs, except that it may purchase and sell securities of
companies which deal in oil, gas or other mineral exploration
or development programs, (iv) purchase securities on margin,
except for such short-term credits as may be necessary for the
clearance of transactions as described under the heading
"Investment Policies and Techniques" herein, and (v) act as an
underwriter of securities, except that the Fund may acquire
securities in private placements in circumstances in which, if
such securities were sold, the Fund might be deemed to be an
underwriter within the meaning of the Securities Act of 1933,
as amended; and
(g) invest in securities of other investment companies, except as
part of a merger, consolidation or other acquisition, if more
than 3% of the outstanding voting stock of any such investment
company would be held by the Fund, if more than 5% of the
total assets of the Fund would be invested in any such
investment company, or if the Fund would own, in the
aggregate, securities of investment companies representing
more than 10% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage beyond that specified limit resulting
from a change in values or net assets will not be considered a violation.
As a matter of nonfundamental policy, the Fund will not:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements or other investments
or transactions described in the Fund's registration statement
which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
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(3) purchase securities on margin, except (i) for margin deposits
in connection with futures contracts, options or other
permitted investments, and (ii) that the Fund may obtain such
short-term credits as may be necessary for the clearance of
securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit; and
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value).
INVESTMENT POLICIES AND TECHNIQUES
General. The Growth Fund Of Spain seeks long-term capital appreciation by
investing primarily in equity securities of Spanish companies. The Fund's
investment objective is fundamental and may not be changed without the approval
of a majority of the Fund's outstanding voting securities. The Fund may also
invest up to 35% of its total assets in the securities of non-Spanish companies,
which investments may be focused in whole or in part in the equity securities of
Portuguese companies.
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Fund may engage (such
as short selling, hedging, etc.) or a financial instrument which the 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
the Fund but, to the extent employed, could, from time to time, have a material
impact on the Fund's performance.
The Fund is designed for long-term investors who can accept
international investment risk in pursuit of additional opportunities that
foreign securities may provide. Since the Fund normally will be invested
primarily in foreign securities markets, changes in the Fund's share price may
have a low correlation with movements in the U.S. markets. The Fund's share
price will reflect the movements of both the stock and bond markets in which it
is invested and the currency in which the investments are denominated; the
strength or weakness of the U.S. dollar against the Spanish Peseta, the
Portuguese Escudos and other foreign currencies may account for part of the
Fund's investment performance. As with any long-term investment, the value of
shares when sold may be higher or lower than when purchased. In the opinion of
the Adviser, Spanish and Portuguese capital markets provide investors with
opportunities to participate in the economic growth taking place outside the
U.S., which should translate into positive securities market performance over
the long term. In addition, the Adviser believes that international investing
offers the benefits of diversification, which can lower the overall price
volatility of an investor's portfolio. Foreign investing does involve
significant risks, as discussed in this prospectus, and the Fund should not be
considered a complete investment program. The Fund is designed primarily for
long-term investment and investors should not consider it a trading vehicle.
The Fund seeks long-term capital appreciation by investing primarily in
equity securities of companies organized under the laws of Spain or traded in
the Spanish securities markets and doing business in Spain ("Spanish
companies"). Under normal market conditions, at least 65% of the Fund's total
assets will be invested in equity securities of Spanish companies. The Fund is
permitted to invest up to 25% of its total assets in unlisted equity and debt
securities, including convertible debt
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securities, and in other securities that are not readily marketable, a
significant portion of which may be considered illiquid (see "Unlisted and
Illiquid Securities" below). Investment in Spanish equity securities that are
unlisted or are not readily marketable will be treated as investments in Spanish
equity securities for purposes of the Fund's fundamental policy of investing at
least 65% of its total assets in Spanish equity securities. The Fund may invest
up to 35% of total assets in investment-grade fixed income instruments
denominated in Pesetas or U.S. dollars as described below. The Fund's investment
objective and the foregoing policies are fundamental and cannot be changed
without the approval of a majority of the Fund's outstanding voting securities.
As an operating policy, the Adviser intends to evaluate investment opportunities
present throughout the Iberian Peninsula (i.e., Spain and Portugal).
Accordingly, the Fund may, as a matter of nonfundamental policy, invest up to
35% of total assets in equity securities of companies other than Spanish
companies, and may concentrate such investments in whole or in part in equity
securities of companies organized under the laws of Portugal or traded in the
Portuguese securities markets and doing business in Portugal ("Portuguese
companies"). Unless otherwise noted, the Fund's other investment policies
described below are not fundamental and may be changed by the Fund without
shareholder approval.
Investment-grade fixed-income instruments are defined to include
securities rated in the four highest rating categories by Standard & Poor's
Ratings Group ("S&P") or by Moody's Investors Service, Inc. ("Moody's"), or, if
such securities are not so rated, securities of equivalent investment quality as
determined by the Adviser, and short-term indebtedness or cash equivalents
denominated in either Pesetas or U.S. dollars.
The Fund may engage in futures, options and other derivative
transactions ("Strategic Transactions and Derivatives") in accordance with its
investment objective and policies. The Fund intends to engage in such
transactions if it appears to the Adviser to be advantageous for the Fund to do
so in order to pursue its investment objective, to hedge against the effects of
fluctuation in interest rates, and also to hedge against the effects of market
risks, but not to create leveraged exposure in the Fund. The use of futures and
options, and possible benefits and attendant risks, are discussed below, along
with information concerning other investment policies and techniques.
Temporary Defensive Position. For temporary defensive purposes, e.g., during
periods in which changes in the Spanish securities markets, other economic
conditions or political conditions in Spain warrant, the Fund may vary from its
investment objective and may invest, without limit, in high quality debt
instruments, such as U.S. and Spanish government securities. The Fund may also
at any time invest funds in U.S. dollar-denominated money market instruments as
reserves for expenses and dividend and other distributions to shareholders.
Common Stocks. The Fund may invest in common stocks. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, the Fund participates in the
success or failure of any company in which it holds stock. The market values of
common stock can fluctuate significantly, reflecting the business performance of
the issuing company, investor perception and general economic or financial
market movements. Smaller companies are especially sensitive to these factors.
An investment in common stock entails greater risk of becoming valueless than
does an investment in fixed-income securities. Despite the risk of price
volatility, however, common stock also offers a greater potential for long-term
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Foreign Securities, in General. The Fund is designed for investors who can
accept currency and other forms of international investment risk. The Adviser
believes that diversification of assets on an international basis may decrease
the degree to which events in any one country, including the U.S., will affect
an investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and
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settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign
securities exchanges and bid-to-asked spreads in foreign bond markets are
generally higher than commissions or bid-to-asked spreads on U.S. markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less governmental supervision and regulation of securities exchanges,
brokers and listed companies in most foreign countries than in the U.S. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions in foreign countries which may affect the prices of portfolio
securities. Communications between the U.S. and foreign countries may be less
reliable than within the U.S., thus increasing the risk of delayed settlements
of portfolio transactions or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability, or diplomatic developments
which could affect United States investments in those countries. Investments in
foreign securities may also entail certain risks, such as possible currency
blockages or transfer restrictions, and the difficulty of enforcing rights in
other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Trading in securities on European securities exchanges is normally
completed before the close of regular trading on the New York Stock Exchange
(the "Exchange"). Trading on these foreign exchanges may not take place on a day
on which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange. Events materially affecting
the value of the Fund's portfolio securities may occur between the time when
these foreign exchanges close and the time when the Fund's net asset value is
calculated.
See Appendix B for a detailed discussion of Spanish and Portuguese
market and economic characteristics.
Foreign Currencies. The Fund has foreign currency exposure. Because investments
in foreign securities usually will involve currencies of foreign countries, and
because the Fund may hold funds in bank deposits in foreign currencies during
the completion of investment programs and may purchase foreign currency, foreign
currency futures contracts, and options on foreign currencies and foreign
currency futures contracts, the value of the assets of the Fund as measured in
U.S. dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Fund may incur
costs in connection with conversions between various currencies. Although the
Fund values its assets daily in terms of U.S. dollars, it does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
It will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into options or
forward or futures contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in foreign securities
markets, changes in the Fund's share price may have a low correlation with
movements in the U.S. markets. The Fund's share price will reflect the movements
of both the different stock and bond markets in which it is invested and of the
currencies in which the investments are denominated; the strength or weakness of
the U.S. dollar against foreign currencies may account for part of the Fund's
investment performance. U.S. and foreign securities markets do not always move
in step with each other, and the total returns from different markets may vary
significantly.
Depositary Receipts. The Fund may invest directly in securities of foreign
issuers through sponsored or unsponsored American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs"), International Depositary Receipts ("IDRs")
and other types of Depositary Receipts (which, together with ADRs, GDRs and IDRs
are hereinafter referred to as "Depositary Receipts"). Depositary Receipts may
not necessarily be denominated in the same currency as the underlying securities
into which they may be
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converted. In addition, the issuers of the stock of unsponsored Depositary
Receipts are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and the
market value of the Depositary Receipts. ADRs are Depositary Receipts typically
issued by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. GDRs, IDRs and other types of
Depositary Receipts are typically issued by foreign banks or trust companies,
although they also may be issued by United States banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form are
designed for use in the United States securities markets and Depositary Receipts
in bearer form are designed for use in securities markets outside the United
States. For purposes of the Fund's investment policies, the Fund's investments
in ADRs, GDRs and other types of Depositary Receipts will be deemed to be
investments in the underlying securities. Depositary Receipts may be subject to
foreign currency exchange rate risk. Certain Depositary Receipts may not be
listed on an exchange and therefore may be illiquid securities.
Debt Securities. The Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA,
AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or, if unrated, judged
to be of equivalent quality as determined by the Adviser. Bonds rated Baa or BBB
may have speculative elements as well as investment-grade characteristics. (See
"Appendix A.")
Investment in debt securities involves both interest rate and credit
risk. Generally, the value of debt instruments rises and falls inversely with
fluctuations in interest rates. As interest rates decline, the value of debt
securities generally increases. Conversely, rising interest rates tend to cause
the value of debt securities to decrease. Bonds with longer maturities generally
are more volatile than bonds with shorter maturities. The market value of debt
securities also varies according to the relative financial condition of the
issuer.
Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities, including
fixed-income and zero coupon debt securities, which are convertible into common
stock. Investments in convertible securities can provide an opportunity for
capital appreciation and/or income through interest and dividend payments by
virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest include fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
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Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes ("LYONs(TM)"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, the Fund may invest in a variety of investment companies
which seek to track the composition and performance of specific indexes or a
specific portion of an index. These index-based investments hold substantially
all of their assets in securities representing their specific index.
Accordingly, the main risk of investing in index-based investments is the same
as investing in a portfolio of equity securities comprising the index. The
market prices of index-based investments will fluctuate in accordance with both
changes in the market value of their underlying portfolio securities and due to
supply and demand for the instruments on the exchanges on which they are traded
(which may result in their trading at a discount or premium to their NAVs).
Index-based investments may not replicate exactly the performance of their
specified index because of transaction costs and because of the temporary
unavailability of certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial AverageSM. They are
issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio of
all the component common stocks of the Dow Jones Industrial Average and seeks to
closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
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Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follow the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS(TM)") and Certificate of Accrual on Treasuries
("CATS(TM)"). The underlying U.S. Treasury bonds and notes themselves are held
in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof. Counsel to
the underwriters of these certificates or other evidences of ownership of the
U.S. Treasury securities have stated that, for federal tax and securities
purposes, in their opinion purchasers of such certificates, such as the Fund,
most likely will be deemed the beneficial holder of the underlying U.S.
Government securities.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Sovereign Debt. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
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When-Issued Securities. The Fund may, from time to time, purchase securities on
a "when-issued" or "forward delivery" basis for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. To the extent that
assets of the Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Fund's intention
to be fully invested to the extent practicable and subject to the policies
stated above. While when-issued or forward delivery securities may be sold prior
to the settlement date, the Fund intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a
security on a when-issued or forward delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. At the time of settlement, the market value of the when-issued or forward
delivery securities may be more or less than the purchase price. The Fund does
not believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis.
Warrants. Subject to nonfundamental investment policy (6), the Fund may invest
in warrants, which are securities permitting, but not obligating, their holders
to subscribe for other securities or commodities. The Fund may invest in
warrants for debt securities or warrants for equity securities that are acquired
as units with debt instruments. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants may be considered to be more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying securities
or commodities and a warrant ceases to have value if it is not exercised prior
to its expiration date. Consistent with the Fund's investment policies as
described above, the Fund may retain in its portfolio any securities received
upon the exercise of a warrant and may also retain in its portfolio any warrant
acquired as a unit with a debt instrument if the warrant begins to trade
separately from the related debt instrument.
Borrowing. The Fund may borrow to the maximum extent permitted under the 1940
Act; however, as a matter of nonfundamental policy, the Fund will not borrow in
an amount exceeding 5% of the value of the total assets of the Fund except for
temporary or emergency purposes and by engaging in reverse repurchase agreements
or other investments or transactions which may be deemed to be borrowings. Such
borrowings are not subject to the asset coverage restrictions set forth below.
The 1940 Act requires the Fund to maintain "asset coverage" of not less than
300% of its "senior securities representing indebtedness" as those terms are
defined and used in the 1940 Act. In addition, the Fund may not pay any cash
dividends or make any cash distributions to shareholders if, after the
distribution, there would be less than 300% asset coverage of a senior security
representing indebtedness for borrowing (excluding for this purpose certain
evidences of indebtedness made by a bank or other entity and privately arranged,
and not intended to be publicly distributed). If, as a result of the foregoing
restriction or otherwise, the Fund was unable to distribute at least 90% of its
investment company taxable income in any year, it would lose its status as a
regulated investment company for such year and become liable at the corporate
level for U.S. federal income taxes on its income for such year.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to its U.S. dollar-denominated debt securities with member banks of the
Federal Reserve System or with any domestic broker/dealer which is recognized as
a reporting government securities dealer, if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations the Fund may purchase.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a debt security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities is kept at least equal to
the repurchase price on a daily basis. The repurchase price may be higher than
the purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund, together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Obligation itself.
Obligations will be physically held by the Fund's custodian or in the Federal
Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation, subject to the repurchase
agreement and is therefore subject to the Fund's investment restrictions
applicable to loans. It
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is not clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for the loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. Apart from the
risk of bankruptcy or insolvency proceedings, there is also the risk that the
seller may fail to repurchase the security. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities," "not readily marketable," or
"illiquid" restricted securities, i.e., which cannot be sold to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"), or the availability of an exemption from registration (such as Rules 144
or 144A) or because they are subject to other legal or contractual delays in or
restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid securities. Disposing of illiquid securities may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
illiquid securities.
Generally speaking, restricted securities may be sold in the U.S. only
to qualified institutional buyers, or in a privately negotiated transaction to a
limited number of purchasers, or in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration, or in a public offering for which a registration
statement is in effect under the 1933 Act. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public, and in such event the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
Investing in Small Companies. The Fund may invest in the securities of small
companies. There is typically less publicly available information concerning
foreign and smaller companies than for domestic and larger, more established
companies. Some small companies have limited product lines, distribution
channels and financial and managerial resources. Also, because smaller companies
normally have fewer shares outstanding than larger companies and trade less
frequently, it may be more difficult for the Fund to buy and sell significant
amounts of such shares without an unfavorable impact on prevailing market
prices. Some of the companies in which the Fund may invest may distribute, sell
or produce products which have recently been brought to market and may be
dependent on key personnel with varying degrees of experience.
Indexed Securities. The Fund may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.
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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.
Short Sales. The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund expects to make
short sales both as a form of hedging to offset potential declines in long
positions in similar securities and in order to maintain portfolio flexibility.
Currently, under applicable Spanish law short sales of listed Spanish
securities are prohibited. To the extent that such law changes to permit short
sales, the Fund may engage in such transactions. In addition, to the extent that
companies that have their shares listed on a Spanish exchange also have
depository receipts for such shares listed on a non-Spanish exchange, such as
the New York Stock Exchange, which permits short sales of such depository
receipts, the Fund may engage in short sales of such depository receipts.
When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured
by collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other liquid securities, equivalent in value to the borrowed
securities. The Fund will also be required to deposit similar collateral with
its custodian to the extent necessary so that the value of both collateral
deposits in the aggregate is at all times equal to at least 100% of the current
market value of the security sold short (see "Use of Segregated and Other
Special Accounts"). Depending on arrangements made with the broker-dealer from
which it borrowed the security regarding any payments received by the Fund on
such security, the Fund may not receive any payments (including interest and
dividends) on its collateral deposited with such broker-dealer.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
The Fund will not make a short sale if, after giving effect to such
sale, the market value of all securities sold short exceeds 25% of the value of
its total assets. The Fund may also make short sales "against the box" without
respect to such limitation. In this type of short sale, at the time of the sale,
the Fund owns or has the immediate and unconditional right to acquire at no
additional cost the identical security.
Synthetic Investments. In certain circumstances, the Fund may wish to obtain the
price performance of a security without actually purchasing the security in
circumstances where, for example, the security is illiquid, or is unavailable
for direct investment or available only on less attractive terms. In such
circumstances, the Fund may invest in synthetic or derivative alternative
investments ("Synthetic Investments") that are based upon or otherwise relate to
the economic performance of the underlying securities. Synthetic Investments may
include swap transactions, notes or units with variable redemption amounts, and
other
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similar instruments and contracts. Synthetic Investments typically do not
represent beneficial ownership of the underlying security, usually are not
collateralized or otherwise secured by the counterparty and may or may not have
any credit enhancements attached to them. Accordingly, Synthetic Investments
involve exposure not only to the creditworthiness of the issuer of the
underlying security, changes in exchange rates and future governmental actions
taken by the jurisdiction in which the underlying security is issued, but also
to the creditworthiness and legal standing of the counterparties involved. In
addition, Synthetic Investments typically are illiquid.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in the Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of the Fund, and
the Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
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General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has
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entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. All calls sold by the Fund
must be "covered" (i.e., the Fund must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. Even though the Fund will receive the
option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's total assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement management purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further
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obligation on the part of the Fund. If the Fund exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of the Fund,
which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
The Fund generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
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To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the 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 the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
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The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into offsetting positions) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call
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option on an index at a time when the in-the-money amount exceeds the exercise
price, the Fund will segregate, until the option expires or is closed out, cash
or cash equivalents equal in value to such excess. OCC issued and exchange
listed options sold by the Fund other than those above generally settle with
physical delivery, or with an election of either physical delivery or cash
settlement and the Fund will segregate an amount of cash or liquid assets equal
to the full value of the option. OTC options settling with physical delivery, or
with an election of either physical delivery or cash settlement will be treated
the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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Non-Diversified Investment Company. The Fund is classified as non-diversified
under the "1940 Act," which means that the Fund is not limited by the 1940 Act
in the percentage of its assets that it may invest in the obligations of a
single issuer. As a "non-diversified" investment company, the Fund may be
subject to greater market and credit risk than a more broadly diversified
portfolio. The investment of a large percentage of the Fund's assets in the
securities of a small number of issuers may cause the Fund's share price to
fluctuate more than that of a diversified investment company. The Fund will,
however, be subject to the diversification requirements imposed by Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code").
Investment Company Securities. Securities of other investment companies may be
acquired by the Fund to the extent permitted under the 1940 Act. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
Interfund Borrowing and Lending Program. The Corporation's Board of Directors
has approved the filing of an application for exemptive relief with the SEC
which would permit the Fund to participate in an interfund lending program among
certain investment companies advised by the Adviser. If the Fund receives the
requested relief, the interfund lending program would allow the participating
funds to borrow money from and loan money to each other for temporary or
emergency purposes. The program would be subject to a number of conditions
designed to ensure fair and equitable treatment of all participating funds,
including the following: (1) no fund may borrow money through the program unless
it receives a more favorable interest rate than a rate approximating the lowest
interest rate at which bank loans would be available to any of the participating
funds under a loan agreement; and (2) no fund may lend money through the program
unless it receives a more favorable return than that available from an
investment in repurchase agreements and, to the extent applicable, money market
cash sweep arrangements. In addition, a fund would participate in the program
only if and to the extent that such participation is consistent with the fund's
investment objectives and policies (for instance, money market funds would
normally participate only as lenders and tax exempt funds only as borrowers).
Interfund loans and borrowings would extend overnight, but could have a maximum
duration of seven days. Loans could be called on one day's notice. A fund may
have to borrow from a bank at a higher interest rate if an interfund loan is
called or not renewed. Any delay in repayment to a lending fund could result in
a lost investment opportunity or additional costs. The program is subject to the
oversight and periodic review of the Boards of the participating funds. To the
extent the Fund is actually engaged in borrowing through the interfund lending
program, the Fund, as a matter of non-fundamental policy, may not borrow for
other than temporary or emergency purposes (and not for leveraging)[, except
that the Fund[s] may engage in reverse repurchase agreements [and dollar rolls]
for any purpose]*.
PORTFOLIO TRANSACTIONS
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Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the 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.
