<PAGE> 1
As filed with the Securities and Exchange Commission on April 27, 1999
1933 Act File No. 333-74911
1940 Act File No. 811-09269
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No. ___
and
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 1
KEMPER FLOATING RATE FUND
Exact Name of Registrant Specified in Charter
222 South Riverside Plaza
Chicago, Illinois 60606
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(312) 781-1121
Registrant's Telephone Number, Including Area Code
Philip J. Collora
Scudder Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Name and Address (Number, Street, State, Zip Code) of Agent for Service
Copies to:
Robert W. Helm, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Suite 1100
Washington, D.C. 20006-2401
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. [X]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
============================================================================================================================
Proposed Maximum
Title of Securities Amount Being Proposed Maximum Offering Aggregate Offering Amount of
Being Registered Registered Price Per Unit(1) Price(1) Registration Fee(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of 200,000 $5.00 $1,000,000 $278
Beneficial Interest (par
value $.01 per share)
============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(2) Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
<PAGE> 2
KEMPER FLOATING RATE FUND
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- ------- ----------------------
<S> <C> <C>
1. Outside Front Cover................................. Front Cover Page
2. Inside Front and Outside
Back Cover Page..................................... Front Cover Page
3. Fee Table and Synopsis.............................. Fund Expenses
4. Financial Highlights................................ Not Applicable
5. Plan of Distribution................................ Front Cover Page; Prospectus Summary;
Offering of Shares; Dividends and
Distributions:
6. Selling Shareholders................................ Not Applicable
7. Use of Proceeds..................................... Prospectus Summary; Use of Proceeds
8. General Description of the Registrant............... Front Cover Page; Prospectus Summary;
Investment Objective and Policies; Risk
Factors and Special Considerations;
Description of the Fund
9. Management.......................................... Prospectus Summary; Investment Management
and Other Services
10. Capital Stock, Long-Term Debt, and Other
Securities.......................................... Front Cover Page; Description of the Fund;
Tax Matters
11. Defaults and Arrears on Senior Securities........... Not Applicable
12. Legal Proceedings................................... Not Applicable
13. Table of Contents of the Statement of Additional
Information......................................... Table of Contents of Statement of
Additional Information
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART B
LOCATION IN STATEMENT OF ADDITIONAL
ITEM NO. CAPTION INFORMATION
- -------- ------- -----------------------------------
<S> <C> <C>
14. Cover Page.......................................... Cover Page
15. Table of Contents................................... Table of Contents
16. General Information and History..................... General Information
17. Investment Objective and Policies................... Investment Restrictions and Fundamental
Policies; Repurchase Offer Fundamental
Policy; Additional Information about
Investments and Investment Techniques
18. Management.......................................... Management
19. Control Persons and Principal Holders of
Securities.......................................... Not Applicable
20. Investment Advisory and Other Services.............. Management; Portfolio Transactions
21. Brokerage Allocation and Other Practices............ Portfolio Transactions; Liquidity
Requirements
22. Tax Status.......................................... Taxation
23. Financial Statements................................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
The information in this prospectus is not complete and may be changed. The Fund
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities.
SUBJECT TO COMPLETION
DATED APRIL 27, 1999
[KEMPER FUNDS LOGO]
KEMPER FLOATING RATE FUND
Kemper Floating Rate Fund (the "Fund") is a newly-organized, non-diversified,
closed-end management investment company that is continuously offered. The
Fund's investment objective is to seek as high a level of current income as is
consistent with the preservation of capital. The Fund seeks to achieve its
objective primarily by investing in interests in adjustable rate senior loans
("Senior Loans"), the interest rates of which float or vary periodically based
upon a benchmark indicator of prevailing interest rates. Senior Loans are
business loans that have a senior right to payment. Senior Loans are often
secured by specific assets of the borrower, although the Fund may also invest in
Senior Loans that are not secured by any collateral. The Fund believes that
investing in Senior Loans should limit fluctuations in net asset value caused by
changes in interest rates. You should, however, expect the Fund's net asset
value to fluctuate as a result of changes in borrower credit quality and other
factors.
To provide liquidity to shareholders, the Fund will make quarterly repurchase
offers for 5% to 25% of its outstanding shares. See "Repurchase of Shares."
INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS AND SPECIAL CONSIDERATIONS,
INCLUDING THE POSSIBLE LOSS OF SOME OR ALL OF THE PRINCIPAL INVESTMENT, RISKS
ASSOCIATED WITH THE FUND'S USE OF BORROWING, AND RISKS ASSOCIATED WITH
INVESTMENT IN SECURITIES THAT ARE RATED BELOW INVESTMENT GRADE, WHICH MAY
INCLUDE CERTAIN OF THE SENIOR LOANS HELD BY THE FUND. SEE "RISK FACTORS AND
SPECIAL CONSIDERATIONS" BEGINNING ON PAGE 22. THE FUND WILL NOT ENGAGE IN
BORROWING TO FINANCE LONG-TERM PORTFOLIO INVESTMENT, BUT MAY BORROW IF NECESSARY
TO SATISFY REPURCHASES, TO FUND COMMITMENTS TO PURCHASE SENIOR LOANS AND TO
MANAGE CASH FLOW.
NO MARKET PRESENTLY EXISTS FOR THE FUND'S SHARES AND IT IS NOT CURRENTLY
ANTICIPATED THAT A SECONDARY MARKET WILL DEVELOP FOR THE FUND'S SHARES. FUND
SHARES MAY NOT BE CONSIDERED TO BE READILY MARKETABLE.
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE. This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. A Statement of
Additional Information dated , 1999 (the "SAI") containing
additional information about the Fund has been filed with the Commission and is
incorporated by reference in its entirety into this Prospectus. A copy of the
SAI, the table of contents of which appears on page 54 of this Prospectus, may
be obtained without charge by contacting the Fund toll-free at 1-800-621-1048.
The SAI and other information about the Fund are also available at the
Commission's website (www.sec.gov).