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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 brokerage and research services to the Adviser or the
Fund. The term "research services" 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, if applicable, for
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of research services. The Adviser has negotiated arrangements,
which are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or the Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser may place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting transactions
in over-the-counter securities, orders are placed with the principal market
makers for the security being traded unless, after exercising care, it appears
that more favorable results are available elsewhere.
For the fiscal years ended November 30, 1999, 1998 and 1997, the Fund
paid aggregate brokerage commissions of $______ and $__________, respectively.
For the fiscal years ended November 30, 1999, 1998 and 1997, the Fund
paid BSN Sociedad de Valores y Bolsa, an affiliate of the Fund's former
sub-adviser, brokerage commissions of $______, $_____, and $______,
respectively. Transactions in which the Fund used BSN Sociedad de Valores y
Bolsa as broker comprised _____% of the aggregate dollar amount involving
payment of commissions, and ____% of the aggregate brokerage commissions paid by
it during the fiscal year ended November 30, 1999.
The Fund's average portfolio turnover rate is the ratio of the lesser
of sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. Under normal
investment conditions, it is anticipated that the Fund's portfolio turnover rate
will not exceed 100%.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. Scudder Kemper Investments, Inc. (the "Adviser"), an
investment counsel firm, 345 Park Avenue, New York, New York, is the Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. The predecessor firm reorganized from a partnership to a
corporation on June 28, 1985. On June 26, 1997, Adviser's predecessor entered
into an agreement with Zurich Insurance Company ("Zurich") pursuant to which the
predecessor and Zurich agreed to form an alliance. On December 31, 1997, Zurich
acquired a majority interest in Scudder, and Zurich made its subsidiary Zurich
Kemper Investments, Inc., a part of the predecessor organization. The
predecessor's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group").
On September 7, 1998, the financial services business of Zurich
(including Zurich's 70% interest in the Adviser) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") formed a new global insurance
and financial services group known as Zurich Financial Services. By way of a
dual holding company structure, current Zurich Shareholders own approximately
57% of the new organization, with the balance owned by B.A.T's shareholders.
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Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the current
investment management agreement, except for the date of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and was approved by shareholders at a
special meeting which concluded in December 1998.
Pursuant to the investment management agreement, the Adviser acts as
the Fund's investment adviser, manages its investments, administers its business
affairs, furnishes office facilities and equipment, provides clerical,
bookkeeping and administrative services and permits any of its officers or
employees to serve without compensation as directors or officers of the Fund if
elected to such positions. The investment management agreement provides that the
Fund shall pay the charges and expenses of its operations, including the fees
and expenses of the directors (except those who are affiliates of the Adviser),
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value, taxes and membership
dues. The Fund bears the expenses of registration of its shares with the SEC
while Kemper Distributors, Inc. ("KDI"), as principal underwriter, pays the cost
of qualifying and maintaining the qualification of the Fund's shares for sale
under the securities laws of the various states.
The Adviser maintains a large research department, which conducts
ongoing studies of the factors that affect the position of various industries,
companies and individual securities. In this work, the Adviser utilizes certain
reports and statistics from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Fund and for clients of
the Adviser, but conclusions are based primarily on investigations and critical
analyses by its own research specialists.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
The Investment Management Agreement (the "Agreement") between the
Corporation, on behalf of the Fund, and the Adviser continues from year to year
only if its continuance is approved annually by the vote of a majority of those
Directors who are not parties to such Agreement or interested persons of the
Adviser or the Fund, cast in person at a meeting called for the purpose of
voting on such approval, and by a majority vote either of the Fund's Directors
or of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice, and automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be held or sold by the Fund and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Fund's Articles of
Incorporation and By-Laws, the 1940 Act and the Internal Revenue Code of 1986,
as amended (the "Code"), and to the Fund's investment objective, policies and
restrictions and subject, further, to such policies and instructions as the
Directors of the Corporation may from time to time establish. The Adviser also
advises and assists the officers of the Corporation in taking such steps as are
necessary or appropriate to carry out the decisions of its Directors and the
appropriate committees of the Directors regarding the conduct of the business of
the Fund.
The Adviser also renders significant administrative services (not
otherwise provided by third parties) necessary for the Fund's operations as an
open-end investment company including, but not limited to, preparing reports and
notices to the Directors and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns;
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preparing and filing the Fund's federal excise tax returns; assisting with
investor and public relations matters; monitoring the valuation of securities
and the calculation of net asset value; monitoring the registration of shares of
the Fund under applicable federal and state securities laws; maintaining the
Fund's books and records to the extent not otherwise maintained by a third
party; assisting in establishing accounting policies of the Fund; assisting in
the resolution of accounting and legal issues; establishing and monitoring the
Fund's operating budget; processing the payment of the Fund's bills; assisting
the Fund in, and otherwise arranging for, the payment of distributions and
dividends; and otherwise assisting the Fund in the conduct of its business,
subject to the direction and control of the Directors.
The Adviser pays the compensation and expenses of all Directors,
officers and executive employees of the Corporation affiliated with the Adviser
and makes available, without expense to the Corporation, the services of such
Directors, officers and employees of the Adviser as may duly be elected officers
or Directors of the Corporation, subject to their individual consent to serve
and to any limitations imposed by law, and provides the Corporation's office
space and facilities.
Under the Agreement the Fund is responsible for all of its other
expenses including organizational costs, fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; the calculation of net
asset value; taxes and governmental fees; the fees and expenses of the transfer
agent; the cost of preparing stock certificates and any other expenses including
clerical expenses of issue, redemption or repurchase of shares; the expenses of
and the fees for registering or qualifying securities for sale; the fees and
expenses of Directors, officers and employees of the Corporation who are not
affiliated with the Adviser; the cost of printing and distributing reports and
notices to shareholders; and the fees and disbursements of custodians. The Fund
may arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Directors with respect thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Corporation have been represented by Vedder, Price,
Kaufman & Kammholz, as independent counsel at the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
None of the officers or Directors of the Corporation may have dealings
with the Corporation as principals in the purchase or sale of securities, except
as individual subscribers or holders of shares of the Corporation.
Employees of the Adviser and certain of its subsidiaries are permitted
to make personal securities transactions, subject to requirements and
restrictions set forth in the Adviser's Code of Ethics. The Code of Ethics
contains provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the interests
of investment advisory clients such as those of the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, imposes time periods during
which personal transactions may not be made in certain securities, and requires
the submission of duplicate broker confirmations and monthly reporting of
securities transactions. Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in the investment advisory
process. Exceptions to these and other provisions of the Code of Ethics may be
granted in particular circumstances after review by appropriate personnel.
28
<PAGE>
For its services, the Fund pays the Adviser a fee, payable monthly,
equal to an annual rate of 0.75% of the Fund's first $250 million of average
daily net assets, 0.72% of the next $750 million of such net assets, 0.70% of
the next $1.5 billion of such net assets, 0.68% of the next $2.5 billion of such
net assets, 0.65% of the next $2.5 billion of such net assets, 0.64% of the next
$2.5 billion of such net assets, 0.63% of the next $2.5 billion of such net
assets, and 0.62% on such net assets in excess of $12.5 billion. For the fiscal
years ended November 30, 1999, 1998, and 1997, the investment management fee
payable to the Adviser for its services under the previous investment management
agreement with the Fund amounted to $________, and $________, respectively.
During those periods, the Adviser paid BSN Gestion de Patrimonios, S.A., S.G.C.
("BSN Gestion") a monthly fee of 0.35% of the Fund's average weekly net assets
for investment management services pursuant to a now terminated sub-advisory
agreement between the Adviser and BSN Gestion. For the fiscal years ended
November 30, 1999, 1998, and 1997 the sub-advisory fee payable to BSN Gestion
for its services under the sub-advisory agreement was $__________, $_________
and $_________, respectively. The sub-advisory arrangements with BSN Gestion
were discontinued in connection with the reorganization of the Fund's
predecessor entity as a series of the Corporation. See "Shareholder Rights"
below.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation an
annual fee of 0.065% on the first $150 million, 0.04% on the next $850 million,
and 0.02% over $1 billion, plus holding charges and transaction fees for this
service. The Fund is subject to a monthly minimum fee of $4,167. In addition,
there is a 33% multiclass surcharge imposed on the annual fee for the Fund.
The Adviser may serve as adviser to other funds with similar investment
objectives and policies to those of the Fund that may have different
distribution arrangements or expenses, which may affect performance.
Principal Underwriter. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc., 222 South
Riverside Plaza, Chicago, Illinois, 60606, a subsidiary of the Adviser, is the
principal underwriter and distributor for the shares of the Fund and acts as
agent of the Fund in the continuous offering of its shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI pays for the printing and distribution of copies thereof used in connection
with the offering of shares to prospective investors. KDI also pays for
supplementary sales literature and advertising costs.
The distribution agreement continues in effect from year to year so
long as such continuance is approved for each class at least annually by a vote
of the Board of Directors of the Fund, including the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement. The distribution agreement automatically terminates
in the event of its assignment and may be terminated for a class at any time
without penalty by the Fund or by KDI upon 60 days' notice. Termination by the
Fund with respect to a class may be by vote of a majority of the Board of
Directors, and a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the distribution
agreement, the Fund's Rule 12b-1 distribution plans, or any other agreement
related to the Fund's Rule 12b-1 distribution plans, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act.
Class A Shares. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreement not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays out a
portion of this sales charge or allows concessions or discounts to firms for the
sale of the Fund's Class A shares.
Rule 12b-1 Plans. The Corporation has adopted on behalf of the Fund, in
accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution
plans pertaining to the Fund's Class B and Class C shares (each a "Plan"). Under
each Plan, the Fund pays KDI a distribution fee, payable monthly, at the annual
rate of 0.75% of the average daily net assets attributable to its Class B or
Class C shares. Under each Plan, KDI may compensate various financial services
firms ("Firms") for sales of Fund shares and may pay other commissions, fees and
concessions to such Firms. The distribution fee compensates KDI for
29
<PAGE>
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials.
Among other things, each Plan provides that KDI will prepare reports
for the Board on a quarterly basis for each class showing amounts paid to the
various Firms and such other information as the Board may reasonably request.
Each Plan will continue in effect indefinitely, provided that such continuance
is approved at least annually by vote of a majority of the Board of Directors,
and a majority of the Directors who are not "interested persons" (as defined in
the 1940 Act) of the Fund and who have no direct or indirect financial interest
in the operation of the Plan ("Qualified Board Members"), cast at an in-person
meeting called for such purpose, or by vote of at least a majority of the
outstanding voting securities of the applicable class. Any material amendment to
a Plan must be approved by vote of a majority of the Board of Directors, and of
the Qualified Board Members. An amendment to a Plan to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the applicable class must be approved by a majority of the outstanding voting
securities of that class. While each Plan is in effect, the selection and
nomination of Directors who are not "interested persons" of the Corporation
shall be committed to the discretion of the Directors who are not themselves
"interested persons" of the Corporation. If a Plan is terminated (or not
renewed) with respect to either class, the Plan with respect to the other class
may continue in effect unless it also has been terminated (or not renewed).
The Fund's Plans became effective after the end of the most recently
completed fiscal year, therefore, no information is available concerning
payments made under the Plans.
Class B Shares. For its services under the Class B Plan, KDI receives a fee from
the Fund, payable monthly, at the annual rate of 0.75% of average daily net
assets of the Fund attributable to its Class B shares. This fee is accrued daily
as an expense of Class B shares. KDI also receives any contingent deferred sales
charges. See "Purchase, Redemption and Repurchase of Shares - Contingent
Deferred Sales Charge - Class B Shares." KDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.
Class C Shares. For its services under the Class C Plan, KDI receives a fee from
the Fund, payable monthly, at the annual rate of 0.75% of average daily net
assets of the Fund attributable to its Class C shares. This fee is accrued daily
as an expense of Class C shares. KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm and
the fee continues until terminated by KDI or the Fund. KDI also receives any
contingent deferred sales charges. See "Purchase, Redemption and Repurchase of
Shares -Contingent Deferred Sales Charges - Class C Shares."
Administrative Services. Administrative services are provided to the Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, the Fund pays KDI an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of Class A, B and C shares of the Fund.
KDI enters into related arrangements with various broker-dealer firms
and other service or administrative firms ("firms") that provide services and
facilities for their customers or clients who are investors in the Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, KDI pays each firm a service fee,
payable quarterly, at an annual rate of up to 0.25% of the net assets in Fund
accounts that it maintains and services attributable to Class A shares,
commencing with the month after investment. With respect to Class B and Class C
shares, KDI currently advances to firms the first-year service fee at a rate of
up to 0.25% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms a service fee at a rate of up to 0.25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C shares maintained and serviced by the firm. After the first year,
a firm becomes
30
<PAGE>
eligible for the quarterly service fee and the fee continues until terminated by
KDI or the Fund. Firms to which service fees may be paid may include affiliates
of KDI.
KDI also may provide some of the above services and may retain any
portion of the fee under the administrative agreement not paid to firms to
compensate itself for administrative functions performed for the Fund.
Currently, the administrative services fee payable to KDI is based only upon
Fund assets in accounts for which a firm provides administrative services listed
on the Fund's records and it is intended that KDI will pay all the
administrative services fee that it receives from the Fund to firms in the form
of service fees. The effective administrative services fee rate to be charged
against all assets of the Fund while this procedure is in effect will depend
upon the proportion of Fund assets that is in accounts for which there is a firm
of record. The Board of Directors of the Fund, in its discretion, may approve
basing the fee to KDI on all Fund assets in the future. In addition, KDI may,
from time to time, from its own resources, pay certain firms additional amounts
for ongoing administrative services and assistance provided to their customers
and clients who are shareholders of the Fund.
The Fund entered into the administrative services agreement after
completion of the Fund's most recent fiscal year, therefore, no information
about payments under the agreement is available.
Certain directors or officers of the Fund are also directors or
officers of the Adviser or KDI, as indicated under "Officers and Directors.
Custodian, Transfer Agent and Shareholder Service Agent. The Chase Manhattan
Bank ("Chase"), Chase Metrotech Center, Brooklyn, New York 11245, as custodian,
has custody of all securities and cash of the Fund. Chase attends to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by the Fund.
Pursuant to a services agreement between the Fund and Kemper Service
Company ("KSvC"), 811 Main Street, Kansas City, Missouri, an affiliate of
Scudder Kemper, KSvC serves as "Shareholder Service Agent" of the Fund and, as
such, performs all of the duties of transfer agent and dividend paying agent.
KSvC receives as transfer agent as follows: prior to January 1, 1999, annual
account fees at a maximum rate of $6 per account plus account set up,
transaction, and maintenance charges, annual fees associated with the contingent
deferred sales charge (Class B shares only) and out-of-pocket expense
reimbursement and effective January 1, 1999 annual account fees of $10.00
($18.00 for retirement accounts) plus set up charges, annual fees associated
with the contingent deferred sales charge (Class B Shares only), an asset-based
fee of 0.08% and out-of-pocket reimbursement.
Independent Auditors and Reports To Shareholders. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois, 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
31
<PAGE>
PURCHASE, REDEMPTION AND REPURCHASE OF SHARES
PURCHASE OF SHARES
Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. Upon the redemption
or exchange of any class of shares held for less than one year, a fee of 2% of
the current net asset value of the shares will be assessed and retained by the
Fund for the benefit of the remaining shareholders, with limited exceptions (see
"Redemption or Repurchase of Shares - Redemption Fee"). When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of the Fund's shares lie in
their initial and contingent deferred sales charge structures and in their
ongoing expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. Each
class has distinct advantages and disadvantages for different investors, and
investors may choose the class that best suits their circumstances and
objectives.
<TABLE>
<CAPTION>
Annual
12b-1 Fees
(as a % of
average daily
Sales Charge net assets) Other Information
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Maximum initial sales charge None Initial sales charge waived
of 5.75% of the public or reduced for certain
offering price purchases
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of redemption shares six years after
proceeds; declines to zero after issuance
six years
Class C Contingent deferred sales charge 0.75% No conversion feature
of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>
The minimum initial investment for each class of the Fund is $1,000 and
the minimum subsequent investment is $100. The minimum initial investment for an
Individual Retirement Account is $250 and the minimum subsequent investment is
$50. Under an automatic investment plan, such as Bank Direct Deposit, Payroll
Direct Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and
may not be available for certain types of account registrations. It is
recommended that investors not request share certificates unless needed for a
specific purpose. You cannot redeem shares by telephone or wire transfer or use
the telephone exchange privilege if share certificates have been issued. A lost
or destroyed certificate is difficult to replace and can be expensive to the
shareholder (a bond value of 2% or more of the certificate value is normally
required).
Initial Sales Charge Alternative -- Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
32
<PAGE>
<TABLE>
<CAPTION>
Sales Charge
as a Allowed to
As a Percentage of Dealers as a
Percentage of Net Amount Percentage of
Amount of Purchase Offering Price Invested* Offering Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.20%
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over 0.00** 0.00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales
charge as discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all its shares sold.
KDI, the Fund's principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may re-allow up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933, as amended.
Class A shares of the Fund may be purchased at net asset value by: (a)
any purchaser provided that the amount invested in the Fund or other Kemper
Funds listed under "Special Features - Class A Shares - Combined Purchases"
totals at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a), a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares-contingent Deferred Sales
Charge - Large Order NAV Purchase Privilege."
KDI may at its discretion compensate investment dealers or other
financial services firms in connection with the sale of Class A shares of the
Fund at net asset value in accordance with the Large Order NAV Purchase
Privilege up to the following amounts: 1.00% of the net asset value of shares
sold on amounts up to $5 million, 0.50% on the next $45 million and 0.25% on
amounts over $50 million. The commission schedule will be reset on a calendar
year basis for sales of shares pursuant to the Large Order NAV Purchase
Privilege to employer sponsored employee benefit plans using the subaccount
record keeping system made available through Kemper Service Company. For
purposes of determining the appropriate commission percentage to be applied to a
particular sale, KDI will consider the cumulative amount invested by the
purchaser in the Fund and other Kemper Funds listed under "Special Features -
Class A Shares -Combined Purchases," including purchases pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
referred to above. The privilege of purchasing Class A shares of the Fund at net
asset value under the Large Order NAV Purchase Privilege is not available if
another net asset value purchase privilege is also applicable.
As of February 1, 1996, Class A shares of the Fund or any other Kemper
Fund listed under "Special Features -- Class A Shares -- Combined Purchases" may
be purchased at net asset value in any amount by members of the plaintiff class
in the proceeding known as Howard and Audrey Tabankin, et al. v. Kemper
Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This
privilege is generally non-transferable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of
33
<PAGE>
Proposed Settlement, dated August 31, 1995, issued in connection with the
aforementioned court proceeding. For sales of Fund shares at net asset value
pursuant to this privilege, KDI may in its discretion pay investment dealers and
other financial services firms a concession, payable quarterly, at an annual
rate of up to 0.25% of net assets attributable to such shares maintained and
serviced by the firm. A firm becomes eligible for the concession based upon
assets in accounts attributable to shares purchased under this privilege in the
month after the month of purchase and the concession continues until terminated
by KDI. The privilege of purchasing Class A shares of the Fund at net asset
value under this privilege is not available if another net asset value purchase
privilege also applies.
Class A shares of the Fund may be purchased at net asset value in any
amount by certain professionals who assist in the promotion of Kemper Funds
pursuant to personal services contracts with KDI, for themselves or members of
their families. KDI in its discretion may compensate financial services firms
for sales of Class A shares under this privilege at a commission rate of 0.50%
of the amount of Class A shares purchased.
Class A shares may be sold at net asset value in any amount to: (a)
officers, trustees, directors, employees (including retirees) and sales
representatives of the Fund, its investment manager, its principal underwriter
or certain affiliated companies, for themselves or members of their families;
(b) registered representatives and employees of broker-dealers having selling
group agreements with KDI and officers, directors and employees of service
agents of the Fund, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on September
8, 1995, and have continuously owned shares of KVS (or a Kemper Fund acquired by
exchange of KVS shares) since that date, for themselves or members of their
families; (d) any trust, pension, profit-sharing or other benefit plan for only
such persons; (e) persons who purchase such shares through bank trust
departments that process such trades through an automated, integrated mutual
fund clearing program provided by a third party clearing firm; and (f) persons
who purchase shares of the Fund through KDI as part of an automated billing and
wage deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups. Class A shares may be sold at net
asset value in any amount to selected employees (including their spouses and
dependent children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase the Fund's Class A shares at net asset value through reinvestment
programs described in the prospectuses of such trusts that have such programs.
Class A shares of the Fund may be sold at net asset value 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 or agency brokerage services.
Such shares are sold for investment purposes and on the condition that they will
not be resold except through redemption or repurchase by the Fund. The Fund may
also issue Class A shares at net asset value in connection with the acquisition
of the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
The sales charge scale is applicable to purchases made at one time by
any "purchaser" which includes: an individual; or an individual, his or her
spouse and children under the age of 21; or a trustee or other fiduciary of a
single trust estate or single fiduciary account; or an organization exempt from
federal income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
34
<PAGE>
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when the shares
have been outstanding long enough for KDI to have been compensated for
distribution related expenses. For purposes of conversion to Class A shares,
shares purchased through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's Fund account will be
converted to Class A shares on a pro rata basis.
Purchase of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
As described in the prospectus, Fund shares are sold at their public offering
price, which is the net asset value next determined after an order is received
in proper form plus, with respect to Class A shares, an initial sales charge.
The minimum initial investment for each class of the Fund is $1,000 and the
minimum subsequent investment is $100 but such minimum amounts may be changed at
any time. The Fund may waive the minimum for purchases by directors, officers or
employees of the Fund or the Adviser and its affiliates. An order for the
purchase of shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until the Fund determines that
it has received payment of the proceeds of the check. The time required for such
a determination will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for
redemption, shares of the Fund will be redeemed by the Fund at the applicable
net asset value per share of the particular class of the Fund as described in
the Fund's prospectus.
Scheduled variations in or the elimination of the initial sales charge
for purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B or Class C shares by certain classes of persons or
through certain types of transactions are provided because of anticipated
economies of scale in sales and sales-related efforts.
The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange ("Exchange")
is closed other than customary weekend and holiday closings or during any period
in which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the SEC may by order permit for the protection of the Fund's shareholders.
REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may request that the Fund to redeem his or her shares.
When shares are held for the account of a shareholder by the Fund's transfer
agent, the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557. When certificates for shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association,
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federal savings bank, member firm of a national securities exchange or other
eligible financial institution. The redemption request and stock power must be
signed exactly as the account is registered including any special capacity of
the registered owner. Additional documentation may be requested, and a signature
guarantee is normally required, from institutional and fiduciary account
holders, such as corporations, custodians (e.g., under the Uniform Transfers to
Minors Act), executors, administrators, trustees or guardians.
Any shareholder requesting that the Fund redeem shares with an
aggregate value in excess of the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90 day period will be required to provide the Fund with
details of valid custodial arrangements in Spain, Portugal and the U.S., in
addition to other important information, in order for the redemption request to
be deemed in good order. Failure to provide the required information will result
in the rejection of the redemption request as being invalid. See "Redemption
in-Kind" below.
The redemption price for shares of a class of the Fund will be the net
asset value per share of that class of the Fund next determined following
receipt by the Shareholder Service Agent of a properly executed request with any
required documents as described above. Except with respect to redemptions
effected in-kind pursuant to the Fund's redemption policy set forth below under
"Redemption in-Kind," payment for shares redeemed will be made in cash as
promptly as practicable but in no event later than seven days after receipt of a
properly executed request accompanied by any outstanding share certificates in
proper form for transfer. When the Fund is asked to redeem shares for which it
may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. Upon the redemption or exchange of any class of shares held
less than one year, with limited exceptions, a fee of 2% of the current net
asset value of the shares will be assessed and retained by the Fund for the
benefit of the remaining shareholders (see "Redemption Fee"). The redemption
within two years of Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may also be subject to a contingent deferred sales
charge (see "Purchase of Shares-Initial Sales Charge Alternative-Class A
Shares"), the redemption of Class B shares within six years may be subject to a
contingent deferred sales charge (see "Contingent Deferred Sales Charge-Class B
Shares"), and the redemption of Class C shares within the first year following
purchase may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge-Class C Shares").
Because of the high cost of maintaining small accounts, the Fund may
assess a quarterly fee of $9 on any account with a balance below $1,000 for the
quarter. The fee will not apply to accounts enrolled in an automatic investment
program, Individual Retirement Accounts or employer sponsored employee benefit
plans using the subaccount record-keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited
wire transfer redemptions and EXPRESS-Transfer transactions (see "Special
Features") and exchange transactions for individual and institutional accounts
and pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor, guardian and custodian account
holders, provided the trustee, executor, guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such
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<PAGE>
shares have been owned for at least 10 days. This privilege of redeeming shares
by telephone request or by written request without a signature guarantee may not
be used to redeem shares held in certificated form and may not be used if the
shareholder's account has had an address change within 30 days of the redemption
request. During periods when it is difficult to contact the Shareholder Service
Agent by telephone, it may be difficult to use the telephone redemption
privilege, although investors can still redeem by mail. The Fund reserves the
right to terminate or modify this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of a class of
the Fund effective on that day and normally the proceeds will be sent to the
designated account the following business day, subject to the Fund's redemption
policy set forth below under "Redemption in-Kind." Once authorization is on
file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048 or in writing, subject to the limitations on liability described
under "General" above. The Fund is not responsible for the efficiency of the
federal wire system or the account holder's financial services firm or bank. The
Fund currently does not charge the account holder for wire transfers. The
account holder is responsible for any charges imposed by the account holder's
firm or bank. There is a $1,000 wire redemption minimum (including any
contingent deferred sales charge). To change the designated account to receive
wire redemption proceeds, send a written request to the Shareholder Service
Agent with signatures guaranteed as described above or contact the firm through
which shares of the Fund were purchased. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this privilege to redeem shares held in certificated form. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the expedited wire transfer redemption privilege. The
Fund reserves the right to terminate or modify this privilege at any time.
Contingent Deferred Sales Charge -- Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
Contingent Deferred Sales Charge -- Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
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Contingent
Deferred
Year of Redemption After Purchase Sales Charge
- --------------------------------- ------------
First ...........................................................4%
Second ...........................................................3%
Third ...........................................................3%
Fourth ...........................................................2%
Fifth ...........................................................2%
Sixth ...........................................................1%
The contingent deferred sales charge will be waived: (a) in the event
of the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features-Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested the Fund), (c) redemptions in connection with distributions qualifying
under the hardship provisions of the Code and (d) redemptions representing
returns of excess contributions to such plans.
Contingent Deferred Sales Charge -- Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features-Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Code
Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to satisfy
required minimum distributions after age 70 1/2 from an IRA account (with the
maximum amount subject to this waiver being based only upon the shareholder's
Kemper IRA accounts), (f) for any participant-directed redemption of shares held
by employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent, and (g) for
redemption of shares by an employer sponsored employee benefit plan that (i)
offers funds in addition to Kemper Funds (i.e., "multi-manager"), and (ii) whose
dealer of record has waived the advance of the first year administrative service
and distribution fees applicable to such shares and agrees to receive such fees
quarterly.
Contingent Deferred Sales Charge -- General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 of share appreciation to a
total of $12,000. If the investor were then to redeem the entire $12,000 in
share value, the contingent deferred sales charge would be payable only with
respect to $10,000 because neither the $1,000 of reinvested dividends nor the
$1,000 of share appreciation is subject to the charge. The charge would be at
the rate of 3% ($300) because it was in the second year after the purchase was
made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in
December, 1998 will be eligible for the second year's charge if redeemed on or
after December 1, 1999. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge,
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<PAGE>
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 the
Fund or any other Kemper Fund listed under "Special Features -- Class A Shares
- -- Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
the Fund or of the other listed Kemper Funds. A shareholder of the Fund or other
Kemper Fund who redeems Class A shares purchased under the Large Order NAV
Purchase Privilege (see "Purchase of Shares-Initial Sales Charge
Alternative-Class A Shares") or Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value at the time of the reinvestment, in the same class of shares as
the case may be, of the Fund or of other Kemper Funds. The amount of any
contingent deferred sales charge also will be reinvested, but the amount of any
redemption fee will not be reinvested. These reinvested shares will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge schedule. Also, a holder of Class B shares who has redeemed shares may
reinvest up to the full amount redeemed, less any applicable contingent deferred
sales charge that may have been imposed upon the redemption of such shares, at
net asset value in Class A shares of the Fund or of the other Kemper Funds
listed under "Special Features-Class A Shares-Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Kemper Funds available for sale in the shareholder's state of residence as
listed under "Special Features-Exchange Privilege." The reinvestment privilege
can be used only once as to any specific shares and reinvestment must be
effected within six months of the redemption. If a loss is realized on the
redemption of shares of the Fund, the reinvestment in shares of the Fund may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. In addition, upon a reinvestment, the shareholder may not be
permitted to take into account sales charges incurred on the original purchase
of shares in computing their taxable gain or loss. The reinvestment privilege
may be terminated or modified at any time.
Redemption in-Kind. The Fund has adopted the following redemption policy in an
attempt to avoid the imposition of adverse tax consequences on remaining
shareholders that may be caused by certain large-scale redemptions. In
conformity with Rule 18f-1 under the 1940 Act, it is the Fund's policy to redeem
its shares, with respect to any one shareholder during any 90 day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period. As an operating policy, the Fund will satisfy
redemption requests in excess of such amount by distributing portfolio
securities in lieu of cash. This policy may be modified or terminated at any
time by the Board of Directors. Any securities distributed in-kind would be
valued in accordance with the Fund's policies used to determine net asset value,
and would be selected pursuant to procedures adopted by the Board of Directors
to help ensure that such redemptions are effected in a manner that is fair and
equitable to all shareholders. The redeeming shareholder will bear the risk of
fluctuation in value of the in-kind redemption proceeds after the trade date for
the redemption. Shareholders who receive portfolio securities in redemption of
Fund shares will be required to make arrangements for the transfer of custody of
such securities to the shareholder's account and must communicate relevant
custody information to the Fund prior to the effectiveness of a redemption
request. Redemption requests subject to the Fund's redemption in-kind policy
will not be considered in good order unless such information is provided. As
discussed below, a redeeming shareholder will bear all costs associated with the
in-kind distribution of portfolio securities. Shareholders receiving securities
in-kind may, when selling them, receive less than the redemption value of such
securities and would also incur certain transaction costs. Such a redemption
would not be as liquid as a redemption entirely in cash.
Redeeming shareholders will bear any costs of delivery and transfer of the
portfolio securities received in an in-kind redemption (generally, certain
transfer taxes and custodial expenses), and such costs will be deducted from
their redemption proceeds. Redeeming shareholders will also bear the costs of
re-registering the securities, as the securities delivered will be registered in
the Fund's name or the nominee names of the Fund's custodians. The actual per
share expenses for redeeming shareholders of effecting an in-kind redemption and
of any subsequent liquidation by the shareholder of the portfolio securities
received will depend on a number of factors, including the number of shares
redeemed, the Fund's portfolio composition at the time and market conditions
prevailing during the liquidation process. The Fund gives no assurances of such
expenses, and shareholders whose redemptions are effected in-kind may bear
expenses in excess of 1% of the net asset value of the shares of the Fund
redeemed. These expenses are in addition to any applicable redemption fee or
contingent deferred sales charge, as described above.
As noted under "Redemption or Repurchase of Shares -- General" above,
shareholders redeeming in excess of the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90 day period must provide details of their
valid custodial arrangements in Spain, Portugal and the U.S. in order to
facilitate the transfer and settlement of securities to be distributed to them
39
<PAGE>
in-kind. Unless a shareholder establishes such custodial arrangements and
properly notifies the Fund of those arrangements, that shareholder will
effectively be limited to redeeming the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90 day period. In the event that the
shareholder wishes to redeem additional amounts in cash, that shareholder will
have to re-submit such a redemption request after the expiration of each 90 day
period (i.e., redemption requests for amounts in excess of the permitted amount
will not be automatically carried forward to the next 90 day period).
The Fund has received an exemptive order from the SEC to permit in-kind
redemption transactions to be effected by shareholders who may be deemed to be
affiliated with the Fund because they own 5% or more of the Fund's outstanding
voting securities . Shares of the Fund received by shareholders in exchange for
shares of GSP originally purchased in GSP's initial public offering are not
subject to being redeemed in-kind, contingent upon proof of such purchase by the
shareholder.
For redemptions in excess of the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90 day period, a redemption request will be considered
valid only if accompanied by a properly completed redemption and certification
form (available from Shareholder Services), which details, among other things,
the shareholder's valid custodial arrangements in Spain, Portugal and the U.S.
No redemption requests subject to in-kind redemption may be made other than by a
written request accompanied by a properly completed redemption and certification
form.
SPECIAL FEATURES
Class A Shares -- Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper 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 Horizon
Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Aggressive Growth
Fund, Kemper Global/International Series, Inc., Kemper U.S. Growth and Income
Fund, Kemper Small Cap Relative Value Fund, Kemper-Dreman Financial Services
Fund, Kemper Value Fund, Kemper Global Discovery Fund, Kemper Classic Growth
Fund, Kemper High Yield Fund II, Kemper Equity Trust, Kemper Income Trust,
Kemper Funds Trust and Kemper Securities Trust ("Kemper Funds"). Except as noted
below, there is no combined purchase credit for direct purchases of shares of
Zurich Money Funds, Zurich YieldWise Funds, Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Cash Account Trust, Investors Municipal Cash Fund
or Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Funds" for purposes hereof. For purposes of the Combined Purchases feature
described above as well as for the Letter of Intent and Cumulative Discount
features described below, employer sponsored employee benefit plans using the
subaccount record keeping system made available through the Shareholder Service
Agent may include: (a) Money Market Funds as "Kemper Funds", (b) all classes of
shares of any Kemper Fund and (c) the value of any other plan investment, such
as guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Funds listed above made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
KDI. The Letter, which imposes no obligation to purchase or sell additional
Class A shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included in this privilege.
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<PAGE>
Class A Shares -- Cumulative Discount. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Kemper Funds (computed at the maximum offering price at
the time of the purchase for which the discount is applicable) already owned by
the investor.
Class A Shares -- Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below. Upon the exchange of any class of
shares held for less than one year, a fee of 2% of the current net asset value
of the shares will be assessed and retained by the Fund for the benefit of the
remaining shareholders (see "Redemption or Repurchase of Shares-Redemption Fee"
above). Redemptions with respect to any one shareholder during any 90-day period
in excess of the lesser of $250,000 or 1% of the net asset value 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 above
under "Redemption in-Kind."
Class A Shares. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features-Class A Shares-Combined Purchases"
above may be exchanged for each other at their relative net asset values,
subject to the redemption fee, if applicable. Shares of Money Market Funds and
the Kemper Cash Reserves Fund that were acquired by purchase (not including
shares acquired by dividend reinvestment) are subject to the applicable sales
charge on exchange. Series of Kemper Target Equity Fund are available on
exchange only during the Offering Period for such series as described in the
applicable prospectus. Cash Equivalent Fund, Tax-Exempt California Money Market
Fund, Cash Account Trust, Investor's Municipal Cash Fund and Investors Cash
Trust are available on exchange but only through a financial services firm
having a services agreement with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.
Class B Shares. Class B shares of the Fund and Class B shares of any other
Kemper Fund listed under "Special Features-Class A Shares-Combined Purchases"
may be exchanged for each other at their relative net asset values, subject to
the redemption fee, if applicable. Class B shares may be exchanged without a
contingent deferred sales charge being imposed at the time of exchange. For
purposes of calculating the contingent deferred sales charge that may be imposed
upon the redemption of the Class B shares received on exchange, amounts
exchanged retain their original cost and purchase date.
Class C Shares. Class C shares of the Fund and Class C shares of any other
Kemper Fund listed under "Special Features-Class A Shares-Combined Purchases"
may be exchanged for each other at their relative net asset values, subject to
the redemption fee, if applicable. Class C shares may be exchanged without a
contingent deferred sales charge being imposed at the time of exchange. For
determining whether there is a contingent deferred sales charge that may be
imposed upon the redemption of the Class C shares received by exchange, they
retain the cost and purchase date of the shares that were originally purchased
and exchanged.
General. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired by exchange through another Kemper Fund, or
from a Money Market Fund, may not be exchanged thereafter until they have been
owned for 15 days (the "15-Day Hold Policy"). 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.
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For purposes of determining whether the 15-Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, discretion or advice, including without limitation accounts
administered by a financial services firm offering market timing, asset
allocation or similar services. The total value of shares being exchanged must
at least equal the minimum investment requirement of the Kemper Fund into which
they are being exchanged. Exchanges are made based on relative dollar values of
the shares involved in the exchange. There is no service fee for an exchange;
however, dealers or other firms may charge for their services in effecting
exchange transactions. Exchanges of the Fund for shares of another Kemper Fund
are subject to a 2% redemption fee if the shareholder has held the Fund shares
for less than one year (see "Redemption or Repurchase of Shares-Redemption
Fee"). Exchanges will be effected by redemption of shares of the fund held and
purchase of shares of the other fund. For federal income tax purposes, any such
exchange constitutes a sale upon which a gain or loss may be realized, depending
upon whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis of such shares. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or KDI. Exchanges may be accomplished by a written
request to Kemper Service Company, Attention: Exchange Department, P.O. Box
419557, Kansas City, Missouri 64141-6557, or by telephone if the shareholder has
given authorization. Once the authorization is on file, the Shareholder Service
Agent will honor requests by telephone at 1-800-621-1048, subject to the
limitations on liability under "Redemption or Repurchase of Shares -- General."
Any share certificates must be deposited prior to any exchange of such shares.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time. Exchanges may only be made for funds that are available for sale in
the shareholder's state of residence. Currently, Tax-Exempt California Money
Market Fund is available for sale only in California and Investors Municipal
Cash Fund is available for sale only in certain states. Except as otherwise
permitted by applicable regulations, 60 days' prior written notice of any
termination or material change will be provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund, subject to the redemption fee, if
applicable. If selected, exchanges will be made automatically until the
privilege is terminated by the shareholder or the Kemper Fund. Exchanges are
subject to the terms and conditions described above under "Exchange Privilege,"
except that the $1,000 minimum investment requirement for the Kemper Fund
acquired on exchange is not applicable. This privilege may not be used for the
exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (maximum $50,000) from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's Fund account. By enrolling in Bank Direct Deposit, the shareholder
authorizes the Fund and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to Kemper Service Company, P.O. Box 419415, Kansas
City, Missouri 64141-6415. Termination by a shareholder will become effective
within thirty days after the Shareholder Service Agent has received the request.
The Fund may immediately terminate a shareholder's Plan in the event that any
item is unpaid by the shareholder's financial institution. The Fund may
terminate or modify this privilege at any time.
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Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to IRAs. The minimum periodic payment is $100. The
maximum annual rate at which Class B shares may be redeemed (and Class A shares
purchased under the Large Order NAV Purchase Privilege and Class C shares in
their first year following the purchase) under a systematic withdrawal plan is
10% of the net asset value of the account. Shares are redeemed so that the payee
will receive payment approximately the first of the month. Any income and
capital gain dividends will be automatically reinvested at net asset value. A
sufficient number of full and fractional shares will be redeemed to make the
designated payment. Depending upon the size of the payments requested and
fluctuations in the net asset value of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts
("IRAs"). This includes Simplified Employee Pension Plan ("SEP") IRA
accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to
employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be
adopted by employers. The maximum annual contribution per participant
is the lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit
plans, target benefit plans, 457 plans, 401(k) plans and materials for
establishing them are available from the Shareholder Service Agent upon request.
Investors should consult with their own tax advisers before establishing a
retirement plan.
Special Redemption and Exchange Information. Shares of any class of the Fund
held for less than one year are redeemable at a price equal to 98% of the then
current net asset value per share, with limited exceptions. This 2% discount,
referred to in the prospectus and this Statement of Additional Information as a
redemption fee, directly affects the amount a shareholder who is subject to the
fee receives upon exchange or redemption. It is intended to encourage long-term
investment in the Fund, to avoid transaction and other expenses caused by early
redemptions and to facilitate portfolio management. The fee is not a deferred
sales charge, is not a commission paid to the Adviser or its subsidiaries, and
does not benefit the Adviser in any way. The Fund reserves the right to modify
the terms of or terminate this fee at any time.
This redemption fee will not be applied to (a) a redemption of shares
held in certain retirement plans, including 401(k) plans, 403(b) plans, Keogh
accounts, and other pension, profit-sharing and employee benefit plans (however,
this fee waiver does not apply to IRA and SEP-IRA accounts), (b) a redemption of
any shares purchased through the reinvestment of dividends or capital gains
distributions paid by the Fund), or (d) a redemption of shares by the Fund upon
exercise of its right to liquidate
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accounts (i) falling below the minimum account size by reason of shareholder
redemptions or (ii) when the shareholder has failed to provide tax
identification information. However, if shares are purchased for a retirement
plan account through a broker, financial institution or recordkeeper maintaining
an omnibus account for the shares, such waiver may not apply.
The fee applies to redemptions from the Fund and exchanges to other
Kemper Funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased. In the event
that a shareholder has acquired shares of the Fund in connection with the Fund's
acquisition of the assets of or merger or consolidation with another investment
company (an "acquired fund"), the shareholder will generally be permitted to add
the period he or she held shares of the acquired fund to the time he or she has
held Class A shares of the Fund in determining the applicability of the
redemption fee. In such a case, the shareholder bears the burden of
demonstrating to the Fund the period of ownership of the acquired fund. Proof of
ownership for the required period may be demonstrated by providing copies of
brokerage account statements or other appropriate share records in connection
with a redemption under cover of the redemption and certification form
(available from Shareholder Services.)
For this purpose and without regard to the shares actually redeemed,
shares will be redeemed as follows: first, reinvestment shares; second,
purchased shares held one year or more: and third, purchased shares held for
less than one year. Finally, if a shareholder enters into a transaction in Fund
shares which, although it may technically be treated as a redemption and
purchase for recordkeeping purposes, does not involve the termination of
economic interest in the Fund, no redemption fee will apply and applicability of
the redemption fee, if any, on any subsequent redemption or exchange will be
determined by reference to the date the shares were originally purchased, and
not the date of the transaction.