------------------
<TABLE>
<CAPTION>
PRICE TO PUBLIC(1) SALES LOAD(2) PROCEEDS TO FUND(3)
------------------ ------------- -------------------
<S> <C> <C> <C>
Per Class B share......... $5.00 None $5.00
Total................... None
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 5
(1) The shares are offered on a best efforts basis at a price of $5.00 per share
during the Initial Offering Period and at net asset value thereafter. The
proceeds of the initial offering will be received by the Fund and invested
pursuant to the Fund's investment policies. No escrow arrangements have been
established in connection with the Initial Offering Period. It is estimated
that the proceeds of the initial offering will be invested over a period of
one month, subject to market conditions.
(2) Class B shares are subject to an EWC, a distribution fee, and an
administrative services fee. The Distributor will pay all sales commissions
to selected dealers from its own assets.
(3) Assumes the sale of all shares registered hereby, and the exclusion of
approximately $ of organizational and initial offering expenses
payable by the Fund. These expenses will be charged as operating expenses of
the Fund.
------------------
The Fund's investment adviser is Scudder Kemper Investments, Inc. (the
"Adviser"). The address of the Fund is 222 South Riverside Plaza, Chicago,
Illinois 60606.
This Prospectus applies to the offering of Class B shares of beneficial interest
of the Fund, which may be continuously issued and sold from time to time by the
Fund through Kemper Distributors, Inc. (the "Distributor"), as distributor and
principal underwriter, and through broker-dealers and other financial services
firms who have entered into dealer agreements with the Distributor ("firms").
See "Offering of Shares."
The Fund's Class B shares will not be subject to a front-end sales commission,
but will be subject to a declining early withdrawal charge ("EWC") over a four
year period and a distribution fee, as well as other expenses. Although the Fund
currently offers only Class B shares, the Fund may in the future offer other
classes of shares, which may be subject to a front-end sales commission, an EWC,
or an annual distribution fee. The Fund has registered Class B shares
for sale under the Registration Statement to which this Prospectus relates.
Class B shares are being offered at $5.00 per share during an initial offering
period, scheduled to end on May 25, 1999 (the "Initial Offering Period"), and in
a continuous offering scheduled to begin May 26, 1999. Orders received by the
Distributor after May 25, 1999 will be priced at the Fund's net asset value per
share. Orders for Class B shares will be accepted only by the firms prior to the
close of the Initial Offering Period. Thereafter, orders will be accepted by the
firms and the Distributor. The Initial Offering Period is subject to adjustment
by agreement between the Fund and the Distributor.
The Distributor will compensate the firms participating in the Initial Offering
Period and in the continuous offering. The minimum initial investment is $1,000
($250 for individual retirement accounts).
THE FUND HAS APPLIED FOR EXEMPTIVE RELIEF FROM THE COMMISSION WITH RESPECT TO
THE FUND'S DISTRIBUTION FEE ARRANGEMENTS, EWC, AND MULTI-CLASS STRUCTURE. AS A
CONDITION OF SUCH RELIEF, THE FUND WILL BE REQUIRED TO COMPLY WITH CERTAIN
REGULATIONS THAT WOULD NOT OTHERWISE BE APPLICABLE TO THE FUND. THERE CAN BE NO
ASSURANCE THAT THE RELIEF WILL BE GRANTED. IF THE RELIEF IS NOT GRANTED, THE
EFFECTIVE DATE OF THE FUND'S REGISTRATION STATEMENT AND THE SALE OF THE FUND'S
SHARES WILL BE DELAYED.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 6
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Prospectus Summary 1
- ----------------------------------------------------------------
Risk Factors And Special Considerations 3
- ----------------------------------------------------------------
Fund Expenses 6
- ----------------------------------------------------------------
Use Of Proceeds 7
- ----------------------------------------------------------------
Investment Objective And Policies 7
- ----------------------------------------------------------------
General Information On Senior Loans 18
- ----------------------------------------------------------------
Risk Factors And Special Considerations 22
- ----------------------------------------------------------------
Offering Of Shares 26
- ----------------------------------------------------------------
Repurchase Of Shares 32
- ----------------------------------------------------------------
Special Features 39
- ----------------------------------------------------------------
Description Of The Fund 43
- ----------------------------------------------------------------
Investment Management And Other Services 47
- ----------------------------------------------------------------
Dividends And Distributions 49
- ----------------------------------------------------------------
Tax Matters 50
- ----------------------------------------------------------------
Performance Information 52
- ----------------------------------------------------------------
Legal Matters 53
- ----------------------------------------------------------------
Registration Statement 53
- ----------------------------------------------------------------
Shareholder Reports 53
- ----------------------------------------------------------------
Financial Statements 53
- ----------------------------------------------------------------
Table of Contents of Statement of Additional Information 54
- ----------------------------------------------------------------
</TABLE>
<PAGE> 7
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Fund.................. The Fund is a continuously-offered,
non-diversified, closed-end management investment company organized as a
Massachusetts business trust.
Investment Objective...... To obtain as high a level of current income as
is consistent with the preservation of capital.
There can be no assurance that the Fund will
achieve its investment objective.
Primary Investment
Strategy.................. The Fund seeks to achieve its investment
objective primarily by acquiring interests in Senior Loans with interest rates
that adjust periodically based on a benchmark
indicator of prevailing interest rates, such as
the prime rate offered by one or more major
U.S. banks ("Prime Rate"), or the London
Inter-Bank Offered Rate ("LIBOR"). The Fund
believes that investing in Senior Loans should
limit fluctuations in its net asset value
caused by changes in interest rates. The Fund
may also employ techniques such as borrowing,
if necessary to accommodate cash flow, to fund
commitments to purchase Senior Loans, and to
finance repurchase offers, but will not borrow
to finance long-term investment.
Continuous Offering....... The Fund intends to offer its shares
continuously through the Distributor, as
principal underwriter, and through the firms at
a public offering price of $5.00 per share
during the Initial Offering Period, and at a
price equal to the net asset value per share
thereafter. Minimum initial investment is
$1,000 ($250 for individual retirement
accounts) and minimum subsequent investment is
$100 ($50 for individual retirement accounts).
The Fund reserves the right to waive any
minimum investment requirements and to refuse
any order for the purchase of shares. The Fund
does not intend to list the shares on any
national securities exchange.
General Investment
Guidelines................ Under normal circumstances, at least 80% of the
Fund's total assets will be invested in
interests in Senior Loans. Up to 20% of the
Fund's total assets may be held in cash and
other investments, including fixed-rate debt
obligations,
1
<PAGE> 8
short- to medium-term notes, high-yield
securities, equity securities, hybrid and
synthetic loans, collateralized loan
obligations, and asset-backed securities.
A maximum of 25% of the Fund's total assets may
be invested in Senior Loans to borrowers and
securities of other issuers in any one
industry. However, selling lenders and other
persons positioned between the Fund and the
borrower in the Senior Loan process will likely
conduct their activities in the banking,
finance, and financial services industries.
Accordingly, the Fund may be more at risk to
any single economic, political or regulatory
occurrence affecting such industries.
The Fund will invest at least 90% of its total
assets in Senior Loans to borrowers and other
investments issued by entities that are
organized under U.S. law or domiciled in Canada
or U.S. territories or possessions. These
Senior Loans and other investments must be
denominated in U.S. dollars. The Fund may
invest up to 10% of its total assets in U.S.
dollar denominated Senior Loans to borrowers
and other investments issued by entities that
are organized or domiciled in countries other
than the United States or Canada.
Repurchase Offers......... As a matter of fundamental policy, the Fund
will offer to repurchase from 5% to 25% of its
common shares at net asset value on a quarterly
basis. Following an initial period, these
repurchase offers are scheduled to occur in the
months of February, May, August and November.
The first repurchase offer is scheduled to
occur in November 1999
Distributions............. Income dividends are normally declared daily
and paid monthly. Income dividends may be
distributed in cash or reinvested in additional
full and fractional shares through the Fund's
dividend reinvestment program. Distributions of
net realized capital gains will normally be
made annually.
Investment Adviser........ Scudder Kemper Investments, Inc.
Distributor and
Administrative Services
Provider.................. Kemper Distributors, Inc.
2
<PAGE> 9
RISK FACTORS AND SPECIAL CONSIDERATIONS
THE FOLLOWING IS A SUMMARY OF CERTAIN MATTERS DISCUSSED IN THE PROSPECTUS. FOR
ADDITIONAL INFORMATION, SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS."
Credit Risk............... Investment in the Fund involves the risk that
borrowers under Senior Loans may default on
obligations to pay principal or interest when
due, that lenders may have difficulty
liquidating the collateral, if any, securing
the Senior Loans or enforcing their rights
under the terms of the Senior Loans, and that
the Fund's investment objective may not be
realized.
Non-diversification....... The Fund is not subject to the general
limitation under the Investment Company Act of
1940 that, with respect to 75% of its total
assets, it not invest more than 5% of its total
assets in the securities of a single issuer. As
a result, because the Fund is permitted greater
flexibility to invest its assets in the
obligations of a single issuer, it is exposed
to increased risk of loss if such an investment
underperforms expectations.
Borrowing................. The Fund is authorized to borrow money in an
amount up to 33 1/3% of the Fund's total assets
(after giving effect to the amount borrowed).
The Fund will borrow if necessary only for the
purposes of obtaining short-term credit in
connection with repurchase offers, to manage
cash flow, and to fund commitments to purchase
Senior Loans. The rights of any lenders to the
Fund to receive payments of interest on and
repayments of principal of such borrowings will
be senior to those of the holders of the Fund's
common shares, which include the Class B
shares, and the terms of any such borrowings
may contain provisions which limit certain
activities of the Fund, including the payment
of dividends to holders of common shares in
certain circumstances. The terms of such
borrowings also may grant lenders certain
voting rights in the event of default in the
payment of interest or the repayment of
principal. Interest payments and fees incurred
in connection with such borrowings will reduce
the amount of net income available for payment
to the holders of common shares. The Fund will
not use borrowings for long-term financial
leverage purposes. As a non-fundamental policy,
the Fund will not purchase
3
<PAGE> 10
additional portfolio securities at any time
that borrowings, including the Fund's
commitments pursuant to reverse repurchase
agreements, exceed 5% of the Fund's total
assets (which includes the amount borrowed).
Limited Secondary Market
for Senior Loans.......... Because of a limited secondary market for
Senior Loans, the Fund may be limited in its ability to sell portfolio holdings
at the price at which they are valued by the
Fund to generate gains, avoid losses, or to
meet repurchase requests.
Demand for Senior Loans... An increase in demand for Senior Loans may
adversely affect the rate of interest payable
on Senior Loans acquired by the Fund.
High-Yield/High Risk
Securities................ The Fund may purchase interests in Senior Loans
and other securities that are rated below
investment grade or are unrated but considered
by the Adviser to be of comparable quality. The
purchase of such securities exposes the Fund to
financial, market and interest-rate risks and
greater credit risks than would the purchase of
higher-rated securities. Such investments are
also likely to result in increased fluctuation
in the Fund's net asset value, particularly in
response to economic downturns.
No Trading Market for
Shares.................... The Fund is a closed-end investment company
designed primarily for long-term investors and
not as a trading vehicle. The Fund does not
intend to list the shares for trading on any
national securities exchange. There is no
secondary trading market for Fund shares. The
Fund's shares are therefore not readily
marketable. The Fund, as a fundamental policy,
will make quarterly repurchases for 5% to 25%
of the common shares at net asset value. See
"Repurchase of Shares" below for more
information. However, the Fund's shares are
less liquid than shares of funds that trade on
a stock exchange, and shareholders who tender
Fund shares held for less
4
<PAGE> 11
than four years will pay an EWC. See "Offers of
Shares." In addition, there is no guarantee
that shareholders will be able to sell all of
their Fund shares that they desire to sell.