The conversion of Class B shares of the Fund to Class A shares of the
Fund may be subject to the continuing availability of an opinion of counsel,
ruling by the Internal Revenue Service ("IRS") or other assurance acceptable to
the Fund to the effect that (a) the assessment of the distribution services fee
with respect to Class B shares and not Class A shares does not result in the
Fund's dividends constituting "preferential dividends" under the Code, and (b)
that the conversion of Class B shares to Class A shares does not constitute a
taxable event under the Code. The conversion of Class B shares to Class A shares
may be suspended if such assurance is not available. In that event, no further
conversions of Class B shares would occur, and shares might continue to be
subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and
is determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the Fund will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of the Fund is computed as of the close of regular trading
on the Exchange on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at its most recent sale price. Lacking
any sales, the security is valued at the most recent bid quotation. The value of
an equity security not quoted on Nasdaq, but traded in another over-the-counter
market, is its most recent sale price. Lacking any sales, the security is valued
at the Calculated Mean. Lacking a Calculated Mean, the security is valued at the
most recent bid quotation.
Debt securities are valued at prices supplied by the Fund's pricing
agent(s) which reflect broker/dealer supplied valuations and electronic data
processing techniques. Money market instruments purchased with an original
maturity of sixty days or less, maturing at par, shall be valued at amortized
cost, which the Board believes approximates market value. If it is not possible
to value a particular debt security pursuant to these valuation methods, the
value of such security is the most recent bid quotation supplied by a bona fide
marketmaker. If it is not possible to value a particular debt security pursuant
to the above methods, the Adviser may calculate the price of that debt security,
subject to limitations established by the Board.
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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.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Corporation's
Board of Directors, the value of a portfolio asset as determined in accordance
with these procedures does not represent the fair market value of the portfolio
asset, the value of the portfolio asset is taken to be an amount which, in the
opinion of the Valuation Committee, represents fair market value on the basis of
all available information. The value of other portfolio holdings owned by the
Fund is determined in a manner which, in the discretion of the Valuation
Committee, most fairly reflects fair market value of the property on the
valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends. The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal taxes for which shareholders may then be able to
claim a credit against their federal tax liability. If the Fund does not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the Fund may be subject
to that excise tax. In certain circumstances, the Fund may determine that it is
in the interest of shareholders to distribute less than the required amount.
(See "TAXES.")
The Fund normally distributes annual dividends of net investment
income. Any net realized short-term and long-term capital gains for the Fund are
distributed at least annually. Income and capital gain dividends of the Fund are
automatically reinvested in additional shares of the Fund, without a sales
charge, unless the investor makes an election otherwise. Distributions of net
capital gains realized during each fiscal year will be made at least annually
before the end of the Fund's fiscal year on October 31. Additional
distributions, including distributions of net short-term capital gains in excess
of net long-term capital losses, may be made, if necessary.
The level of income dividends per share (as a percentage of net asset
value) will be lower for Class B and Class C shares than for Class A shares
primarily as a result of the distribution services fee applicable to Class B and
Class C shares. Distributions of capital gains, if any, will be paid in the same
proportion for each class.
Dividends will be reinvested in shares of the Fund unless shareholders
indicate in writing that they wish to receive them in cash or in shares of other
Kemper Funds as provided in the prospectus.
Taxes. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, generally will not be
liable for federal income taxes to the extent its earnings are distributed. To
so qualify, the Fund must satisfy certain income and asset diversification
requirements, and must distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain).
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The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for each calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
If shares are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Kemper fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Dividend and interest income received by the Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
The Fund may qualify for and make the election permitted under Section 853 of
the Code so that shareholders may (subject to limitations) be able to claim a
credit or deduction on their federal income tax return form, and may be required
to treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries
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(which taxes related primarily to investment income). The Fund may make an
election under Section 853 of the Code, provided that more than 50% of the value
of the total assets of the Fund at the close of the taxable year consists of
securities as foreign corporations. The foreign tax credit available to
shareholders is subject to certain limitations imposed by the Code, except in
the case of certain electing individual taxpayers who have limited creditable
foreign taxes and no foreign source income other than passive investment-type
income. Furthermore, the foreign tax credit is eliminated with respect to
foreign taxes withheld on dividends if the dividend-paying shares or the shares
of the Fund are held by the Fund or the shareholders, as the case may be, for
less than 16 days. (46 days in the case of preferred shares) during the 30-day
period (90-day period for preferred shares) beginning 15 days (45 days for
preferred shares) before the shares become ex-dividend. In addition, if the Fund
fails to satisfy these holding period requirements, it cannot elect under
Section 853 to pass through to shareholders the ability to claim a deduction for
the related foreign taxes.
The Fund may invest in shares of certain foreign corporations which may
be classified under the Code as passive foreign investment companies ("PFICs").
If the Fund receives a so-called "excess distribution" with respect to PFIC
stock, the Fund itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Fund held the PFIC shares. The Fund will be
subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Excess
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark to market losses and any loss from an actual disposition of
shares would be deductible as ordinary loss to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to the Fund level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain its
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock)
written or purchased by the Fund will be subject to tax under Section 1234 of
the Code. In general, no loss is recognized by the Fund upon payment of a
premium in connection with the purchase of a put or call option. The character
of any gain or loss recognized (i.e., long-term or short-term) will generally
depend, in the case of a lapse or sale of the option, on the Fund's holding
period for the option and, in the case of an exercise of the option, on the
Fund's holding period for the underlying security. The purchase of a put option
may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or substantially
identical security in the Fund's portfolio. If the Fund writes a call option, no
gain is recognized upon its receipt of a premium. If the option lapses or is
closed out, any gain or loss is treated as a short-term capital gain or loss. If
a call option is exercised, any resulting gain or loss is short-term or
long-term capital gain or loss depending on the holding period of the underlying
security. The exercise of a put option written by the Fund is not a taxable
transaction for the Fund.
Many futures and forward contracts entered into by the Fund and all
listed nonequity options written or purchased by the Fund (including covered
call options written on debt securities and options purchased or written on
futures contracts) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position will be treated as 60% long-term and 40%
short-term, and on the last trading day of the Fund's fiscal year (and
generally, on October 31 for purposes of the 4% excise tax), all outstanding
Section 1256 positions will be marked-to-market (i.e., treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options and
similar financial instruments entered into or acquired by the Fund will be
treated as ordinary income or loss. Under certain circumstances, entry into a
futures contract to sell a security may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in the Fund's
portfolio.
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Positions of the Fund consisting of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stock or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for any
"qualified covered call options" on stock written by the Fund.
Positions of the Fund consisting of at least one position not governed
by Section 1256 and at least one future, forward, or nonequity option contract
which is governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. The Fund will monitor its transactions in options
and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will be required to recognize gain at
that time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency, and on disposition of certain futures,
forward or options contracts, gains or losses attributable to fluctuations in
the value of foreign currency between the date of acquisition of the security or
contracts and the date of disposition are also treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "Section 988" gains or
losses, may increase or decrease the amount of the Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
If the Fund holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. In addition, if the Fund invests in certain high
yield original issue discount obligations issued by corporations, a portion of
the original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such an event, properly
designated dividends of investment company taxable income received from the Fund
by its corporate shareholders, to the extent attributable to such portion of the
accrued original issue discount, may be eligible for the deduction received by
corporations.
If the Fund acquires a debt instrument at a market discount, a portion
of the gain recognized (if any) on disposition of such instrument may be treated
as ordinary income.
The Fund will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder
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is incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
A shareholder who redeems shares of the Fund (including any in-kind
redemption) will recognize capital gain or loss for federal income tax purposes
measured by the difference between the value of the shares redeemed and the
adjusted cost basis of the shares. Any loss recognized on the redemption of Fund
shares held six months or less will be treated as long-term capital loss to the
extent that the shareholder has received any long-term capital gain dividends on
such shares. A shareholder who has redeemed shares of the Fund or any other
Kemper Mutual Fund listed under "Special Features-Class A Shares-Combined
Purchases" (other than shares of Kemper Cash Reserves Fund not acquired by
exchange from another Kemper Mutual Fund) may reinvest the amount redeemed at
net asset value at the time of the reinvestment in shares of the Fund or in
shares of the other Kemper Mutual Funds within six months of the redemption as
described under "Redemption or Repurchase of Shares-Reinvestment Privilege." If
redeemed shares were held less than 91 days, then the lesser of (a) the sales
charge waived on the reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested shares and is not
included in the basis of the redeemed shares. If a shareholder realizes a loss
on the redemption or exchange of the Fund's shares and reinvests in shares of
the Fund within 30 days before or after the redemption or exchange, the
transactions may be subject to the wash sale rules resulting in a postponement
of the recognition of such loss for federal income tax purposes. An exchange of
the Fund's shares for shares of another fund is treated as a redemption and
reinvestment for federal income tax purposes upon which gain or loss may be
recognized.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Spanish Taxes. The following description of certain Spanish tax matters
represents the opinion of the Fund's Spanish counsel based upon current law and
interpretations thereof. No advance rulings have been obtained from the Spanish
tax authorities and an opinion of counsel is not binding on the Spanish tax
authorities. No assurance can be given that applicable tax laws and
interpretations thereof will not change in the future.
Neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated as residents of Spain or as carrying
on a business in Spain. No Spanish tax, other than tax on dividends, interest,
and capital gains as discussed below, will be applicable to the Fund or the
Fund's shareholders, other than shareholders who are residents of Spain or who
are subject to tax in Spain for reasons other than their status as shareholders
of the Fund.
Under Spanish law, dividends and interest income paid by Spanish
resident entities to holders of shares or securities who are non-residents of
Spain are subject to income tax withheld at source at a rate of 25% of the gross
amount of the income. However, under the Convention for the Avoidance of Double
Taxation signed by Spain and the United States on February 22, 1990 (the
"Convention"), a holder of shares that is resident of the United States for
purposes of the Convention (and who does not have a fixed base in Spain from
which such holder performs or has performed independent personal services and
whose holding is not effectively connected with a permanent establishment in
Spain through which such holder carries on or has carried on a business) (a
"United States resident") who obtains dividends from a Spanish resident entity
generally is subject to the Convention's reduced rate of 15% of the gross amount
of income. If the United States resident is a corporation and owns at least 25%
of the voting stock of the Spanish resident entity, tax will be levied at a 10%
rate. Also
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under the Convention, a United States resident that receives interest from a
Spanish resident entity is subject to the Convention reduced rate of 10% of the
gross amount of income.
If the normal 25% rate is initially applied to a United States
resident, a refund for the amount withheld in excess of the Convention-reduced
rates can generally be obtained, subject to applicable procedures.
Under Spanish law, capital gains derived from the disposal of shares or
securities issued by Spanish resident entities are considered to be Spanish
sourced income subject to income tax at a 35% rate. However, by virtue of the
Convention, no Spanish tax would be levied on capital gains upon the disposal of
shares or securities issued by Spanish resident entities by a United States
resident, provided that such United States resident has not maintained a direct
or indirect holding of 25% or more of the share capital of the Spanish resident
entity during the twelve months preceding the disposition of the securities.
Effective January 1, 1999, capital gains upon the disposal of shares or
securities listed on a Spanish market will be exempt from taxation in Spain,
provided the holder is entitled to the benefit of a convention for the avoidance
of double taxation with an exchange of information provision (i.e., U.S.).
Capital borrowed by the State of Spain or its autonomous entities is
deemed Public Debt under Spanish Law. Interest paid on Public Debt to
non-residents of Spain who are not acting through a permanent establishment in
Spain is generally exempt from taxation in Spain. In addition, capital gains
realized by non-residents not acting through a permanent establishment in Spain
on the sale or disposition of Public Debt is generally exempt from taxation in
Spain.
Under Spanish law, transfers of shares are exempt from the stamp duty,
value added tax, and transfer tax. However, the transfer tax exemption will not
apply and the transfer of shares will be subject to transfer tax when (i) at
least 50% of the total assets of the company whose shares are transferred
consist of real estate located in Spain, and (ii) as a result of the transfer,
the acquiror obtains a control position over the company.
Generally, the Spanish taxes described above will be imposed on, and
paid by, the Fund (and not its shareholders). Under U.S. tax law, the Fund may
be able to pass through to its shareholders a credit for such taxes.
Portuguese Taxes. The following description of certain Portuguese tax matters
represents the opinion of the Fund's Portuguese tax counsel based upon current
law and interpretations thereof. No advance ruling has been obtained from the
Portuguese tax authorities and an opinion of counsel is not binding on the
Portuguese tax authorities. No assurance can be given that applicable tax laws
and interpretation thereof will not change in the future.
Neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated as residents of Portugal or as
carrying on a business in Portugal. No Portuguese tax other than those described
below, will apply to the Fund or its shareholders, other than shareholders who
are residents of Portugal or who are subject to tax in Portugal for reasons
other than their status as shareholders of the Fund.
The tax regime applicable to Portuguese income obtained by the Fund is
provided by (i) the Portuguese Corporate Income Tax Code; (ii) the Portuguese
Gift and Inheritance Tax Code; (iii) the Treaty for the avoidance of Double
Taxation and Prevention of Fiscal Evasion signed by Portugal and the United
States on September 6, 1994 and in force since January 1996 (the "Treaty"); and
(iv) Decree Law 88/94, of April 2, 1994, relating to the treasury securities.
Under Portuguese law, dividends paid by Portuguese entities to holders
of shares who are non-residents of Portugal are subject to income tax withheld
at the source at the general rate of 25% on the gross amount of income. In
addition a further withholding of substitute gift and inheritance tax at the
rate of 5% is levied. However, according to the provisions of the Portuguese
Statute of Fiscal Incentives, 50% of the gross income or dividends paid on
shares listed on the Lisbon Stock Exchange is exempt from withholding tax,
resulting in an effective tax rate of 12.5%. Further, under the Treaty, the rate
of withholding tax on dividends will not exceed 15%, and the rate of withholding
with respect to the substitute gift and inheritance tax on dividends distributed
to a United States resident will not exceed 5%.
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However, if a United States resident company, for purposes of the
Treaty, is the beneficiary owner and owns 25% or more of the share capital of a
Portuguese resident company for an uninterrupted period of 2 years prior to the
payment of the dividend, the rate applicable under the Treaty is:
(a) for dividends paid until December 31, 1999, a rate of 10%;
(b) after December 31, 1999, the same rate applicable to the dividends of a
similar nature paid to residents of European Union member States,
provided that in no event shall the applicable rate be lower than 5%.
Interest payments to non-residents of Portugal are subject to a general
20% withholding tax rate. However, the Treaty provides a reduction to a 10% rate
for United States residents or an exemption if it is a long term loan granted by
a bank or another financial entity that is resident in the United States.
The limitation of Portuguese tax provided by the Treaty can be obtained
either through the refund system or through the reduction at the source, subject
to applicable procedures.
Capital gains derived by a corporate non-resident holder, such as the
Fund, from the disposal of shares or securities issued by Portuguese resident
entities are not subject to Portuguese capital gains tax unless such gains are
effectively connected with a permanent establishment in Portugal. As noted
above, neither the Fund nor the Fund's shareholders, solely by reason of being
shareholders of the Fund, will be treated either as residents of Portugal or as
carrying on a business in Portugal.
Interest paid on treasury securities issued by the Portuguese
government and designated as Public Debt Securities by the Ministry of Finance
and held by entities that do not have a residence, place of administration or
permanent establishment in Portugal is generally exempt from taxation in
Portugal. In addition, capital gains realized on the sale or disposition of such
Public Debt Securities by the Fund (as an entity that does not have a residence,
place of administration or permanent establishment in Portugal) are generally
exempt from Portuguese taxation.
Generally, the Portuguese taxes described above will be imposed upon,
and paid by the Fund (and not its shareholders). Under U.S. tax law, the Fund
may be able to pass through to its shareholders a credit for such taxes.
No Portuguese transfer or stamp tax shall be due upon the transfer of
portfolio securities, except for a 4% stamp duty on brokerage fees, bank
settlement fees and commissions, if any, paid on the transfer of securities.
Qualification for Spanish and Portuguese Treaty Benefits. The Fund has qualified
for treatment as a "United States resident" under the Convention and the Treaty.
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 to
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
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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 adjust 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. Distributions from a Roth IRA that satisfy certain
requirements will not be taxable when taken; other distributions of earnings
will be taxable. An individual with adjusted gross income of $100,000 or less
generally may elect to roll over amounts from a traditional IRA to a Roth IRA.
The full taxable amount held in the traditional IRA that is rolled over to a
Roth IRA will be taxable in the year of the rollover, except rollovers made for
1998, which may be included in taxable income over a four year period.
An education IRA provides a method for saving for the higher education
expenses of a child; it is not designed for retirement savings. Generally,
amounts held in an education IRA may be used to pay for qualified higher
education expenses at an eligible (postsecondary) educational institution. An
individual may contribute to an education IRA for the benefit of a child under
18 years old if the individual's income does not exceed certain limits. The
maximum contribution for the benefit of any one child is $500 per year.
Contributions are not deductible, but earnings accumulate tax-free until
withdrawal, and withdrawals used to pay qualified higher education expenses of
the beneficiary (or transferred to an education IRA of a qualified family
member) will not be taxable. Other withdrawals will be subject to tax.
In addition, there are special IRA programs available for employers
under which an employer may establish IRA accounts for its employees in lieu of
establishing more complicated retirement plans, such as qualified profit sharing
or 401(k) plans. Known as SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE
IRAs, they permit employers to maintain a retirement program for their employees
without being subject to a number of the recordkeeping and testing requirements
applicable to qualified plans.
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 retirement 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 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. Information regarding the establishment of IRAs or
other retirement plans is available from the Shareholder Service Agent upon
request. A retirement plan custodian may charge fees in connection with
establishing and maintaining the plan. An investor should consult with a
competent adviser for specific advice concerning his or her tax status and the
possible benefits of establishing one or more retirement plan accounts. The
description above is only very general; there are numerous other rules
applicable to these plans to be considered before establishing one.
Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.
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PERFORMANCE
The Fund's historical performance or return for a class of shares may
be shown in the form of "average annual total return" and "total return"
figures. These measures of performance are described below. Performance
information will be computed separately for each class.
The Fund may advertise several types of performance information for a
class of shares, including "average annual total return" and "total return."
Performance information will be computed separately for Class A, Class B and
Class C shares. Each of these figures is based upon historical results and is
not representative of the future performance of any class of the Fund.
Average annual total return and total return measure both the net
investment income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio. The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for each class of the Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the class' shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. Average annual
return quotations will be determined to the nearest 1/100th of 1%. The
redeemable value in the case of Class B shares or Class C shares include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the nth root (n representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. Average annual return calculated in accordance
with this formula does not take into account any required payments for federal
of state income taxes. Average annual total return does not reflect the effect
of the 2% redemption fee on shares held for less than one year. Such quotations
for Class B shares of the Fund for periods over six years will reflect
conversion of such shares to Class A shares at the end of the sixth year. The
calculation assumes that all income and capital gains dividends paid by the Fund
have been reinvested at net asset value on the reinvestment dates during the
period. Average annual total return may also be calculated in a manner not
consistent with the standard formula described above, without deducting the
maximum sales charge or contingent deferred sales charge.
Average Annual Total Return = (ERV/P)^1/n - 1
Where: P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at
the beginning of the applicable period.
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements and prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of the Fund's Class B shares or Class C shares may
or may not include the effect of the applicable contingent deferred sales charge
that may be imposed at the end of the period. The calculation assumes that all
income and capital gains dividends paid by the Fund have been reinvested at net
asset value on the reinvestment dates during the period. Total return may also
be shown as the increased dollar value of the hypothetical investment over the
period. Total return calculations that do not include the effect of the sales
charge for the Fund's Class A shares or the contingent deferred sales charge for
Class B and Class C shares would be reduced if such charges were included. In
addition, total return does not reflect the effect of the 2% redemption fee on
shares held for less than one year.
The Fund's performance figures are based upon historical results and
are not necessarily representative of future performance. The Fund's Class A
shares are sold at net asset value plus a maximum sales charge of 5.75% of the
offering price. Class B and Class C shares are sold at net asset value.
Redemption of the Fund's Class B shares may be subject to a contingent
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deferred sales charge that is 4% in the first year following the purchase,
declines by a specified percentage each year thereafter and becomes zero after
six years. Redemption of the Fund's Class C shares may be subject to a 1%
contingent deferred sales charge in the first year following the purchase. A 2%
redemption fee is assessed upon the redemption or exchange of any class of
shares held for less than one year. Returns and net asset value will fluctuate.
Factors affecting the Fund's performance include general market conditions,
operating expenses and investment management. Any additional fees charged by a
dealer or other financial services firm would reduce returns described in this
section. Shares of the Fund are redeemable at the then current net asset value,
which may be more or less than original cost.
There are differences and similarities between the investments which
the Fund may purchase and the investments measured by the indices which are
described herein. The Consumer Price Index is generally considered to be a
measure of inflation. The Dow Jones Industrial Average and the Standard & Poor's
500 Stock Index are indices of common stocks which are considered to be
generally representative of the U.S. stock market. The Financial Times/Standard
& Poor's Actuaries World Index-Europe(TM) is a managed index that is generally
representative of the equity securities of European markets. The foregoing
indices are unmanaged. The net asset value and returns of the Fund will
fluctuate.