5
<PAGE> 12
FUND EXPENSES
The following table is intended to assist the Fund's shareholders in
understanding the various costs and expenses associated with investing in Class
B shares of the Fund. Because the Fund does not yet have an operating history,
this information is based on estimated fees, expenses and net assets for the
fiscal year ending August 31, 1999.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price)............................ NONE
Maximum Sales Charge on Reinvested Dividends............. NONE
Maximum Early Withdrawal Charge (Load)(2)................ 3.00%
Exchange Fee............................................. NONE
ANNUAL EXPENSES
(estimated as a percentage of average net assets)
Management Fees(3)....................................... .50%
Administrative Services Fee(4)........................... .25%
Distribution Fee(5)...................................... .60%
Interest Payments on Borrowed Funds...................... .02%
Other Operating Expenses(6).............................. .43%
Total Annual Expenses (After Fee Reduction)(7)............. 1.30%
</TABLE>
- ---------------
(1) The firms and other financial services firms may independently charge
additional fees for shareholder transactions or for advisory services;
please see their materials for details.
(2) The maximum EWC on Class B shares applies to repurchases during the first
year. The charge is 3.0% for shares submitted and accepted for repurchase
during the first year after purchase, 2.5% during the second year, 2.0%
during the third year, and 1.0% during the fourth year. There is no EWC
thereafter.
(3) Pursuant to an Investment Management Agreement with the Fund, the Adviser is
entitled to receive an investment management fee of 0.50% of the average
daily net assets of the Fund, with graduated fee reductions based on
increased asset levels. See "Investment Management and Other Services."
(4) Pursuant to an Administrative Services Agreement with the Fund, the
Distributor is entitled to receive an annual fee of up to 0.25% of the
average daily net assets of the Fund.
(5) Pursuant to the Class B share Distribution Plan, the Class B shares pay an
annual distribution fee of 0.60% of average daily net assets. Class B shares
will automatically convert to Class A shares six years after purchase. Class
A shares are not offered to the public. Class A shares are not subject to
any distribution fees. The estimated annual Fund operating expenses of Class
A shares are: management fee of 0.50%; administrative services fee of 0.25%;
and other expenses of 0.25%. This results in a total annual estimated
expense figure of 1.00%. See "Offering of Shares--Conversion Feature."
(6) "Other Operating Expenses" are based on estimated amounts for the current
fiscal year.
(7) The Adviser has agreed to reduce its investment management fee to 0% of the
average daily net assets of the Fund through November 30, 1999. The full
investment management fee will be gradually reinstated during the one year
period ending November 30, 2000. The effect of this fee reduction is to
reduce operating expenses of the Fund and thereby increase investment
performance. Absent this fee reduction, estimated total annual expenses
would be 1.80%.
6
<PAGE> 13
THE FOLLOWING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Based on the estimated level of total
operating expenses listed above, you
would pay the following expenses on a
$1,000 investment, assuming a 5%
annual return and repurchase at the
end of each time period............... $ 44 $ 72 $ 94 $ 170
You would pay the following expenses
on the same investment, assuming no
repurchase............................ $ 14 $ 52 $ 94 $ 170
</TABLE>
This hypothetical example assumes that all dividends and other distributions are
reinvested at net asset value and that the percentage amounts listed under
Annual Expenses above remain the same in the years shown, and is shown after
giving effect to the fee reduction. The above tables and the assumption in the
hypothetical example of a 5% annual return are required by regulation of the
Commission applicable to all investment companies; the assumed 5% annual return
is not a prediction of, and does not represent, the projected or actual
performance of the Fund's shares. For more complete descriptions of certain of
the Fund's costs and expenses, see "Investment Management and Other Services."
USE OF PROCEEDS
The Adviser anticipates that the Fund will invest net proceeds received in the
Initial Offering Period, after payment of organizational and offering expenses
by the Fund, in accordance with the Fund's investment objective and policies
within approximately one month after the end of the Initial Offering Period. The
precise time frame for these investments will depend on the availability of
Senior Loans and other market conditions. Pending such investment, the Fund will
invest the net proceeds received pursuant to the Initial Offering Period in
investment grade short-term or medium-term debt obligations.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital. This objective is not
fundamental and may be changed by the Fund's Board of Trustees without
shareholder approval. There can be no assurance that the Fund will achieve its
investment objective. The Fund seeks to achieve its objective primarily by
investing in interests in adjustable rate senior loans ("Senior Loans"), which,
in most circumstances, are fully collateralized by assets of a corporation,
partnership, limited liability company, or other business entity that is
organized or domiciled
7
<PAGE> 14
in the United States, Canada or in U.S. territories and/or possessions (a "U.S.
entity"). The Senior Loans are often issued in connection with
recapitalizations, acquisitions, leveraged buy-outs, and refinancings. The Fund
primarily invests in Senior Loans that have interest rates that adjust
periodically based upon a benchmark indicator of prevailing interest rates, such
as the Prime Rate or LIBOR, and invests only in Senior Loans and other
investments that are U.S. dollar denominated. Under normal circumstances, at
least 80% of the Fund's total assets will be invested in Senior Loans. The Fund
may also purchase other types of instruments in seeking to achieve its
investment objective, including high-yield securities. The Fund may invest up to
10% of its total assets in Senior Loans and other investments that are issued by
non-U.S. entities, although such investments will be U.S. dollar denominated.
All percentage limitations in this Prospectus and the SAI are applied as of the
time of investment.
Senior Loans are considered to be loans that hold a senior position in the
capital structure of the borrower. These may include loans that hold the most
senior position, that hold an equal ranking with other senior debt, or loans
that are, in the judgment of the Adviser, in the category of senior debt of the
borrower. This capital structure position generally gives the holders of Senior
Loans a priority claim on some or all of the borrower's assets in the event of
default. The Senior Loans in which the Fund invests are generally fully
collateralized with assets and/or cash flow that the Adviser believes have a
market value at the time of acquisition that equals or exceeds the principal
amount of the Senior Loan. The loan agreement may or may not require the
borrower to pledge additional collateral to secure the Senior Loan if the value
of the initial collateral declines. The Fund may invest up to 20% of its total
assets in Senior Loans that are not secured by specific collateral. Such
unsecured Senior Loans involve a greater risk of loss. The Fund also only
purchases interests in Senior Loans of borrowers that the Adviser believes can
meet debt service requirements from cash flow or other sources, including the
sale of assets. Because of their protective features, the Adviser believes that
Senior Loans of borrowers that either are experiencing, or are more likely to
experience, financial difficulty may represent attractive investment
opportunities. Senior Loans vary in yield according to their terms and
conditions, how often they pay interest, and when rates are reset. The Fund
generally does not invest in Senior Loans of U.S. entities with interest rates
that are tied to non-domestic interest rates other than LIBOR. The Fund may
invest up to 10% of its total assets in Senior Loans of non-U.S. entities with
interest rates tied to other non-domestic interest rates, including, but not
limited to, the Paris Inter-Bank Offered Rate, the EURO LIBOR, or the EURO Area
Inter-Bank Offered Rate.
Senior Loans that the Fund may acquire include participation interests in lease
financings ("Lease Participations") where the collateral quality, credit quality
of the borrower and the likelihood of payback are believed by the Adviser to
generally be the same as those applied to conventional Senior Loans. A Lease
Participation is also required to have a floating interest rate that is indexed
to a benchmark indicator of prevailing interest rates, such as LIBOR or the
Prime Rate.
8
<PAGE> 15
The Fund may acquire Senior Loans to borrowers engaged in any industry. The Fund
will invest no more than 25% of its total assets in Senior Loans to borrowers
and securities of other issuers in any one industry. Selling lenders and other
persons positioned between the Fund and the borrower will likely conduct their
principal business activities in the banking, finance and financial services
industries. The Fund may be more at risk to any single economic, political or
regulatory occurrence affecting such industries. Persons engaged in such
industries may be more susceptible to, among other things, fluctuations in
interest rates, changes in the Federal Open Market Committee's monetary policy,
governmental regulations concerning such industries and concerning capital
raising activities generally and fluctuations in the financial markets
generally.
Investors should recognize that there can be no assurance that the investment
objective of the Fund will be realized. Moreover, substantial increases in
interest rates may cause an increase in Senior Loan defaults as borrowers may
lack resources to meet higher debt service requirements. The value of the Fund's
assets may also be affected by other uncertainties, such as economic
developments affecting the market for Senior Loans or affecting borrowers
generally. For additional information on Senior Loans, see "General Information
on Senior Loans."
Investment in the Fund's shares is intended to offer several benefits. The Fund
offers investors the opportunity to seek a high level of current income by
investing in a professionally-managed portfolio comprised primarily of Senior
Loans, a type of investment typically not available directly to individual
investors. Other benefits are the professional credit analysis provided to the
Fund by the Adviser and portfolio diversification. Also, the Fund believes that
investing in Senior Loans should limit fluctuations in the Fund's net asset
value caused by changes in interest rates.
The Fund can normally be expected to have a more stable net asset value per
share than investment companies investing primarily in fixed-income securities
(other than money market funds and some short-term bond funds). Generally, the
net asset value of the shares of an investment company which invests primarily
in fixed-income securities changes as interest rates fluctuate. When interest
rates rise, the value of a fixed income portfolio normally can be expected to
decline. When interest rates decline, the value of a fixed-income portfolio
normally can be expected to increase. The Adviser expects the Fund's net asset
value to be relatively stable during normal market conditions, because the
floating and variable rate Senior Loans in which the Fund primarily invests
adjust periodically in response to changes in interest rates. However, because
variable interest rates only reset periodically, the Fund's net asset value may
fluctuate from time to time in the event of an imperfect correlation between the
interest rates on the Fund's Senior Loans and prevailing interest rates. Also, a
default on a Senior Loan in which the Fund has invested or a sudden and extreme
increase in prevailing interest rates may cause a decline in the Fund's net
asset value. Further, investment in securities other than Senior Loans,
including high yield securities, may contribute to the fluctuation of the Fund's
9
<PAGE> 16
net asset value. Changes in interest rates can be expected to affect the
dividends paid by the Fund, so that the distribution rate on an investment in
the Fund's shares will likely fluctuate as a result of changes in prevailing
interest rates.
INVESTMENT IN NON-U.S. ISSUERS
The Fund may invest up to 10% of its total assets in U.S. dollar denominated
Senior Loans to borrowers and securities of other issuers that are organized or
located in countries other than the United States, Canada, or in U.S.
territories and/or possessions ("non U.S. entities"). Although such Senior Loans
will require payment of interest and principal in U.S. dollars, these borrowers
and issuers may have significant non-U.S. dollar revenues. Investment in
non-U.S. entities involves special risks, including that non-U.S. entities may
be subject to less rigorous accounting and reporting requirements than U.S.
entities, less rigorous regulatory requirements, differing legal systems and
laws relating to creditors' rights, the potential inability to enforce legal
judgments, fluctuations in currency values and the potential for political,
social and economic adversity. Such Senior Loans may include certain foreign
senior debt that is in the form of notes and not loan agreements.
INTEREST RATES AND PORTFOLIO MATURITY
Interest rates on Senior Loans adjust periodically. The interest rates are
adjusted based on a base rate plus a premium or spread over the base rate. The
base rate usually is LIBOR, the Federal Reserve federal funds rate, the Prime
Rate or the certificate of deposit ("CD") rate or other base lending rates used
by commercial lenders. LIBOR, as provided for in loan agreements, usually is an
average of the interest rates quoted by several designated banks as the rates at
which they pay interest to major depositors in the London interbank market on
U.S. dollar denominated deposits. The Adviser believes that changes in
short-term LIBOR rates are closely related to changes in the Federal Reserve
federal funds rate, although the two are not technically linked. The Prime Rate
quoted by a major U.S. bank is generally the interest rate at which that bank is
willing to lend U.S. dollars to is most creditworthy borrowers, although it may
not be the bank's lowest available rate. The CD rate, as provided for in loan
agreements, usually is the average rate paid on large certificates of deposit
traded in the secondary market.