Investors may want to compare the performance of the Fund to
certificates of deposit issued by banks and other depository institutions.
Certificates of deposit may offer fixed or variable interest rates and principal
is guaranteed and may be insured. Withdrawal of deposits prior to maturity will
normally be subject to a penalty. Rates offered by banks and other depository
institutions are subject to change at any time specified by the issuing
institution. Information regarding bank products may be based upon, among other
things, the BANK RATE MONITOR National Index(TM) for certificates of deposit,
which is an unmanaged index and is based on stated rates and the annual
effective yields of certificates of deposit in the ten largest banking markets
in the United States, or the CDA Investment Technologies, Inc. Certificate of
Deposit Index, which is an unmanaged index based on the average monthly yields
of certificates of deposit.
Investors also may want to compare the performance of the Fund to that
of U.S. Treasury bills, notes or bonds. Treasury obligations are issued in
selected denominations. Rates of Treasury obligations are fixed at the time of
issuance and payment of principal and interest is backed by the full faith and
credit of the U.S. Treasury. The market value of such instruments will generally
fluctuate inversely with interest rates prior to maturity and will equal par
value at maturity. Information regarding the performance of Treasury obligations
may be based upon, among other things, the Towers Data Systems U.S. Treasury
Bill index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Fund to that of
money market funds. Money market funds seek to maintain a stable net asset value
and yield fluctuates. Information regarding the performance of money market
funds may be based upon, among other things, IBC/Donoghue's Money Fund
Averages(R) (All Taxable). As reported by IBC/Donoghue's, all investment results
represent total return (annualized results for the period net of management fees
and expenses) and one year investment results are effective annual yields
assuming reinvestment of dividends.
The Growth Fund of Spain, Inc. ("GSP") was reorganized as an open-end
series of the Corporation consisting of Class A, Class B, and Class C shares
(the "Reorganization"). GSP had only one class of shares, which were not subject
to Rule 12b-1 fees or sales charges; the shares of GSP outstanding as of
December 11, 1998 were exchanged for Class A shares of the Fund, which class
also has no Rule 12b-1 fees but is subject to an administrative services fee.
The performance figures shown below reflect the performance of the Fund prior to
the Reorganization, restated in the case of standardized return, to reflect the
sales charge of the Fund's Class A shares. Different fees and expenses
applicable to each of the classes, including Rule 12b-1 fees applicable to the
Class B and C shares (shares of which did not exist as of the close of the
Fund's most recent fiscal year) and an administrative services fee applicable to
each class, will affect the performance of those classes.
For purposes of the performance computations for the Fund, it is
assumed that all dividends and capital gains distributions made by the Fund are
reinvested at net asset value in additional shares of the same class during the
designated period. In calculating the ending redeemable value for Class A shares
and assuming complete redemption at the end of the applicable period, the
maximum 5.75% sales charge is deducted from the initial $1,000 payment (for
Class B shares and Class C shares, the applicable CDSC imposed upon redemption
of Class B shares or Class C shares held for the period would be
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deducted). Standardized Return quotations for the Fund do not take into account
any applicable redemption fees or required payments for federal or state income
taxes. Standardized Return quotations are determined to the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Initial sales charges, CDSCs and redemption fees
are not taken into account in calculating Non-Standardized Return; a sales
charge or redemption fee, if deducted, would reduce the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A shares of the Fund based on performance
information of The Growth Fund of Spain, Inc. for the periods indicated. During
the periods covered by the tables, the Fund was subadvised by BSN Gestion. This
subadvisory relationship was discontinued in connection with the Reorganization.
STANDARDIZED RETURN*
CLASS A
1 year period ended October 31, 1999 %
Five years in the period ended October 31, 1999 %
Inception# to October 31, 1999 %
NON-STANDARDIZED RETURN**
CLASS A
1-year period ended October 31, 1999 %
Five years in the period ended October 31, 1999 %
Inception# to October 31, 1999 %
- -------------------------
* The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%, but do not
reflect any applicable redemption fees and have not been restated to
reflect expected differences in the Fund's expense structure as an
open-end investment company.
** The Non-Standardized Return figures do not reflect the deduction of any
initial sales charge or any applicable redemption fee, and have not
been restated to reflect expected differences in the Fund's expense
structure as an open-end investment company.
# The inception date for The Growth Fund of Spain, Inc. (and,
consequently, of the Fund's Class A shares) was February 14, 1990. As
of the close of the Fund's most recent fiscal year, Class B and Class C
shares of the Fund did not exist, since the Reorganization had not yet
occurred.
OFFICERS AND DIRECTORS [TO BE UPDATED]
The officers and directors of the Corporation, their birth dates, their
principal occupations and their affiliations, if any, with the Adviser, and KDI,
the principal underwriter, are as follows:
*DANIEL PIERCE (3/18/34) Director and Chairman of the Board, Two International
Place, Boston, Massachusetts; Managing Director, Scudder Kemper Investments,
Inc.
*MARK S. CASADY (9/21/60) President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
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JAMES E. AKINS (10/15/26) Director, 2904 Garfield Terrace, N.W., Washington,
D.C.; Consultant on International, Political and Economic Affairs; formerly a
career United States Foreign Service Officer, Energy Adviser for the White House
and United States Ambassador to Saudi Arabia, 1973-76.
ARTHUR R. GOTTSCHALK (2/13/25) Director, 10642 Brookridge Drive, Frankfort,
Illinois, Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Illinois state Senator; Vice
President, The Reuben H. Donnelley Corp.
FREDERICK T. KELSEY (4/25/27) Director, 4010 Arbor Lane, Unit 102, Northfield,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Northern Institutional Funds, formerly,
Trustee of The Pilot Funds.
FRED B. RENWICK (2/1/30) Director, 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director,
TIFF Industrial Program, Inc., Director, the Wartburg Home Foundation; Chairman
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; formerly member of the Investment Committee
of Atlanta University Board of Trustees; formerly Director of Board of Pensions,
Evangelical Lutheran Church of America.
JOHN G. WEITHERS (8/8/33) Director, 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company, President of the
Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering, Inc.
*PHILIP J. COLLORA (11/15/45) Vice President and Secretary, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper Investments,
Inc.
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.
M. ISABEL SALTZMAN (12/22/54)* Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
*JOHN R. HEBBLE (6/27/58) Treasurer, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*MAUREEN E. KANE (2/14/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Vice President, Scudder Kemper Investments, Inc.; formerly,
Assistant Vice President of an unaffiliated investment management firm; prior
thereto, Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
*THOMAS W. LITTAUER (4/26/55) Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.; formerly,
Head of Broker Dealer Division of an unaffiliated investment management firm
56
<PAGE>
during 1997; prior thereto, President of Client Management Services of an
unaffiliated investment management firm from 1991 to 1996.
*BRENDA LYONS (2/21/63), Assistant Treasurer, Treasurer, Two International
Place, Boston, Massachusetts; Senior Vice President, Scudder Kemper Investments,
Inc.
*ANN M. McCREARY (11/6/56) Vice President, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper Investments, Inc.
*CORNELIA M. SMALL (7/28/44) Vice President, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper Investments, Inc.
*CAROLINE PEARSON (4/1/62) Assistant Secretary, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.;
formerly, Associate, Dechert Price & Rhoads (law firm) 1989 to 1997.
*KATHRYN L. QUIRK (12/3/52) Director and Vice President, 345 Park Avenue, New
York, New York; Managing Director, Scudder Kemper Investments, Inc.
*SHERIDAN P. REILLY (2/27/52) Vice President, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper Investments, Inc.
*LINDA J. WONDRACK (9/12/64) Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper Investments, Inc.
*ELIZABETH C. WERTH (10/1/47) Assistant Secretary, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Scudder Kemper Investments, Inc.
* Interested persons of the Corporation as defined in the 1940 Act.
Compensation of Officers and Directors
The Directors and Officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid to or
accrued for those Directors who are not designated "interested persons" by the
Corporation, during the 1999 fiscal year.
<TABLE>
<CAPTION>
Total Compensation
Total Compensation From Aggregate Compensation From All Other From Kemper Fund
Growth Fund Funds in the Kemper Complex Paid to Board
Name of Board Members of Spain Global/International Series, Inc. (1) Members(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James E. Akins................. $7,500 $7,000 $130,000
Arthur R. Gottschalk(3)........ 9,000 7,000 133,200
Frederick T. Kelsey............ 7,900 7,000 130,500
Fred B. Renwick................ 8,000 7,000 130,500
John G. Weithers............... 8,000 7,000 134,800
</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) Includes compensation for service on the boards of 15 Kemper funds with
53 fund portfolios. Each Board Member currently serves as a board
member of 15 Kemper Funds with 53 fund portfolios.
57
<PAGE>
(3) 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 $19,800 for Mr. Gottschalk.
As of January 29, 2000, the Directors and Officers as a group owned
less than 1% of the Fund's shares, and the following entities owned of record
greater than 5% of the outstanding shares of the Fund:
Name and Address Percentage of Shares Owned
SHAREHOLDER RIGHTS
The Corporation may issue an indefinite amount of shares of capital
stock, all having $.001 par value, which may be divided by the Board of
Directors into classes of shares. 100,000,000 shares have been classified for
each of the Corporation's six series. Currently, each series offers three
classes of shares. These are Class A, Class B and Class C shares. The Board of
Directors may authorize the issuance of additional classes and additional series
if deemed desirable, each with its own investment objectives, policies and
restrictions. Since the Corporation may offer multiple funds, each is known as a
"series company." Shares of a fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive voting rights with
respect to each such class' Rule 12b-1 Plan. Shares of each class also have
equal rights with respect to dividends, assets and liquidation of such fund
subject to any preferences (such as resulting from different Rule 12b-1
distribution fees), rights or privileges of any classes of shares of the fund.
Shares of each fund are fully paid and nonassessable
58
<PAGE>
when issued, are transferable without restriction and have no preemptive or
conversion rights. Each fund's activities are supervised by the Corporation's
Board of Directors. The Corporation is not required to hold and has no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Directors, changing
fundamental investment policies or approving an investment management contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Director as if Section 16(c) of the 1940 Act were
applicable.
The Growth Fund of Spain, Inc. ("GSP"), the predecessor of the Fund,
commenced investment operations in 1990 as a closed-end management investment
company organized as a Maryland corporation. At a meeting of the shareholders of
GSP held October 28, 1998, the shareholders voted to approve the conversion of
the Fund to an open-end investment company and the reorganization of GSP as a
new series of the Corporation. Pursuant to the reorganization agreement between
GSP and the Corporation, GSP transferred all of its assets to the Fund in
exchange for Class A shares of the Fund and the assumption by the Fund of the
liabilities of GSP on December 11, 1998. GSP then distributed the Class A shares
of the Fund received in the reorganization to its shareholders.
The Fund's activities are supervised by the Corporation's Board of
Directors. The Fund is not required to and has no current intention of holding
annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment advisory contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.
Each director serves until the next meeting of shareholders, if any,
called for the purpose of electing directors and until the election and
qualification of a successor or until such director sooner dies, resigns,
retires or is removed by a majority vote of the shares entitled to vote (as
described below) or a majority of the directors.
A majority of the Directors shall be present in person at any regular
or special meeting of the Directors in order to constitute a quorum for the
transaction of business at such meeting and, except as otherwise required by
law, the act of a majority of the Directors present at any such meeting, at
which a quorum is present, shall be the act of the Directors.
Any matter shall be deemed to have been effectively acted upon with
respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act,
or any successor rule, and in the Corporation's Articles of Incorporation. As
used in the prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Fund and all additional portfolios
(e.g., election of directors), means the vote of the lesser of (i) 67% of the
Corporation's shares represented at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy, or (ii) more than 50%
of the Corporation's outstanding shares. The term "majority," when referring to
the approvals to be obtained from shareholders in connection with matters
affecting the Fund or any other single portfolio (e.g., annual approval of
investment management contracts), means the vote of the lesser of (i) 67% of the
shares of the portfolio represented at a meeting if the holders of more than 50%
of the outstanding shares of the portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the portfolio.
In the event of the liquidation or dissolution of the Corporation,
shares of the Fund are entitled to receive the assets attributable to that Fund
that are available for distribution, and a proportionate distribution, based
upon the relative net assets of the Fund, of any general assets not attributable
to the Fund that are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Corporation.
FINANCIAL STATEMENTS
The financial statements appearing in the Fund's Annual Report to
Shareholders for the fiscal year ended October 31, 1998 are incorporated by
reference herein. These financial statements have been incorporated by reference
herein in reliance on the report of Ernst & Young LLP, independent auditors,
given on their authority as experts in auditing and accounting. The principal
business address of Ernst & Young LLP is 233 South Wacker Drive, Chicago,
Illinois 60606.
59
<PAGE>
ADDITIONAL INFORMATION
Other Information
The CUSIP number of the Class A shares of the Growth Fund Of Spain is
487916-81-9.
The CUSIP number of the Class B shares of the Growth Fund Of Spain is
487916-79-3.
The CUSIP number of the Class C shares of the Growth Fund Of Spain is
487916-78-5.
Effective as of the Fund's 1998 fiscal year, the Fund's fiscal year end
was changed to October 31.
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the Fund's investment objective and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the 1933 Act and reference is hereby
made to the Registration Statement for further information with respect to the
Fund and the securities offered hereby. The Registration Statement and its
amendments, are available for inspection by the public at the SEC in Washington,
D.C.
60
<PAGE>
APPENDIX A - RATINGS OF FIXED INCOME INVESTMENTS
Standard & Poor's Ratings Group Bond Ratings
AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay 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.
61
<PAGE>
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
62
<PAGE>
APPENDIX B - INFORMATION ABOUT SPAIN AND PORTUGAL
I. KINGDOM OF SPAIN
Note: Certain numbers in this Appendix B have been rounded for ease of
presentation. Since most calculations have been made on unrounded figures, the
sum of the component figures in many tables presented may not precisely equal
the totals shown.
Area and Population
The Kingdom of Spain ("Spain") includes 50 provinces, 47 of which are
situated on the mainland of the Iberian Peninsula, with the remaining three
being the Baleares Islands and the two provinces of the Canary Islands. In
addition, the cities of Ceuta and Melilla on the northern coast of Africa are
part of the Spanish territory. The total land area is 504,782 sq. km. As of mid
1997, the population was 39.3 million. The major cities are Madrid, Barcelona,
Valencia and Seville.
Government
Spain is a democratic, constitutional monarchy. In 1975, the current
monarch, Juan Carlos de Borbon, was proclaimed King of Spain. On December 6,
1978, a new Constitution was ratified by national referendum that provides for
the existence of political parties, universal suffrage, parliamentary elections
by secret and direct ballot every four years, and the existence of a Parliament
with two legislative chambers -- the Congress of Deputies, with 350 members and
the Senate with 248 members.
The Constitution defines the authority of the executive, legislative
and judicial powers. The King is commander-in-chief of the armed forces. He
names the Prime Minister, who is the head of Government, after consulting the
Congress of Deputies and Senate, and calls referenda to decide on major
political issues. The Prime Minister is empowered to dissolve parliament and
call elections and govern with the assistance of a Cabinet, which is
collectively responsible to the Congress of Deputies.
Members of the Congress of Deputies and the Senate serve four-year
terms, barring dissolution, and elect their own presidents. Although each house
can initiate legislation, the Congress of Deputies has the power of final
approval on all legislation.
The judicial system is headed by a Supreme Tribunal (Tribunal Supremo)
which is responsible for the final determination of all civil and criminal cases
brought on appeal from the lower courts. The lower courts consist of territorial
courts, provincial courts, regional courts, courts of the first instance and
municipal courts. There is also a Constitution Tribunal which has jurisdiction
to resolve matters affecting constitutional issues.
At the last election in March 1996, the conservative Partido Popular
(PP) narrowly defeated the socialist Partido Socialista Obrero Espanol (PSOE)
which had governed the country since 1982. However, the PP fell 20 seats short
of a parliamentary majority. After some 57 days of negotiations, two
conservative regional parties -- the Catalonian Convergencia i Unio (CiU), and
the Basque Nationalist Party (PNV) -- agreed to support the PP but not to enter
a coalition government. Jose Maria Aznar of the PP became the Prime Minister.
International Organizations
Spain is a member of the United Nations, the International Monetary
Fund (IMF), the World Bank, the Organization for Economic Cooperation and
Development (OECD), the North Atlantic Treaty Organization (NATO), the World
Trade Organization (WTO), the European Union (EU) and the European Monetary
Union (EMU).
63
<PAGE>
The Economy
After accession to the EU in 1985, foreign capital, particularly direct
investment, poured into Spain attracted by its low labor costs relative to those
in the core European countries. In the five years through 1990, GDP in Spain
grew at an average annual rate of 5.0%, compared with an average of 3.3% for all
of EU. Domestic demand surged, but since the structural reforms needed to
improve supply conditions were slow to take place, bottlenecks arose and
inflation began to surface. Spain became less competitive and GDP slowed to a
rate of 0.7% in 1991 and a decline of 1.2% in 1992. The peseta came under
speculative attack in the Exchange Rate Mechanism crises of 1992 and 1993. The
peseta was devalued 15.6% against the dollar in 1992 and a further 19.4% in
1993. With the resulting improvement in competitiveness, the economy began to
improve.
Among the structural reforms to the Spanish economy was a reduction in
state ownership of business. During the Socialist term in power, Seat, the car
producer was sold to Volkswagen in 1986 and Enasa (trucks) to Iveco, a division
of Fiat. Between 1989 and 1995, shares were floated in such profitable companies
as Repsol, Endesa, the electrical utility, Argentaria, the banking group, and
Telefonica. The state's share in these companies was reduced to 10%, 67%, 25%
and 20% respectively. Among the plans of the center-right government is one in
which they aim to sell off additional state shareholdings worth more than three
trillion pesetas ($23.4 billion) by the year 2000.
One of the most intractable structural problems in Spain is labor
regulation, which has resulted in an official unemployment rate roughly double
the EU average. To a large extent the high unemployment rate is the result of
rigid labor laws inherited from the Franco regime. Workers with permanent job
contracts are protected by generous dismissal payments while new entrants have
great difficulty in finding a new job because of the reluctance of employers to
take on additional staff because of the very same generous dismissal payments.
In spite of the introduction of fixed-term contracts in 1984 and the reforms of
1996 that have reduced the cost of overtime hours and encouraged part-time
contracts, there has been no change in the legal severance provisions which are
still among the highest of the OECD. Justified layoffs, for both collective and
individual dismissals, require a minimum severance payment ranging from 20 days'
wages per year of seniority to a maximum of 12 months. Unjustified dismissals
carry with them 45 days' wages per year of seniority to a maximum of 42 months,
in addition to which the firm must pay up to 60 days' retroactive wages during
the appeals process.
Gross Domestic Product
Gross Domestic Product (GDP) in Spain was approximately $531 billion
dollars in 1997, ranking fifth among the fifteen nations in the European Union.
In terms of per capita income, however, it ranked fourth from the bottom,
exceeding only Portugal, Greece and Turkey.
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<PAGE>
The following table sets forth selected economic data relating to Spain
for the indicated periods.
<TABLE>
<CAPTION>
Selected Economic Data
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GDP at current market prices
(billion pesetas) 59,105 60,953 64,812 69,780 73,743 77,897
% Change 7.6% 3.1% 6.3% 7.7% 5.7% 5.6%
GDP at 1990 prices
(billion pesetas) 51,635 51,034 52,183 53,601 54,897 57,836
% Change 0.7% -1.2% 2.3% 2.7% 2.4% 5.4%
CPI (1990=100) 112.2 117.3 122.9 128.6 133.2 135.8
% Change 5.9% 4.5% 4.8% 4.6% 3.6% 2.0%
Industrial Production 96.5 91.9 98.6 103.2 102.5 109.5%
% Change -2.7% -4.8% 7.3% 4.7% -0.7% 6.8%
Unemployment Rate 18.4% 22.7% 24.2% 22.9% 22.2% 20.8%
General Gov. Deficit / GDP -3.8% -6.9% -6.3% -7.3% -4.6% -2.6%
General Gov. Debt / GDP 48.0% 60.0% 62.6% 65.5% 70.1% 68.8%
Current Account (mil. US$) -21,537 -6,017 -6,922 513 503 2,486
Current Account/GDP -3.7% -1.3% -1.4% 0.1% 0.1% 0.5%
Population (millions) 39.0 39.1 39.2 39.2 39.3 39.3
Average Exchange Rate 102.38 127.26 133.96 124.69 126.66 146.41
GDP in US$ Billions $577.3 $479.0 $483.8 $559.6 $582.2 $532.0
GDP Per Capita $14,770 $12,234 $12,339 $14,251 $14,806 $13,695
</TABLE>
Sources: IMF, International Financial Statistics, January 1999;European
Commission, European Economy, No. 65, 1998
Spain produces a wide range of agricultural products, both for domestic
and export markets. Among them are rice, olive oil, wine, feed grains,
vegetables and citrus fruits. In addition, Spain produces an array of forestry
products, including wood for construction and furniture, cork, firewood and
resins. Spain has significant deposits of metals and minerals, including iron
ore, mercury, potash, uranium, tungsten, lead, zinc and pyrites. The main
industries of Spain include iron and steel, aluminum, motor vehicles, electronic
equipment and machinery, chemicals, metal products, coal mining and electricity
generation. Tourism is one of the largest components of the service sector and a
significant source of foreign exchange.