The Fund is not subject to any restrictions with respect to the maturity of
Senior Loans held in its portfolio. Interest rates on Senior Loans may adjust
periodically, including daily, monthly, quarterly, semi-annually, or annually.
The Fund will not invest more than 5% of its total assets in Senior Loans with
interest rates that adjust less often than semi-annually, provided, however,
that the Fund will not invest in Senior Loans which permit the borrower to
select an interest rate redetermination period in excess of one year. Investment
in Senior Loans with longer interest rate redetermination periods may increase
fluctuations in the Fund's net asset value as a result of changes in interest
rates. The Fund may use interest rate swaps and other investment practices to
shorten the effective interest rate adjustment period of Senior Loans. If the
Fund does so, it
10
<PAGE> 17
will consider the shortened period to be the adjustment period of the Senior
Loan. The Fund's portfolio of Senior Loans will generally have a dollar-
weighted average time until the next interest rate adjustment of 90 days or
less, although the time may exceed 90 days. As short term interest rates rise,
interest payable to the Fund should increase. As short term interest rates
decline, interest payable to the Fund should decrease. The amount of time that
will pass before the Fund experiences the effects of changing short-term
interest rates will depend on the dollar-weighted average time until the next
interest rate adjustment on the Fund's portfolio of Senior Loans.
Although the Fund has no restrictions on portfolio maturity, normally at least
80% of the Fund's total assets invested in Senior Loans will be composed of
Senior Loans with maturities of one to ten years with rates of interest which
typically reset either daily, monthly, quarterly or semi-annually. Senior Loans
usually have mandatory and optional prepayment provisions. Because of
prepayments, the actual remaining maturity of Senior Loans may be considerably
less than their stated maturity. If a Senior Loan is prepaid, the Fund will have
to reinvest the proceeds in other Senior Loans or securities which may pay lower
interest rates. However, because the interest rates on Senior Loans adjust
periodically, the Adviser believes that the reinvestment by the Fund in Senior
Loans after prepayment generally should not result in a significant reduction in
the interest payable to the Fund.
In the event of a change in the benchmark interest rate on a Senior Loan, the
rate payable to lenders under the Senior Loan will, in turn, change at the next
scheduled reset date. If the benchmark rate goes up, the Fund as lender would
earn interest at a higher rate, but only on and after the reset date. If the
benchmark rate goes down, the Fund as lender would earn interest at a lower
rate, but only on and after the reset date.
When interest rates rise, the values of fixed income securities generally
decline. When interest rates fall, the values of fixed income securities
generally increase. The Fund believes that investing in Senior Loans should
limit fluctuations in the Fund's net asset value caused by changes in interest
rates. The Fund expects the values of its Senior Loan investments to fluctuate
less than the values of fixed rate, longer-term debt securities in response to
changes in interest rates. Changes in interest rates can, however, cause some
fluctuation in the Fund's net asset value.
CREDIT ANALYSIS
When evaluating a borrower under a Senior Loan the Adviser considers many
factors, including the borrower's past and future projected financial
performance. The Adviser also considers a borrower's management, collateral,
cash flow, industry and tangible assets. There is no assurance that the
liquidation value of collateral, if any, for a Senior Loan would satisfy the
borrower's obligations. The Fund does not impose any minimum rating or other
independent evaluation of a borrower or its securities.
11
<PAGE> 18
The capital structure of a borrower may include Senior Loans, senior and junior
subordinated debt, preferred stock and common stock. Senior Loans typically have
the most senior claim on the borrower's assets and common stock the most junior
claim. The proceeds of Senior Loans that the Fund will purchase usually will be
used by borrowers to finance leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, debt refinancings and, to a lesser extent, for
general operating and other purposes.
The Adviser performs its own independent credit analysis of the borrower. In so
doing, the Adviser may utilize information and credit analyses from the agents
that originate or administer loans, other lenders investing in a Senior Loan,
and other sources. These analyses will continue on a periodic basis for any
Senior Loan purchased by the Fund. There is less readily available, reliable
information about most Senior Loans than is the case for many other types of
securities. As a result, the Fund is particularly dependent on the analytical
abilities of the Adviser. See "Risk Factors and Special Considerations--Credit
Risks and Realization of Investment Objective."
OTHER INVESTMENTS
Assets not invested in Senior Loans will generally consist of other instruments,
including Hybrid and Synthetic Loans (as defined below), unsecured and
subordinated loans, short-term debt instruments with remaining maturities of 120
days or less (which may have yields tied to the Prime Rate, commercial paper
rates, federal funds rate or LIBOR), longer-term debt securities, equity
securities and warrants acquired in connection with investment or restructuring
of a Senior Loan or a collateralized loan obligation, and other instruments as
described under "Additional Information About Investments and Investment
Techniques" in the SAI. Short-term debt instruments may include (i) commercial
paper rated A-1 by Standard & Poor's Ratings Services or P-1 by Moody's
Investors Service, Inc., or of comparable quality as determined by the Adviser,
(ii) certificates of deposit, bankers' acceptances, and other bank deposits and
obligations, and (iii) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities. During periods when, in the judgment of the
Adviser, a temporary defensive posture in the market is appropriate, the Fund
may hold up to 100% of its assets in cash, or in the instruments described
above. These "Other Investments" are described below. All such investments will
normally not exceed 20% of the Fund's total assets. Securities that, in the
judgment of the Adviser, are Senior Loans are not included in the 20% portion of
the Fund's portfolio described under this heading.
HYBRID AND SYNTHETIC LOANS. The Fund may invest up to 20% of its total assets in
Hybrid and Synthetic Loans. The growth of the syndicated loan market has
produced loan structures with characteristics similar to Senior Loans but which
resemble bonds in some respects, and generally offer less covenant or other
protections than traditional Senior Loans while still being collateralized
("Hybrid Loans"). The Fund may invest in Hybrid Loans that are subordinated or
unsecured debt of the borrower. Hybrid Loans also may not include covenants
12
<PAGE> 19
that are typical of Senior Loans, such as covenants requiring the maintenance of
minimum interest coverage ratios. As a result, Hybrid Loans present additional
risks besides those associated with traditional Senior Loans, although they may
provide a relatively higher yield. Because the lenders in Hybrid Loans waive or
forego, or the loan agreements for Hybrid Loans do not contain, certain loan
covenants, there may be fewer protections in the event of default and therefore
a higher risk of loss. In addition, because the Fund's security interest in some
of the collateral may be subordinate to other creditors, the risk of nonpayment
of interest or loss of principal may be greater than would be the case with
conventional Senior Loans. The Fund will invest only in Hybrid Loans that meet
credit standards established by the Adviser with respect to Hybrid Loans and
nonetheless provide certain protections to the lender such as collateral
maintenance (if secured) or call protection.
In addition, under certain circumstances, the Fund may wish to attempt to obtain
the economic performance of an investment in a Senior Loan in circumstances
where it is not possible or, in the Adviser's judgment, desirable, to purchase
an interest in the Senior Loan. These circumstances may include instances where
the interest in the Senior Loan is illiquid or is unavailable for direct
investment, or is available only on less attractive terms. In such
circumstances, the Fund may wish to invest in synthetic alternative loans
("Synthetic Loans") that are based upon or otherwise relate to the economic
performance of the Senior Loan upon which the Synthetic Loan is based (the
"underlying loan"). Synthetic Loans may include swap transactions, notes or
units with variable redemption amounts, and other similar instruments and
contracts. Synthetic Loans typically do not involve beneficial ownership of the
underlying loan, usually are not collateralized or otherwise secured by the
counterparty and may or may not have any credit enhancements attached to them.
Accordingly, Synthetic Loans are generally unsecured and involve exposure to the
creditworthiness and legal standing of the issuer of the Synthetic Loan, which
may be a bank. In addition, Synthetic Loans are typically illiquid.
COLLATERALIZED LOAN OBLIGATIONS. The Fund may invest up to 10% of its total
assets in collateralized loan obligations or other structured products that in
the judgment of the Adviser are substantially similar to collateralized loan
obligations ("CLOs"). CLOs are asset-backed securities issued by a trust or
other entity that are collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
and subordinate corporate loans, including loans that may be rated below
investment grade or equivalent unrated loans. Neither the Fund nor the Adviser
selects the borrowers of the loans that comprise the CLO pool (a "CLO borrower")
or the collateral backing those loans. CLOs are subject to credit and prepayment
risk. In addition, the collection of collateral on a defaulted loan, if
achieved, may be subject to significant delays. Further, the Fund may be subject
to the credit risk of the institution that creates the CLO. The Fund may have
limited or no rights to enforce the terms of any loan agreement with a CLO
borrower, right to set-off against the CLO borrower, or right to object to
amendments to the lending agreement with the CLO borrower.
13
<PAGE> 20
SUBORDINATED AND UNSECURED LOANS. The Fund may invest up to 20% of its total
assets in subordinated and unsecured loans that, in the judgment of the Adviser,
are not Senior Loans. The primary risk arising from a holder's subordination is
the potential loss in the event of default by the issuer of the loans.
Subordinated loans in an insolvency bear an increased share, relative to senior
secured lenders, of the ultimate risk that the borrower's assets are
insufficient to meet its obligations to its creditors. Unsecured loans are not
secured by any specific collateral of the borrower. They do not enjoy the
security associated with collateralization and may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans.
EQUITY SECURITIES. The Fund may invest up to 20% of its total assets in equity
securities acquired in connection with investments in or restructuring of a
Senior Loan, CLO, subordinated and unsecured loan, high-yield security, or other
investment of the Fund, including common stocks, preferred stocks, convertible
securities and warrants (which may be converted into the underlying security).
Common stocks and preferred stocks represent shares of ownership in a
corporation or other business organization. Preferred stocks usually have
specific dividends and rank after bonds and before common stock in claims on
assets of the corporation should it be dissolved. Increases and decreases in
earnings are usually reflected in a corporation's stock price. Convertible
securities are debt or preferred equity securities convertible into common
stock. Usually, convertible securities pay dividends or interest at rates higher
than common stock, but lower than other securities. Convertible securities
usually participate to some extent in the appreciation or depreciation of the
underlying stock into which they are convertible. Warrants are options to buy a
stated number of shares of common stock at a specified price any time during the
life of the warrants.
To the extent the Fund invest in such equity securities, the value of the Fund's
portfolio will be affected by changes in the stock markets, which may be the
result of domestic or international political or economic news, changes in
interest rates or changing investor sentiment. At times, the stock markets can
be volatile and stock prices can change substantially. The equity securities of
smaller companies are more sensitive to these changes than those of larger
companies. This market risk will affect the Fund's net asset value per share,
which will fluctuate as the value of the securities held by the Fund changes.
Not all stock prices change uniformly or at the same time and not all stock
markets move in the same direction at the same time. Other factors affect a
particular stock's prices, such as poor earnings reports by an issuer, loss of
major customers, major litigation against an issuer, or changes in governmental
regulations affecting an industry. Adverse news affecting one company can
sometimes depress the stock prices of all companies in the same industry. Not
all factors can be predicted.