65
<PAGE>
The following table shows the changes in the distribution of GDP by
type of activity between 1986 and 1996.
Gross Domestic Product by Type of Activity
Percent Distribution
------------------------------
1986 1997
Agriculture, Hunting, Forestry, and Fishing 5.6% 4.3%
Mining, Mfg & Gas 29.2% 28.0%
Construction 6.5% 7.0%
Services 53.2% 55.0%
Adjustments 5.6% 5.8%
100.0% 100.07%
OECD Quarterly National Accounts, 1998:2 P226
Foreign Trade and Balance of Payments
Since accession to EU in 1986, Spain's trade with other EU members has
increased significantly as can be seen in the following table.
Geographic Breakdown of Trade
Exports Imports
1986 1987 1986 1987
---- ---- ---- ----
(Millions of US$)
Total $27,206 $104,134 $35,056 $122,753
(Percent of Total)
European Union 62.5% 69.6% 53.4% 65.0%
France 17.9% 18.4% 11.7% 17.5%
Germany 11.7% 13.5% 15.1% 14.8%
Italy 8.0% 9.8% 7.3% 9.4%
Portugal 3.5% 9.0% 1.3% 2.7%
U.K. 8.8% 8.1% 7.7% 8.1%
Other 12.6% 10.8% 10.3% 12.6%
U.S. 9.3% 4.4% 9.8% 6.3%
Japan 1.1% 1.1% 4.9% 2.8%
All Other 27.1% 24.9% 31.8% 25.9%
100.0% 100.0% 100.0% 100.0%
Source: IMF, Direction of Trade Yearbook, 1998.
Spain typically runs a deficit on the balance of trade and the balance
on income (interest and dividend payments). Services and transfers regularly
report surpluses. On the capital account, direct investment has declined from
the high level of 1992. Portfolio investment has tended to be volatile. The
overall balance, however, has improved and the Current Account as a percentage
of GDP has gone from negative 3.7% in 1992 to positive 0.5% in 1997.
66
<PAGE>
<TABLE>
<CAPTION>
Balance of Payments
(Millions US$)
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Trade Balance (30,420) (14,946) (14,833) (18,244) (16,027) (13,347)
Balance on Services 12,607 11,108 14,712 17,898 19,789 19,227
Balance on Income (5,790) (3,573) (8,193) (3,878) (5,799) (6,396)
Transfers Net 2,066 1,393 1,388 4,737 2,540 (3,002)
Current Account (21,537) (6,017) (6,927) 513 503 2,486
Direct Investment Net 11,084 5,492 5,528 2,551 1,246 (4,486)
Portfolio Investment Net 9,358 49,212 (22,313) 20,879 (1,308) (6,359)
Equity Securities Net 3,503 5,727 107 3,681 (631) (5,388)
Debt Securities Net 5,855 43,485 (22,420) 17,198 (677) (971)
Other Investments Net (14,483) (54,983) 22,254 (31,045) 20,179 19,534
Capital Acct n.i.e. 3,726 3,168 2,722 6,285 6,420 5,965
Errors and Omissions (5,957) (1,681) (1,213) (5,598) (2,764) (5,385)
Overall Balance (17,809) 4,808 50 (6,415) 24,278 11,755
</TABLE>
IFS January 1999
Exchange Rates
The following table shows the exchange rate of the peseta relative to
the U.S. dollar at the end of each year and the average for the year. The
percent of depreciation or appreciation is also shown.
Exchange Rates
End of Period Change Relative to US$ Average Change Relative to US$
------------- ---------------------- ------- ----------------------
1986 132.40 140.05
1987 109.00 21.5% 123.48 13.4%
1988 113.45 -3.9% 116.49 6.0%
1989 109.72 3.4% 118.38 -1.6%
1990 96.91 13.2% 101.93 16.1%
1991 96.69 0.2% 103.91 -1.9%
1992 114.62 -15.6% 102.38 1.5%
1993 142.21 -19.4% 127.26 -19.6%
1994 131.74 8.0% 133.96 -5.0%
1995 121.41 8.5% 124.69 7.4%
1996 131.28 -7.5% 126.66 -1.6%
1997 151.90 -13.5 146.41 -13.5
1998 142.61 6.4% 149.40 -2.0%
IMF, International Financial Statistics, February 1999
67
<PAGE>
II. PORTUGUESE REPUBLIC
Area and Population
The Portuguese Republic ("Portugal") is situated in Southwest Europe on
the western portion of the Iberian Peninsula, bounded on the north and east by
Spain and on the south and west by the Atlantic Ocean. The country also
comprises the Azores and Madeira Islands in the Atlantic Ocean. The total area
including the islands is 91,985 sq. Km. (35,515 sq. miles).
The population of Portugal, including the Azores and Madeira Islands,
was 9.8 million according to the 1991 census. The population is concentrated
along the Atlantic coast. Lisbon, the capital and largest city and seaport,
comprises some 1.9 million inhabitants and Porto, the second largest city and
seaport comprises 1.l million.
Government
Portugal is a republic governed under a constitution approved in 1976
and revised in 1982, 1989, 1992 and 1997. The President is elected to a 5-year
term, as head of state. The current president elected in January 1996 is Jorge
Sampaio. Parliament proposes the Prime Minister to the president who then makes
the appointment. The Prime Minister, who is the country's chief administrative
official, presides over a cabinet of ministers. The current Prime Minister is
Antonio Guterres.
Legislative power is vested in a unicameral parliament, the Assembly of
the Republic. Members of the Assembly are elected under a system of proportional
representation and serve 4-year terms. The Assembly had a total of 230 seats in
the early 1990s.
The judicial system is headed by the Supreme Court, which is made up of
a president and 29 judges. Below the Supreme Court are courts of appeal and
ordinary and special district courts. There is also a Constitutional court.
The leading political parties are the Socialist Party (PS), the Social
Democratic Party (PSD), the Popular Party (PP) and the Communist Party (PCP) The
socialist party won the October 1995 election, ending 10 years of government by
the social democrats. Both of the main parties have similar economic policies,
with participation in European Monetary Union (EMU) and fulfilling Maastricht
criteria as the center piece of fiscal and monetary policies.
International Organizations
Portugal is a member of the United Nations, the International Monetary
Fund (IMF), the World Bank, the Organization for Economic Cooperation and
Development (OECD), the North Atlantic Treaty Organization (NATO), the World
Trade Organization (WTO) , the European Union (EU) and the European Monetary
Union (EMU).
The Economy
When Portugal joined the European Union (EU) in 1986, the economy was
in need of major restructuring. Inflation, unemployment and the public sector
deficit were high. Moreover the industry sector was antiquated and the State was
heavily involved in the economy. Protectionism, underdeveloped financial markets
and rigidity in labor markets characterized the economy. Monetary policy was
based on capital controls and credit ceilings. Financial institutions were
sheltered from foreign competition and the money market was poorly developed.
The Central Bank, which could not be considered independent, controlled
liquidity through credit ceilings imposed on the overwhelmingly public banking
system. Exchange rate policy was based on a crawling peg aimed at alleviating
the chronic current account deficit which, in 1982 peaked at 12% of GDP. Over
the period from 1976-1985, the compound real effective exchange rate
depreciation of the escudo amounted to 40% while inflation was running at a rate
of 20% annually.
After joining the EU, tax reforms were introduced which lowered
effective marginal rates, broadened the tax base and curtailed opportunities for
evasion. The value added to tax (VAT) was introduced between 1984 and 1986 and
the income tax was subject to a major reform in 1989. Institutional changes
strengthened Central Bank autonomy by cutting off the
68
<PAGE>
government's automatic access to Banco De Portugal credit and making its
statutes broadly aligned to the requirements of the European Union Treaty.
Portugal moved from a highly regulated financial market to financial
liberalization.
A far-reaching privatization program was started in 1989. In 1988,
public sector participation in the market economy accounted for close to 19% of
total value added, around 6.5% of employment and almost 15% of total investment.
State-owned enterprises were dominant in financial service, transport, energy,
communications, steel, cement brewing, shipbuilding, pulp and tobacco.
Initially, the program focused on the financial services sector. The stock
exchange was modernized and privatized.
On April 6, 1992, the escudo joined the Exchange Rate Mechanism (ERM)
in the wide fluctuation band (6%) thereby establishing exchange rate stability
as the cornerstone of its monetary policy. Remaining controls on capital
movements were abolished at the end of that year, ahead of the schedule
previously agreed with the EU.
Turmoil in the ERM in 1992 led to widening of bands to 15% in August
1993. The Central parity of the escudo had to be devalued twice during that
period. In spite of realignments, the new monetary policy based on exchange rate
stability as an intermediate objective has remained a cornerstone of economic
policy in Portugal. In March 1995 the central parity of the escudo within the
ERM was devalued by 3.5%, half the size of the devaluation of the Spanish
peseta. This realignment was not preceded by market pressure on the escudo, but
was aimed at limiting losses in competitiveness relative to partner countries.
Since joining the EU, Portuguese output increased significantly in the
period from 1986-1990, rising on average at 5% a year compared with an average
of 1.6% in the previous five-year period. The rate of inflation, which had been
close to 30% in 1984, was brought down to about 12% in 1990. Output was affected
adversely by the oil shock of 1979-80 and the recession of 1993, but began to
pick up in 1994 and has subsequently continued to grow in each year. Inflation
has continued to abate. The CPI rose 3.2% in 1996 and 2.1% in 1997. At the same
time, the balance of payments has remained strong and the overall general
government deficit fell from above 6% of GDP in 1993 to 3.2% in 1996 and to
2.45% in 1997.
Gross National Product
In 1997, GDP amounted to approximately $102 billion. The European
Commission has stated that, measured in purchasing power parity, Portuguese GDP
per capita rose from 50% of the European Union (EU) average in 1985 to about 70%
in 1996.
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<PAGE>
The following table sets forth selected economic data relating to
Portugal for the indicated periods:
<TABLE>
<CAPTION>
Selected Economic Data
----------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GDP at current market
prices
(billion escudo) 12,759.0 13,463.1 14,628.9 15,817.7 16,803.6 17,905.2
% Change 12.8% 5.5% 8.7% 8.1% 6.2% 6.6%
GDP at 1990 prices
(billion escudo) 10,382.8 10,688.8 11,433.8
10,281.0 10,136.1 11,028.6
% Change 1.9% -1.4% 2.4% 2.9% 3.2% 3.7%
CPI (1990=100) 121.3 129.6 135.9 141.5 146.0 149.1
% Change 8.9% 6.8% 4.9% 4.1% 3.2% 2.1%
Industrial Production 99.5 95.9 94.8 99.4 100.8 103.3
% Change -1.9% -3.6% -1.1% 4.9% 1.4% 2.5%
Unemployment Rate 4.2% 5.6% 6.9% 7.2% 7.3% 6.8%
General Gov. Deficit / GDP -3.0% -6.1% -6.0% -5.7% -3.2% -2.5%
General Gov. Debt / GDP 60.1% 63.1% 63.8% 65.9% 65.0% 62.0%
Current Account (mil. US$) -184 233 -2,196 -144 -1,491 -1,877
Current Account/GDP -0.2% 0.3% -2.5% -0.1% -1.4% -1.8%
Population (millions) 9.83 9.84 9.84 9.85 9.87 9.88
Average Exchange Rate 135.00 160.80 165.99 151.11 154.24 175.31
GDP in US$ Billions $94.5 $83.7 $88.1 $104.7 $108.9 102.1
GDP Per Capita $9,612 $8,509 $8,956 $10,630 $11,042 $10,342
</TABLE>
Sources: IMF, International Financial Statistics, January 1999; European
Commission, European Economy, No. 65, 1998.
While the importance of agriculture in the economy has declined since
accession to the EU, approximately 11% of the labor force is still engaged in
agriculture, having declined from over 20% in 1986. Only Greece among EU members
has a higher proportion of the population currently employed in agriculture.
Approximately 34% of Portugal's total land area is covered by forest. The
country is the world's largest producer and exporter of cork and cork products
and is an increasingly important supplier of wood pulp. Portugal has substantial
reserves of copper ore, iron ore, pyrites and uranium.
The manufacturing sector accounted for about 24% of GDP and employed
about 23% of the labor force in 1993, the latest year for which data are
available. The principal manufacturing industries include metal products,
textiles, chemicals and allied products, wood pulp and cork and base metallurgy.
The construction sector employs approximately 8% of the labor force.
Tertiary production includes retail and wholesale trade, utilities,
finance, transportation and communication, and services. Trade and services have
been the fastest growing sectors of the economy. The growth in tourism is
reflected in the trade sector which includes hotels and restaurants.
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<PAGE>
The following table shows how employment by industry has changed since
accession to the EU in 1986.
<TABLE>
<CAPTION>
Civilian Employment by Sector
-----------------------------
1986 1995
(Thous) % of Total (Thous) % of Total
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Agriculture 890.3 21.9% 477.5 11.4%
Mining 27.2 0.7% 16.8 0.4%
Manufacturing 995.3 24.5% 971.9 23.2%
Construction 332.1 8.2% 340.3 8.1%
Electricity, gas and water 31.9 0.8% 34.6 0.8%
Transport and communication 174 4.3% 183.1 4.4%
Trade 598.6 14.7% 819.2 19.5%
Banking, insurance, real estate 127 3.1% 137.4 3.3%
Personal services. 887 21.8% 1213.7 28.9%
Total 4063.4 4194.5
</TABLE>
OECD, Economic Survey Portugal 1998:111
External Trade and Balance of Payments
Since accession to EU in 1986, Portugal's trade with other EU members
has increased significantly as illustrated in the following table:
<TABLE>
<CAPTION>
Geographic Breakdown of Trade
Exports Imports
------- -------
1986 1997 1986 1997
---- ---- ---- ----
(Millions US$)
<S> <C> <C> <C> <C>
Total $7,243 $23,136 $7,550 $28,071
Percent of Total
European Union 68.3% 80.1% 75.4% 89.9%
France 15.2% 14.1% 12.9% 12.9%
Germany 15.1% 20.0% 18.2% 17.9%
Italy 4.0% 3.9% 10.2% 9.6%
Spain 6.9% 14.1% 14.1% 27.4%
U.K. 14.2% 12.1% 9.6% 8.4%
Other 12.9% 16.0% 10.5% 13.6%
U. S. 7.0% 4.8% 8.9% 3.9%
Japan 0.8% 0.7% 4.6% 3.0%
All Other 23.9% 14.4% 11.1% 3.2%
100.0% 100.0% 100.0% 100.0%
</TABLE>
Source: Direction Trade Yearbooks 1993.1998.
Portugal typically runs a deficit on the balance of trade which is
offset, in part, by tourism receipts and unilateral transfers. Transfers include
emigrant remittances and, in recent years, transfers from EU. The overall
balance of payments is shown in the following table:
71
<PAGE>
<TABLE>
<CAPTION>
Balance of Payments
(Millions US$)
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Trade Balance (9,387) (8,050) (8,321) (8,910) (9,340) (9,551)
Balance on Services 765 1,365 1,269 1,613 1,375 1,206
Balance on Income 611 219 (565) (21) (352) (245)
Transfers Net 7,826 6,699 5,421 7,132 6,827 6,712
Current Account (184) 233 (2,196) (144) (1,491) (1,877)
Direct Investment Net 1,186 1,387 983 (3) (57) 71
Portfolio Investment Net (3,064) 1,827 478 (1,083) 1,746 1,133
Equity Securities Net 561 411 496 (338) 958 1,776
Debt Securities Net (3,625) 1,416 (18) (745) (2,704) (643)
Other Investments Net 928 (6,246) (409) 4,110 6,553 2,750
Errors and Omissions 978 (48) (287) (3,181) (2, 813) (2,483)
Overall Balance (156) (2,848) (1,430) (300) 445 (407)
</TABLE>
IMF, International
Financial Statistics,
September 1998
Exchange Rates
The following table shows the exchange rate of the escudo relative to
the US dollar at the end of each year and the average for the year. The percent
of depreciation or appreciation is also shown.
<TABLE>
<CAPTION>
Value of Escudo Relative to US$
End of Period Change Relative to US$ Average Change Relative to US$
------------- ---------------------- ------- ----------------------
<S> <C> <C> <C> <C>
1986 146.12 149.59
1987 129.87 12.5% 140.88 6.2%
1988 146.37 -11.3% 143.95 -2.1%
1989 149.84 -2.3% 157.46 -8.6%
1990 133.60 12.2% 142.56 10.5%
1991 134.18 -0.4% 144.48 -1.3%
1992 146.76 -8.6% 135.00 7.0%
1993 176.81 -17.0% 160.80 -16.0%
1994 159.09 11.1% 165.99 -3.1%
1995 149.41 6.5% 151.11 9.9%
1996 156.39 -4.5% 154.24 -2.0%
1997 183.33 -14.7% 175.31 -12.0%
1998 171.83 6.7% 180.10 -2.7%
</TABLE>
IMF, International Financial Statistics, February 1999
72
<PAGE>
III. SPANISH AND PORTUGUESE MARKET INFORMATION
The Spanish Securities Markets
In 1988 the Securities Market Act (known by its Spanish acronym as LMV)
established the framework for the operation of the securities markets in Spain.
The securities markets, and all market participants are supervised by the
National Securities Market Commission ("Comision Nacional del Mercado de
Valores" or "CNMV"), an independent public entity, and the key institution of
the Spanish securities markets. Each of the four Spanish stock exchanges is
managed by a managing company ("Sociedad Rectora"), a private limited liability
company formed and owned by the authorized dealers and broker-dealers
("sociedades de valores" and "agencias de valores") that are members of the
relevant stock exchange. Each managing company is in turn an equal member of
another company, the "Stock Exchange Company" ("Sociedad de Bolsas"), the main
function of which is to oversee the Automated Quotation System, which is the
computerized system through which trading in equity securities on the Spanish
stock exchanges takes place primarily.
Shares (equity securities), government securities, bonds, treasury bills
and other financial instruments are traded on the exchanges. All transactions
must be effected through an official dealer or broker-dealer member of the
relevant stock exchange, except in certain exceptional cases. Brokerage
commissions are freely fixed by the dealers and broker-dealers. However, they
are overseen by the CNMV, and have to be publicly published. In order for
securities to be listed for trading on any exchange, the authorization of the
relevant exchange is required. Additionally, trading on the Automated Quotation
System requires previous listing on at least two Spanish stock exchanges, and
authorization of the CNMV with a favorable report of the Stock Exchange Company.
Spanish legislation establishes rules for the exchanges with respect to listing
and disclosure requirements, including examinations of financial statements.
Equity Markets. Securities are traded on the four exchanges via the
Automated Quotation System ("AQS"), which presently exists in conjunction with
the traditional oral trading on the floor of the exchange. AQS accounts for
almost 90% of all trades. The principal feature of the AQS is the computerized
matching of buy and sell orders at the time of entry of the order. Each order is
executed as soon as a matching order is entered, but can be modified or canceled
until executed.
In a pre-opening session held from 9:00 a.m. to 10:00 a.m. each trading
day, an opening price is established for each security traded on the AQS based
on orders placed at that time. The computerized trading hours are from 10:00
a.m. to 5:00 p.m. (except for some less liquid securities which trade only at
12:00 p.m. and 4:00 p.m.) during which time the trading price of a security is
permitted to vary up to 15% (or 20% with the authorization of the Stock Exchange
Company) of the previous trading day's closing price. If the quoted price
exceeds this limits, trading in the security is suspended until the next trading
day.
Between 5:00 p.m. and 8:00 p.m., trades may occur outside the
computerized system without prior authorization of the Stock Exchange Company,
at a price within the range of 5% above the higher of the average price and
closing price for the day and 5% below the lower of the average price and
closing price for the day, if there are no outstanding bids or offers, as the
case may be, on the system matching or bettering the terms of the proposed
off-system transaction, and if the trade involves more than Ptas. 50 million and
more than 20% of the average daily trading volume of the stock during the
preceding three months. In certain cases, at any time before 8:00 p.m., trades
may take place (with the prior authorization of the Stock Exchange Company) at
any price.
The Madrid exchange is the fourth most active in turnover terms in the
European Union after London, Frankfurt and Paris. Based on market
capitalization, the Madrid exchange, valued at $235.1 billion at the end of
1997, ranked twelfth among the exchanges of the world. Market capitalization and
trading value for the past five years are given below:
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<PAGE>
Madrid Stock Exchange
Mkt Cap Trading Mkt Cap Trading
No. of Cos. Listed ECU Billions US $ Billions
------------------- ------------ -------------
1992 400 80.3 64.6 61.9 49.8
1993 379 125.5 99.9 107.1 85.2
1994 378 122.5 132.1 103.1 111.1
1995 366 137.9 120.9 105.4 92.4
1996 361 190.2 182.5 150.0 143.9
1997 388 266.6 376.3 235.1 331.8
Bolsa de Madrid, Key Figures, January 1998
The most traded shares are shown below:
Most Traded Shares in 1998
<TABLE>
<CAPTION>
Company Sector Mil. Ptas. Mil. $
------- ------ ---------- ------
<S> <C> <C> <C>
Telefonica Communications 8,364,625 19,089
Endesa Utilities 5,060,329 10,763
B. Santander Banking 4,012,325 5,993
Banco Bilbao Vicaya Banking 3,972,166
Argentaria Banking 2,688,354 17,995
Repsol Petroleum 2,583,703 17,294
Iberdrola Utilities 1,871,903 12,530
Baco Central Hispano Banking 1,753,348 11,736
BancoPopular Banking 1,168,393 7,821
Tabacalera Food, Beverage and
Tobacco 1,162,205 7,779
</TABLE>
Source: Bolsa Madrid
Stock Indexes. The main stock price indexes are the Madrid General
Index, the Total Index and the Ibex-35. The Madrid General Index reflects the
increase or decrease in share prices and is corrected for dividends and capital
increases. It has been published since December 1940 and as of 1986 the base has
been December 31, 1985=100. The Total Index measures the overall profitability
of shares based on the price performance, capital increases and dividends
reinvested. It is an indicator of total return. The index is based on December
31, 1985=100. The Ibex-35 index, made up of the 35 most liquid shares that trade
on the continuous market, acts as the underlying asset for the trading of
futures and options on indexes. The index is not corrected for dividends and the
base is December 31, 1989=3000. It has been called Ibex-35 since January 1991;
prior to that time it was known as Fiex. The following table shows the three
indexes for the period 1987-1998.
74
<PAGE>
<TABLE>
<CAPTION>
Madrid Stock Price Indexes (End of Year)
Madrid General Percent Madrid Total Percent Ibex-35 Percent
Index^1 Chg. Index^1 Chg. Index^2 Chg.
------- ---- ------ ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1989 296.6 8.1% 336.8 11.2% 3,000.0 10.0%
1990 223.3 -24.7% 260.9 -22.5% 2,248.8 -25.0%
1991 246.2 10.3% 299.9 14.9% 2,603.3 15.8%
1992 214.3 -13.0% 277.8 -7.4% 2,344.6 -9.9%
1993 332.8 55.3% 433.0 55.9% 3,615.2 54.2%
1994 285.0 -14.4% 393.0 -9.2% 3,087.6 -14.6%
1995 320.1 12.3% 454.7 15.7% 3,630.8 17.6%
1996 444.8 39.0% 649.8 42.9% 5,154.8 42.0%
1997 632.5 42.2% 944.7 45.4% 7,255.3 40.7%
1998 867.8 37.2% 1,317.5 39.5% 9,836.6 35.6%
</TABLE>
- -------------------
1 12/21/85=100
2 12/31/89=3000
Bolsa de Madrid, Fact Book 1997 and Financial Times, January 4, 1999
New Listing of Equity Securities. In order to be eligible for listing on
any of the Spanish stock exchanges, companies are required to meet certain
requirements, including the following:
(i) General requirements:
- The company must comply with all the rules and
regulations to which it is subject; including its own
memorandum and articles of association.
- The annual company accounts, and if applicable, the
consolidated group accounts, must be audited.
However, exceptions to this requirement may be
granted in certain cases.
- The securities must be freely transferable.
- The securities must be registered in book-entry form
("anotaciones en cuenta").
(ii) Specific requirements for shares:
- The company must have a minimum share capital of
Pesetas 200 million (without taking into account
shareholdings over 25%).- The company must have
enough profits (after tax) to distribute a dividend
of at least 6% of the paid up share capital in the
previous two years or in three non-consecutive years
of the previous five (although no actual distribution
is required). However, exceptions to this requirement
may be granted in certain cases.
- There must be at least 100 shareholders owning
individual interests in the company of less than 25%
of its share capital.
Debt Market. The debt instruments principally traded in the Spanish
markets are treasury bills ("Letras del Tesoro"), treasury promissory notes
("Pagares del Tesoro"), and state bonds and debt instruments ("Bonos y
obligaciones del Estado"), a mixture of short, medium and long-term instruments.
75
<PAGE>
These public debt securities, and also those issued by Autonomous
Communities (i.e., territorial political sub-divisions of the Spanish State) and
local authorities, are primarily traded in the Public Debt Market ("Mercado de
Deuda Publica en Anotaciones") which operates through a book-entry system run by
the Bank of Spain. The Bank of Spain is empowered to supervise and control the
Public Debt Market, Public debt represented by book entry can also be traded on
the Spanish stock exchanges.
The "AIAF" fixed-yield wholesale securities market is an organized but
unofficial wholesale market of securities. This market is sponsored by a private
entity ("AIAF"), governed by its own supervisory body in accordance with its
rules, and under the supervision of the CNMV. Several fixed-yield securities
which could also trade on the Spanish stock exchanges trade on this market.
The capitalization of fixed-income securities has been gradually
declining while trading has risen sharply. The explanation lies in the fact that
as of 1993 the book-entry debt of the State and regional governments has been
traded via the Bolsa de Madrid's electronic system, however capitalization of
this debt is not included in that of public sector securities on the Bolsa.
Trading and capitalization of fixed-income securities is shown below.
Fixed-Income Securities
Mkt Cap Trading
(Bil. Ptas.) (Bil. US$) (Bil. Ptas.) (Bil. US$)
------------ ---------- ------------ ----------
1992 4,332 42.3 922 9.0
1993 4,371 34.3 1,758 13.8
1994 3,832 28.6 4,488 33.5
1995 3,532 28.3 4,274 34.3
1996 3,334 26.3 9,540 75.3
Bolsa de Madrid
Futures and Options Market. The futures and options markets are
organized by the holding company Mercado Espanol de Futuros Financieros (MEFF).
MEFF's subsidiary, MEFF Renta Variable, based in Madrid, manages the trading of
options and futures on the Ibex-35 stock index and individual options on certain
shares. MEFF Renta Fija, based in Barcelona, manages the trading of futures and
options on interest rates.
Spanish Foreign Exchange Control
Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Spain in consultation with
the banks authorized to conduct foreign exchange business. Purchases and sales
by bank transfers of foreign currencies are centralized at the Bank of Spain,
which publishes the rates at which it settles transactions.
Foreign investors may freely invest in shares of Spanish companies and
need only obtain prior verification or authorization from the Ministry of
Economy in certain cases. Foreign non-European Union governments, state-owned
entities and state-controlled entities are required to obtain specific consent
from the relevant Spanish authorities to make capital investments in Spain.
Payments and collections derived from foreign investments in Spain are
liberalized, but certain formalities have to be fulfilled and specific
information must be supplied, in certain cases, to the Spanish exchange control
authorities. Generally payments must be channeled through licensed credit
entities.
Spanish Public Finance, State Revenue and Taxation
Each year, the Ministry of Economy and Finance, in collaboration with
other Government Ministries, prepares the State Budget and summary budgets for
autonomous public agencies and the social security system. After submission to
the
76
<PAGE>
Council of Ministers, the budget is presented for approval to parliament. If the
budget is not finally approved by January 1 of each year, the budget of the
previous year is automatically extended.
Spain has a fairy complex tax system with a wide range of direct and
indirect taxes applicable to both individuals and businesses. The majority of
Spanish taxes are imposed by the State, although certain taxes are levied by
local governments. Certain Autonomous Communities, namely the Basque Country and
Navarra, have a particular tax system adopted by their respective local
legislative bodies within the framework of the State tax system.
The Spanish Monetary and Banking System
Government regulation of the Spanish banking industry is administered
by the Bank of Spain, a public law entity which operates as the Spanish
autonomous central bank. In addition, it has the ability to function as a
private bank. Except in its performance of public functions, the Bank of Spain's
relations with third parties are governed by general private law and its actions
and omissions subject to the civil and commercial codes.
Among other responsibilities, the Bank of Spain is responsible for
determining and executing monetary policy with the primary goal of attaining
price stability (while the Bank of Spain's monetary policy must support the
general financial policy of the government, it is not subject to instructions
from the Government or the Ministry of Economy and Finance), maintaining,
administering and managing foreign exchange and precious metal reserves in order
to execute the rate of exchange policy formulated by the Government, promoting
stability, good performance and operation of the financial payment systems,
issuing Spanish currency, rendering treasury services to the Spanish Treasury
and to the Autonomous Communities, and rendering services related to public debt
of the State and the Autonomous Communities
In addition, the Bank of Spain exercises general supervisory control
over all Spanish credit institutions and is entrusted with certain supervisory
powers over Spanish banks, subject to rules and regulations issued by the
Ministry of Economy and Finance. The "Fondos de Garantia de Depositos", which
operate under the guidance of the Bank of Spain, guarantee bank and savings bank
deposits up to EURO 15,000 per depositor. The minimum covered amount for all
European Union member banks will be increased to EURO 20,000 after December 31,
1999.
Spanish Credit Entities
The commercial banking sector in Spain is dominated by four Spanish
banking groups, which, based on statistics of the Spanish Banking Association,
accounted for approximately 68.5% of total deposits at commercial banks at
December 31, 1996.
Spanish savings banks also represent an important source of competition
for retail deposits, mortgage loans and other retail banking products and
services. Since 1988, Spanish savings banks, which have traditionally been
regional institutions, have been permitted to open branches and offices through
Spain. The savings banks are divided into "Cajas de Ahorro", which are partially
controlled by local governments, and "Cajas Rurales", which specialize in the
agricultural sector.
Law 3/1994, of April 14, 1994 conforms Spanish law to the European
Unions' Second Banking Coordination Directive (89-646) (the "Second Banking
Directive") by providing that any financial institution incorporated in and
authorized to conduct business in another member state of the European Union
will be permitted to conduct business in Spain either through branches in Spain
or on a cross-border basis following certain procedures.
Likewise, the European Union's Investment Services Directive No.
93/22/CE has recently been implemented in Spain by means of the Law 37/1998, of
November 16, 1998. It will affect financial services in Spain by permitting any
brokerage house incorporated and authorized to operate in the European Union,
subject to certain requirements and formalities, to offer its services in Spain
without first obtaining a domestic license.
77
<PAGE>
The Portuguese Securities Markets
Background and Development. The Portuguese securities markets
officially opened at the turn of the century with the establishment of the
Oporto Stock Exchange and the Lisbon Stock Exchange (the "Stock Exchanges"). The
Stock Exchanges were closed in 1974 and were reopened in the late 1970s, but it
was not until 1987, when the Portuguese Government passed additional laws
designed to stimulate the capital markets, that activity on the Stock Exchanges
increased substantially. The 1987 legislation consisted mainly of tax
incentives, the relaxation of listing and issuing requirements and a reduction
in limitations on foreign investment.
A series of legislative measures designed to reform the Stock Exchanges
was implemented in July 1991, including the transfer of their ownership from the
Portuguese Government to the brokers and dealers acting on the Stock Exchanges.
In addition, the 1991 legislation (i) established an independent regulatory
authority over the securities market, the Comissao do Mercado de Valores
Mobiliarios (the "CMVM"), to supervise the securities markets, (ii) established
a framework for the regulation of trading practices, tender offers and insider
trading, (iii) required members of the Stock Exchanges to be corporate entities,
(iv) required companies listed on the Stock Exchanges to file annual audited
financial statements and to publish semi-annual financial information, (v)
established a framework for integrating quotations on the Stock Exchanges by
computer, and (vi) provided for the transfer of shares by book-entry.
Equity securities are currently listed only on the Lisbon Stock
Exchange. The Lisbon Stock Exchange is regulated by the Ministry of Finance and
the CMVM. Shares were traded on the Oporto Stock Exchange until May 1994, when
it was closed in preparation for the introduction of the trading of derivative
securities. Trading on the Oporto Stock Exchange is now limited to derivative
instruments.
The official market index of the Lisbon Stock Exchange, published since
February 1991 (the "BVL General Index"), is a weighted average price of shares
listed on the Official Market of the Lisbon Stock Exchange. The exact number of
companies in the index's portfolio may change each day because of new
admissions, exclusions, suspensions and the absence of quotations. Since January
1993, the Lisbon Stock Exchange has calculated a sub-index of the 30 most
frequently traded shares listed on the Official Market, which includes the
Ordinary Shares, and their market capitalization (the "BVL 30"). Two Portuguese
banks, Banco Totta & Acores, S.A. and Banco Portugues do Atlantico, S.A., also
calculate stock market indices.
Regulation of the Exchanges. Each of the two Portuguese stock exchanges
(Lisbon Stock Exchange and Oporto Stock Exchange) is managed by a managing
company ("Associacao de Bolsa"), a private limited liability association formed
and owned by the authorized dealers and brokers ("sociedades financeiras de
corretagem" and "sociedades de corretagem") that are members of the relevant
stock exchange.
The securities markets, and all market participants are supervised by
the Securities Market Commission ("Comissao do Mercado de Valores Mobiliarios"),
an independent public entity.
Shares (equity securities), government securities, bonds, treasury
bills, and other financial instruments are traded on the Lisbon Stock Exchange.
Trading in the Oporto Stock Exchange is now limited to derivative products.
Market Activity. The market capitalization of all securities traded on
the LSE at the end of 1997 was 14,388,729 million escudos or $78,487 million. Of
this total bonds accounted for $38,798 million or 49.4%; stocks, $39,065 million
or 49.8% and other securities, such as participation bonds, investment trust
units and rights, $624 million or 0.8%. The LSE is one of the smaller stock
markets among the developed markets. In terms of the Morgan Stanley Capital
International list of developed markets, Portugal ranked 21 out of 23 in market
capitalization at the end of 1997. Only the Austria and New Zealand stock
markets had smaller capitalizations.
78
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The following table shows the market capitalization of securities on
the LSE in the various markets as of the end of 1997.
Mil Esc. Mil. US$ % Distribution
-------- -------- --------------
Official Market 13,667,609 74,554 95.0%
Bonds 6,558,200 35,773
Stocks 7,007,975 38,227
Other* 101,434 553
Second Market 597,954 3,262 4.2%
Bonds 553,528 3,019
Stocks 44,426 242
Market without 123,167 672 0.9%
Quotations
Bonds 996 5
Stocks 109,268 596
Other 12,903 70
Subtotal 14,388,728 78,487 100.0%
Addendum:
Bonds 7,112,723 38,798 49.4%
Stocks 7,161,669 39,065 49.8%
Other 114,337 624 0.8%
14,388,729 78,487 100.0%
* Participation bonds, Investment Trust Units and Rights of
bonds, warrants and shares.
Bolsa de Valores de Lisboa: Nota Informativa 1997
Trading in 1997 of all securities amounted to 6,450,409 million escudos
or $36,794 million. Approximately 90% of the trades took place on the Official
Market. Trading in stocks accounted for 63.7% of all trades.
79
<PAGE>
The following table shows the value of trading on the three main
markets in 1997 and for both normal and special sessions.
Lisbon Stock Exchange: Value of Trading in 1997
Mil Esc. Mil. US$ % Distribution
-------- -------- --------------
Normal Sessions
Official Market 5,812,687 33,156 90.1%
Bonds 2,175,717 12,411
Stocks 3,598,606 20,527
Other* 38,364 219
Second Market 128,363 732 2.0%
Bonds 102,061 582
Stocks 26,302 150
Market without 68,410 390 1.1%
Quotations
Bonds 2,131 12
Stocks 45,727 261
Other 20,552 117
Subtotal 6,009,459 34,279 93.2%
Special Sessions
Stocks 440949 2,515 6.8%
Grand Total 6,450,408 36,794
Addendum:
Bonds 2,279,909 13,005 35.3%
Stocks 4,111,584 23,453 63.7%
Other 58,916 336 0.9%
6,450,409 36,794 100.0%
* Participation bonds, Investment Trust Units and Rights of
bonds, warrants and shares.
Bolsa de Valores de Lisboa: Nota Informativa 1997
Stocks. Both market capitalizations and trading values of stocks have
grown rapidly in recent years. The following table showing recent history of the
growth of capitalization and trading value of stocks includes the dramatic rise
in trading that took place in 1997.
Lisbon Stock Exchange
Market Capitalization Trading Value
--------------------- -------------
No. Of Cos. (bil escudos) (bil US $) (bil escudos) (bil US $)
----------- ------------- ---------- ------------- ----------
1987 143 1,150.3 8.9 213.9 1.5
1988 171 1,052.3 7.2 163.4 1.1
1989 182 1,588.4 10.6 300.4 1.9
1990 181 1,257.2 9.4 240.4 1.7
1991 180 1,284.3 9.6 406.2 2.8
1992 191 1,353.6 9.2 467.3 3.5
1993 183 2,193.0 12.4 780.3 4.9
1994 195 2,586.8 16.3 874.6 5.3
1995 169 2,743.1 18.4 634.1 4.2
1996 170 3,828.4 24.5 1,102.6 7.1
1997* 159 7,161.7 39.1 3,670.6 20.9
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* Data are for Normal Sessions. In 1997 trading value, including
Special Session, was 4,11.6 bil escudos or $23.5 bil.
Lisbon Stock Exchange
Stock Price Indexes. The BVL (Bolsa de Valores de Lisboa) Index has
been the official market index of the LSE since February 18, 1991. It has a base
of 1000 at January 5, 1988 and includes all listed shares on the LSE official
market. The exact number of companies in the index can change daily as a result
of admissions, exclusions, suspensions and the absence of quotations. On January
11, 1993, the LSE began to calculate the BVL 30. This index, based on January 4,
1993=1000, includes the shares of 30 companies listed on the main market and is
weighted by their market capitalization and liquidity. These indexes are shown
below in the following table:
Stock Price Indexes
BVL General Index (January 5, 1988=1000)
<TABLE>
<CAPTION>
High Date Low Date Close %Chg.
---- ---- --- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1988 1,145.10 8-Jan 670.70 21-Oct 722.85
1989 1,041.59 24-Oct 691.11 22-Jun 951.91 31.7%
1990 953.76 4-Jan 627.57 5-Dec 638.30 -32.9%
1991 747.69 18-Mar 605.66 16-Jan 623.63 -2.3%
1992 651.63 11-May 541.60 20-Oct 553.71 -11.2%
1993 848.54 31-Dec 537.20 13-Jan 848.54 53.2%
1994 999.46 18-Feb 801.57 20-Jun 919.95 8.4%
1995 933.32 12-May 842.31 22-Nov 877.69 -4.6%
1996 1,163.54 31-Dec 877.17 2-Jan 1,163.54 32.6%
1997 1,922.72 31-Dec 1,163.47 2-Jan 1,922.72 65.2%
1998* 3,162.51 22-Apr 1,863.70 10-Oct 2,427.33 26.2%
BVL 30 Index (January 4, 1993=1000)
High Date Low Date Close %Chg.
---- ---- --- ---- ----- -----
1993 1565.16 31-Dec 980.14 13-Jan 1565.16
1994 1863.53 18-Feb 1447.56 20-Jun 1699.54 8.6%
1995 1740.05 12-May 1529.44 22-Nov 1605.30 -5.5%
1996 2165.92 30-Dec 1602.81 2-Jan 2164.50 34.8%
1997 3781.31 29-Dec 2165.57 2-Jan 3757.27 73.6%
1998 6176.89 22-Apr 3599.08 2-Oct 4794.70 26.2%
</TABLE>
Lisbon Stock Exchange.
Stock prices began to rise sharply in 1997 when it became likely that
Portugal might be included in the early admittance to EMU. The rise has
continued and on March 26, the day after the European Commission recommended
Portugal's inclusion in EMU, the BVL 30 was 5556.77 or 47.9% above the close of
1997. Prices have subsequently declined and the index was 3747.89 on October 6,
1998.
The Oporto Stock Exchange has recently launched the PSI-20 which is
made up of the 20 most representative Portuguese official market issues. It aims
to serve a reliable benchmark for the national equity market and to facilitate
the introduction of derivatives based on a single indicator for the equity
market.
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Most Actively Traded Stocks. The ten most actively traded stocks on the
official market in 1997 are shown below. These ten stocks accounted for 73% of
trading on the official market.
<TABLE>
<CAPTION>
No of Shares Value of Trading
(Millions) (Mil Esc.) Mil. US$)
---------- ---------- ---------
<S> <C> <C> <C>
Portugal Telecom 100 692,198 3,948
EDP-Nominativas 140 446,148 2,545
BCP Nom. e Porta. Reg 95 312,992 1,785
CIMPOR-Cim.Port.SGPS-Nom 69 285,910 1,631
Telecel-Com.Pessoais-Nom 17 240,688 1,373
Banco Espirito Santo (BESCL)Nom Port.Reg 38 161,935 924
Sonae Invest.-SGPS 23 150,396 858
Banco Portugues de Investimento (BPI) 37 124,434 710
Banco Totta & Acores (BTA)-Nom.Port.Reg. 40 122,265 697
Jeronimo Martins & Filho-SGPS 9 91,630 523
Total of above 567 2,628,596 14,994
Grand Total 1,001 3,598,606 20,527
Percent of Grand Total 56.6% 73.0% 73.0%
</TABLE>
Bolsa de Valores de Lisboa: Nota Informativa 1997
Price-to-earnings and price-to-book ratios and dividend yields of
Portuguese stocks in the Internal Finance Corporation's Global Indexes are as
follows:
Portugal: IFC Global Index
End of P/E Ratio P/BV Ratio Dividend Yield %
1987 22.6 5.4 1.3
1988 18.0 3.7 1.3
1989 19.0 3.4 1.9
1990 11.8 1.7 2.7
1991 10.9 1.3 3.7
1992 9.0 1.0 4.7
1993 18.0 1.7 2.9
1994 20.3 1.8 3.2
1995 14.8 1.4 3.3
1996 18.1 1.7 2.3
1997 22.9 3.1 1.7
1998 20.7 2.9 2.2
IFC: Emerging Markets Data Base, and Morgan Stanley
Capital International, December 1998.
Equity Market Trading. Listed securities for both exchanges are divided
into three sections. The "Market With Official Quotations" section allows for
the listing of bonds, shares and other securities which meet certain specific
requirements established by the Securities Market Commission, the most important
of which being a significantly diversified
82
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shareholding. The "Second Market" section and the "Market Without Official
Quotation" section include the securities of issuers that do not satisfy the
requirements for listing on the Market with Official Quotations.
Prior to 1991, all shares were traded by an open-outcry procedure;
prices were fixed once or twice a day at the market-clearing price for all bids
and offers tendered. The Official Market, created in July 1991, is a nationwide
market in which most Portuguese securities having the greatest market
capitalization are listed.
In September 1991, the Continuous Trading System, designed to provide
automatic execution of orders and continuous trading through Tradis, a
computerized trading system, was introduced. As of December 31, 1995, all of the
77 equity securities listed on the "Market With Official Quotations" were traded
through the Continuous Trading System. All other securities continue to trade by
the traditional open-outcry procedure, but it is currently planned that they
will be gradually introduced to the Continuous Trading System.
The Continuous Trading System linked the Stock Exchanges prior to the
closure of the Oporto Stock Exchange. The principal feature of the Continuous
Trading System is the computerized matching of buy and sell orders based, first,
on matching sales price and, second, on the time of entry of the order. Each
order is executed as soon as a matching order is entered, but can be modified or
canceled up to execution.
From 9:00 a.m. to 10:00 a.m. on each trading day (from Monday to Friday
excluding public holidays), an opening market clearing price is established for
each security on the Continuous Trading System based on the bids and offers
outstanding.
On any trading day, such opening price may not change more than 30%
from the most recent closing price. If a security has not traded within the
immediately preceding four trading days, the opening price will be fixed by the
market without restriction. Computer matched trading then proceeds on the
Continuous Trading System from 10:00 a.m. until 4:00 p.m. During such time, each
price may not change more than 5% from the prior executed price without a
temporary suspension to reset the market-clearing price.
At present, there are no official market makers or independent
specialists in the Continuous Trading System and therefore orders to buy or sell
in excess of corresponding orders to sell or buy will not be executed.
Only selected brokers and dealers may effect stock exchange
transactions. The market is served by 12 dealers, who may buy and sell for their
own accounts and eight brokers. All trades on the Lisbon Stock Exchange,
including through the Continuous Trading System, must be placed through a
brokerage or a dealer firm. Stock prices are quoted directly in Escudos per
share. Any trading of stock listed on the Continuous Trading System that takes
place off-the-market (i.e., those shares that are not traded during the 10:00
a.m. to 4:00 p.m. trading hours referred to above) must be cleared through
financial institutions.
Pursuant to Portuguese law, dividends are paid to shareholders of
record as of the date established for payment. In order to effect such payment
by means of Portugal's book-entry clearance and settlement system, under current
practice, trading of Shares will be suspended for the four business days
preceding any such dividend payment date.
Clearing and Settlement. One of the most important aspects of the
reform of the Portuguese securities market has been the creation of the Central
de Valores Mobiliarios (the "CVM"), the Portuguese central securities
depositary, the creation of the Sistema de Liquidcao de Ambito Nacional (the
"National Clearing and Settlement System"). Both organizations are owned and
managed by Interbolsa, a non-profit organization owned by the Stock Exchange
Associations of Lisbon and Oporto. The CVM provides a system for the
registration and control of securities, including custody of certificates of
securities and registration of book-entry securities.
The National Clearing and Settlement System is currently the most
commonly used clearing and settlement system in Portugal. Under this system, the
broker inputs trade information on Tradis, the nationwide computerized trading
system. The custodian bank accepts the trade, at the latest, one day after the
date of the trade, becoming the legal party to the transaction until it settles.
At the end of the third day after the trade, the electronic book-entry for the
transfer of the securities takes place
83
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in the books of the Bank of Portugal (the "Central Bank"). This physical
settlement is provisional until financial settlement takes place on the morning
of the fourth day after the trade. The net amount due to or from each
participant's account with the Central Bank is posted to the closing balance of
the previous day. Under Portuguese law, physical and financial settlement of a
trade of a security must take place before any further transaction with respect
to such security may be effected. Accordingly, short selling is not permitted.
Listing of Equity Securities. In order to be eligible for listing on
the Lisbon Stock Exchange -- Market with Official Quotations, companies are
required to meet certain requirements.
General Requirements:
- the company must comply with all the rules and regulations to
which it is subject, including its own memorandum and articles
of incorporation;
- the company's annual accounts for the three years preceding
the listing must have been published;
- the company must have at least two years of activity;
- the securities must be freely transferable, and
- the listing must include all the securities of the same kind.
Specific requirements for shares.
- the expected market capitalization must be at least Escudos
500 million;
- 25% of the shares or, at least, 500,000 shares of the same
category, should be held by the public;
and
- the company must have an adequate financial and economic
position.
Portuguese Exchange Rates, Exchange Control and Other Policies Affecting
Security Holders
Official buying and selling rates for major trading and certain other
specified currencies are fixed daily by the Bank of Portugal in consultation
with the banks authorized to conduct foreign exchange business.
Since January 1, 1993, there have been no exchange controls imposed on
the Escudo by the Portuguese Government. In connection with certain currency
transactions, some formal requirements must be fulfilled and specific
information must be supplied, in certain cases, to the Bank of Portugal.
Foreign investors may freely invest in shares of Portuguese companies
and need no prior verification or authorization with the Portuguese authorities.
In certain cases, information reporting to the supervisory authorities is
required. Some non-European Union regulated entities, such as banks, financial
companies and insurance companies, need prior authorization from the Portuguese
authorities to operate in Portugal.
As Portuguese regulations conform with EU's second Banking Coordination
Directive (86/646) and the Investment Services Directive, N(degree)93/22/CE, any
financial institution incorporated in and authorized to conduct business in
another member state of the EU will be permitted to conduct business in
Portugal.
Monetary and Banking System. Portuguese banking and monetary policy is
administered by the Bank of Portugal, a public law entity that operates as
Portugal's autonomous central bank. Except in its performance of public
functions, the Bank of Portugal's relations with third parties is governed by
private law and its actions are subject to the civil and commercial law codes.
84
<PAGE>
Among other responsibilities, the Bank of Portugal is responsible for
determining and executing monetary policy with the main purpose of attaining
price stability (not being subject to instruction from the Government),
maintaining, administering and managing foreign exchange and precious metal
reserves of Portugal, promoting stability, good performance and operation of the
financial payment system, issuing Portuguese currency, rendering treasury
services to the Portuguese treasury and rendering services related to public
debt to the State.
In addition, the Bank of Portugal exercises, general supervisory
control over all Portuguese credit institutions (including Banks) and financial
companies and may issue regulations concerning financial activities.
85
<PAGE>
IV. SPAIN AND PORTUGAL AND THE EUROPEAN MONETARY UNION
Spain and Portugal, along with Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg and the Netherlands formed the European
Monetary Union (EMU) on January 1, 1999, with the Euro as the single currency.
During the weekend of May 1-3, 1998, the fixed bilateral rates of exchange among
the participating countries were established. These fixed rates established the
following values of each currency in terms of the Euro, as shown in the
following table:
Currency per Euro
Australian Schilling 13.76
Belgium Franc 40.34
Finnish Markka 5.95
French Franc 6.56
German DM 1.96
Irish Punt .79
Italian Lira 1936.28
Netherlands Guilder 2.20
Portuguese Escudo 200.48
Spanish Peseta 166.39
The Euro will be used as a unit of account, but the actual Euro notes
and coins will not circulate until January 1, 2002. Until that time, the
national currencies of the 11 countries will be used and will be interchangeable
among themselves at the established fixed rates. Exchange rates of the
currencies of the 11 countries with currencies outside the EMU will depend on
the value of the Euro itself in the foreign exchange markets. On January 4,
1999, the first trading day of the Euro, it was worth 1.18 dollars. As of
February 11, 1999, it was worth 1.13 dollars. Thus, the Spanish peseta fell from
141.0 to the dollar on January 4, 1999, to 147.3 to the dollar on February 11,
1999. Similarly, the Portuguese escudo fell from 169.9 to 177.4 to the dollar.
Financial markets will largely change over to the Euro at an early
stage. However, most private individuals and many companies are likely to
continue to operate in the national currencies. During the period from January
1, 1999 to January 2002, there is no prohibition against changing to Euro, nor
compulsion to do so.
Just as there will be a single currency, there will be a single
monetary policy. The European System of Central Banks (ESCB), which is a system
that comprises the national central banks of the countries participating in EMU
and the European Central Bank, will behave like a single central bank. All the
instruments of monetary policy will be uniform and will be used in a uniform way
on the basis of decisions taken at the center. According to Article 105 of the
Maastricht Treaty, the ultimate objective of ESCB's monetary policy is the
maintenance of price stability in the monetary union. Moreover, the member
countries have agreed to the Stability and Growth Pact, which is intended to
limit the profligate use of fiscal policy. Under the terms of the Pact, the
member countries have greed to keep their budget deficit/GDP ratios to a maximum
of 3%. Each 1% over 3% incurs a fine equal to 0.1% of GDP - maximum of 0.5% of
GDP for a 6% deficit. No fines will apply in exceptional circumstances, i.e.,
natural disasters and recessions. The fine is paid only if the deficit is
sustained for two years.
The loss of an independent monetary policy and restraints on the use of
fiscal policy under EMU may complicate government policy if economic trends in
all of the countries are not synchronized. Spain and Portugal, countries that
have had periods of high inflation, may be particularly vulnerable.
86
<PAGE>
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
<S> <C>
(a)(1)
Articles of Incorporation dated October 1, 1997.
(Incorporated by reference to Registrant's Registration Statement
on Form N-1A which was filed on October 3, 1997.)
(a)(2) Articles of Amendment dated December 23, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(a)(3) Articles Supplementary Establishing the Growth Fund of Spain.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)
(b) By-laws.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(c) Specimen Share Certificate.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(d)(1) Investment Management Agreement between the Registrant, on behalf of Kemper
Global Blue Chip Fund, and Scudder Kemper Investments, Inc., dated December
31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(d)(2) Investment Management Agreement between the Registrant, on behalf of Kemper
International Growth and Income Fund, and Scudder Kemper Investments, Inc.,
dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(d)(3) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Income Fund, and Scudder Kemper Investments, Inc., dated
December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(d)(4) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Growth Fund, and Scudder Kemper Investments, Inc., dated
December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(d)(5) Investment Management Agreement between the Registrant, on behalf of Kemper
Latin America Fund, and Scudder Kemper Investments, Inc., dated December 31,
1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
1
<PAGE>
(d)(6) Investment Management Agreement between the Registrant, on behalf of Kemper
Global Blue Chip Fund, and Scudder Kemper Investments, Inc., dated September
7, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(d)(7) Investment Management Agreement between the Registrant, on behalf of
Kemper International Growth and Income Fund, and Scudder Kemper Investments,
Inc., dated September 7, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(d)(8) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Income Fund, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(d)(9) Investment Management Agreement between the Registrant, on behalf of Kemper
Emerging Markets Growth Fund, and Scudder Kemper Investments, Inc., dated
September 7, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(d)(10) Investment Management Agreement between the Registrant, on behalf of Kemper
Latin America Fund, and Scudder Kemper Investments, Inc., dated September 7,
1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(d)(11) Investment Management Agreement between the Growth Fund of Spain and Scudder
Kemper Investments, Inc., dated September 7, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(d)(12) Investment Management Agreement between the Registrant, on behalf of the
Growth Fund of Spain, and Scudder Kemper Investments, Inc., dated November
25, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 4,
filed on February 26, 1999)
(e)(1) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc., dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(e)(2) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc., dated August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(e)(3) Underwriting and Distribution Services Agreement between the Registrant and
Kemper Distributors, Inc., dated September 7, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
2
<PAGE>
(f) Inapplicable.
(g)(1) Custodian Agreement between the Registrant and Brown Brothers Harriman &
Co., dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(g)(2) Custodian Agreement between The Growth Fund of Spain, Inc. and Chase
Manhattan Bank, dated January 30, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 4,
filed on February 26, 1999)
(g)(3) Assignment of Custodian Agreement between The Growth Fund of Spain, Inc. and
Chase Manhattan Bank to the Registrant, on behalf of the Growth Fund of
Spain, dated December 11, 1998. To be filed by amendment.
(h)(1) Agency Agreement between the Registrant, on behalf of Kemper Global Blue
Chip Fund, and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(2) Agency Agreement between the Registrant, on behalf of Kemper International
Growth and Income Fund, and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(3) Agency Agreement between the Registrant, on behalf of Kemper Emerging
Markets Income Fund, and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(4) Agency Agreement between the Registrant, on behalf of Kemper Emerging
Markets Growth Fund, and Kemper Service Company, dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(5) Agency Agreement between the Registrant, on behalf of Kemper
Latin America Fund, and Kemper Service Company, dated December 31,
1997.
(Incorporated by reference to Registrant's Post-Effective
Amendment No.1 filed on September 14, 1998.)
(h)(6) Agency Agreement between the Registrant, on behalf of the Growth Fund of
Spain, and Kemper Service Company, dated November 25, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 4,
filed on February 26, 1999)
(h)(7) Supplement to all Agency Agreements.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 4,
filed on February 26, 1999)
(h)(8) Administrative Services Agreement between the Registrant, on behalf of
Kemper Global Blue Chip Fund, and Kemper Distributors, Inc., dated December
31, 1997.
3
<PAGE>
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(9) Administrative Services Agreement between the Registrant, on behalf of
Kemper International Growth and Income Fund, and Kemper Distributors, Inc.,
dated December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(10) Administrative Services Agreement between the Registrant, on behalf of
Kemper Emerging Markets Income Fund, and Kemper Distributors, Inc., dated
December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(11) Administrative Services Agreement between the Registrant, on behalf of
Kemper Emerging Markets Growth Fund, and Kemper Distributors, Inc., dated
December 31, 1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(12) Administrative Services Agreement between the Registrant, on behalf of
Kemper Latin America Fund, and Kemper Distributors, Inc., dated December 31,
1997.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
(h)(13) Administrative Services Agreement between the Registrant, on behalf of
Growth Fund of Spain, and Kemper Distributors, Inc., dated November 25,
1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)
(h)(14) Fund Accounting Services Agreement between the Registrant, on behalf of
Growth Fund of Spain, and Scudder Fund Accounting Corporation, dated
November 25, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)
(h)(15) Fund Accounting Services Agreement Fee Schedule to Fund Accounting
Services Agreement between the Registrant, on behalf of Growth Fund of
Spain, and Scudder Fund Accounting Corporation, dated November 25, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 2
filed on November 27, 1998.)
(h)(16) Agreement and Plan of Reorganization between the Registrant, on behalf of
the Growth Fund of Spain, and The Growth Fund of Spain, Inc, dated September
11, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 4,
filed on February 26, 1999)
(i) Opinion of Counsel
(To be filed by Amendment)
(j) Consent and Report of Independent Auditors.
4
<PAGE>
(To be filed by Amendment)
(k) Inapplicable.
(l) Inapplicable.
(m)(1) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Global Blue Chip
Fund (Class B shares), and Kemper Distributors, Inc. dated August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(2) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Global Blue Chip
Fund (Class C shares), and Kemper Distributors, Inc. dated August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(3) Rule 12b-1 Plan between the Registrant, on behalf of Kemper International
Growth and Income Fund (Class B shares), and Kemper Distributors, Inc. dated
August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(4) Rule 12b-1 Plan between the Registrant, on behalf of Kemper International
Growth and Income Fund (Class C shares), and Kemper Distributors, Inc. dated
August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(5) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Emerging Markets
Income Fund (Class B shares), and Kemper Distributors, Inc. dated August 1,
1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(6) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Emerging Markets
Income Fund (Class C shares), and Kemper Distributors, Inc. dated August 1,
1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(7) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Emerging Markets
Growth Fund (Class B shares), and Kemper Distributors, Inc. dated August 1,
1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(8) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Emerging Markets
Growth Fund (Class C shares), and Kemper Distributors, Inc. dated August 1,
1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(9) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Latin America
Fund (Class B shares), and Kemper Distributors, Inc. dated August 1, 1998.
5
<PAGE>
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(10) Rule 12b-1 Plan between the Registrant, on behalf of Kemper Latin America
Fund (Class C shares), and Kemper Distributors, Inc. dated August 1, 1998.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed on December 29, 1998.)
(m)(11) Rule 12b-1 Plan between the Registrant, on behalf of the Growth Fund of
Spain (Class B shares), and Kemper Distributors, Inc.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 4
filed on February 26, 1999)
(m)(12) Rule 12b-1 Plan between the Registrant, on behalf of the Growth Fund of
Spain (Class C shares), and Kemper Distributors, Inc.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 4
filed on February 26, 1999)
(n) Inapplicable.
(o) Kemper Mutual Funds Multi-Distribution System Plan.
(Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on September 14, 1998.)
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent
6
<PAGE>
Trustees in connection with their consideration of and action with respect to
the Transaction. In addition, Scudder has agreed to indemnify the Registrant and
the Independent Trustees for and against any liability and expenses based upon
any misstatements or omissions by Scudder to the Independent Trustees in
connection with their consideration of the Transaction.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
7
<PAGE>
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.
(b)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President
8
<PAGE>
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Thomas W. Littauer Director, Chief Executive Officer Director and Vice President
Kathryn L. Quirk Director, Secretary, Chief Legal Trustee, Director and Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice
President
Linda J. Wondrack Vice President and Chief Compliance Vice President
Officer
Paula Gaccione Vice President
Michael E. Harrington Vice President
Robert A. Rudell Vice President
William M. Thomas Vice President
Todd N. Gierke Assistant Treasurer
Philip J. Collora Assistant Secretary Vice President and Secretary
Paul J. Elmlinger Assistant Secretary
Diane E. Ratekin Assistant Secretary
Mark S. Casady Director, Vice Chairman President
Stephen R. Beckwith Director
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of the Registrant's investment adviser, Scudder
Kemper Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606; at
the offices of the Registrant's principal underwriter, Kemper Distributors,
Inc., 222 South Riverside Plaza, Chicago, Illinois 60606; in the case of records
concerning custodial functions, at the offices of the custodian, Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109 (for Kemper
Emerging Markets Growth Fund, Kemper Emerging Markets Income Fund, Kemper Global
Blue Chip Fund, Kemper International Growth and Income Fund, and Kemper Latin
America Fund), The Chase Manhattan Bank, Chase MetroTech Center, Brooklyn, New
York 11245 (for Growth Fund of Spain); or, in the case of records concerning
transfer agency and shareholder servicing functions, at the offices of Kemper
Service Company, 811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
9
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 29th day
of December, 1999.
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
By /s/Mark S. Casady
--------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on December 29, 1999 on behalf of
the following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/ James E. Akins
- -------------------------------------------
James E. Akins* Trustee
/s/ James R. Edgar
- -------------------------------------------
James R. Edgar** Trustee
/s/Arthur R. Gottschalk
- -------------------------------------------
Arthur R. Gottschalk * Trustee
/s/Frederick T. Kelsey
- -------------------------------------------
Frederick T. Kelsey * Trustee
/s/Kathryn L. Quirk
- -------------------------------------------
Kathryn L. Quirk* Trustee
/s/Fred B. Renwick
- -------------------------------------------
Fred B. Renwick * Trustee
/s/John G. Weithers
- -------------------------------------------
John D. Weithers* Trustee
- -------------------------------------------
John R. Hebble Treasurer (Principle Financial
and Accounting Officer)
By: /s/Philip J. Collora
-----------------------------
Philip J. Collora
* Philip J. Collora signs this document pursuant to powers of
attorney filed with Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A filed on
September 14, 1998.
** Philip J. Collora signs this document pursuant to powers of
attorney filed herein.
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Caroline Pearson, Maureen E. Kane, and Philip J. Collora and any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement of Kemper
Global/International Series, Inc., a Maryland corporation, on Form N-1A under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and any or all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
DATED: May 27, 1999
-------------------------- /s/James R. Edgar
------------------------------
James R. Edgar
Director
<PAGE>
File No. 811-8395
File No.333-42337
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 5
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 7
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
<PAGE>
KEMPER GLOBAL/INTERNATIONAL SERIES, INC.
EXHIBIT INDEX
To be filed by Amendment.
2