OTHER INVESTMENT COMPANIES. Securities of other investment companies may be
acquired by the Fund to the extent permitted under the Investment Company Act of
1940 ("1940 Act"). Investment companies, including the Fund, incur certain
expenses such as management, custodian, and transfer
14
<PAGE> 21
agency fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
HIGH-YIELD/HIGH-RISK SECURITIES. The Fund may invest up to 5% of its total
assets in high-yield securities (which do not include Senior Loans that may be
considered to be below investment grade). High-yield securities are debt
securities that are rated lower than Baa by Moody's or BBB by S&P, or if not
rated by Moody's or S&P, of equivalent quality. High-yield securities often are
referred to as "junk bonds" and include certain corporate debt obligation,
higher-yielding preferred stock and mortgage-related securities, and securities
convertible into those types of instruments. Investments in high-yield
securities generally provide greater income and increased opportunity for
capital appreciation than investments in higher-quality debt securities, but
they also typically entail greater potential price volatility and principal and
income risk.
High-yield securities are not considered to be investment grade. They are
regarded as predominantly speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. The prices of high-
yield securities have been found to be less sensitive to interest-rate changes
than higher-rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in the
prices of high-yield securities. In the case of high-yield securities structured
as zero-coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest-rate changes, and therefore tend to be more volatile
than securities that pay interest periodically and in cash.
The secondary market in which high-yield securities are traded is generally less
liquid than the market for higher-grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which the Fund could sell a
high-yield security, and could adversely affect the net asset value of the
Fund's shares. At times of less liquidity, it may be more difficult to value
high-yield securities because this valuation may require more research, and
elements of judgment may play a greater role in the valuation since there is
less reliable, objective data available. In pursuing the Fund's objectives, the
Adviser seeks to identify situations in which the rating agencies have not fully
perceived the value of the security.
Investments in high-yield securities by the Fund may result in greater net asset
value fluctuation than if the Fund did not make such investments.
There is no limit on the percentage of the Fund's assets that may be invested in
Senior Loans that are rated below investment grade or that are unrated but of
comparable quality.
USE OF HEDGING TECHNIQUES
The Fund may enter into various interest rate hedging and risk management
transactions, subject to the availability of such instruments and the Adviser's
discretion, which includes the discretion not to pursue a hedging or risk
15
<PAGE> 22
management strategy, even when doing so might have been advantageous to the
Fund. Certain of these transactions may be considered to involve derivative
instruments. A derivative is a financial instrument whose performance is derived
at least in part from the performance of an underlying index, security or asset.
The values of certain derivatives can be affected dramatically by even small
market movements, sometimes in ways that are difficult to predict. There are
many different types of derivatives, with many different uses. The Fund expects
to enter into these transactions primarily to seek to preserve a return on or
value of a particular investment or portion of its portfolio, and may also enter
into such transactions to seek to protect against decreases in the anticipated
rate of return on floating or variable rate financial instruments the Fund owns
or anticipates purchasing at a later date, or for other risk management
strategies such as managing the effective dollar-weighted average duration of
the Fund's portfolio. In addition, the Fund may also engage in hedging
transactions to seek to protect the value of its portfolio against declines in
net asset value resulting from changes in interest rates or other market
changes. The Fund does not intend to engage in such transactions to enhance the
yield on its portfolio to increase income available for distributions. Market
conditions will determine whether and in what circumstances the Fund would
employ any hedging or risk management techniques. The Fund will not engage in
any of the transactions for speculative purposes and will use them only as a
means to hedge or manage the risks associated with assets held in, or
anticipated to be purchased for, the Fund's portfolio or obligations incurred by
the Fund. The successful utilization of hedging and risk management transactions
requires skills different from those needed in the selection of the Fund's
portfolio securities. The Fund believes that the Adviser possesses the skills
necessary for the successful utilization of hedging and risk management
transactions. There can be no assurance that an appropriate hedging or risk
management instrument will be available to the Fund when the Adviser seeks such
instrument for use by the Fund, or that the Adviser will in its discretion
utilize a hedging or risk management instrument when it might have been
advantageous for the Fund to do so. The Fund will incur brokerage and other
costs in connection with its hedging and risk management transactions. See
"Interest Rate Hedging Transactions" in the SAI.
USE OF BORROWING
The Fund may borrow money in amounts up to 33 1/3% of the value of its total
assets if necessary to finance repurchase offers (as described below under
"Repurchase Offers"), to fund commitments to purchase Senior Loans, and for
other temporary, extraordinary or emergency purposes. The Fund may also borrow
in anticipation of cash flows into and out of the Fund and to attempt to
efficiently manage the Fund's investment portfolio. The Fund also may issue one
or more series of preferred shares, although it has no present intention to do
so. The Fund will not use borrowings for long-term financial leverage purposes.
This policy is not fundamental and may be changed without shareholder approval.
In addition, as a non-fundamental policy, the Fund will not purchase additional
portfolio securities at any time that borrowings, including
16
<PAGE> 23
the Fund's commitments pursuant to reverse repurchase agreements, exceed 5% of
the Fund's total assets (which includes the amount borrowed).
Capital raised through borrowing will be subject to interest costs. The Fund may
be required to maintain minimum average balances in connection with borrowings
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements will increase the cost of borrowing over the stated interest
rate. The issuance of preferred shares would involve offering expenses and other
costs and may limit the Fund's freedom to pay dividends on its common shares or
to engage in other activities. Borrowings and the issuance of preferred stock
having priority over the Fund's common shares of beneficial interest offered
hereby create an opportunity for greater income per common share, but at the
same time such borrowing or issuance is a speculative technique in that it will
increase the Fund's exposure to capital risk. These risks may be reduced through
the use of borrowings and preferred stock that have floating rates of interest.
The Fund may enter into an agreement with a financial institution providing for
an unsecured, discretionary credit facility (the "Facility"), the proceeds of
which may be used to finance, in part, share repurchases. The Facility may
provide for the borrowing by the Fund to the extent permitted under the 1940
Act, on an unsecured, uncommitted basis. Loans made under the Facility will bear
interest at a floating rate, such as LIBOR.
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless
immediately after such incurrence the Fund has an asset coverage of 300% of the
aggregate outstanding principal balance of indebtedness. Additionally, under the
1940 Act the Fund may not declare any dividend or other distribution upon any
class of its capital stock, or purchase any such capital stock, unless the
aggregate indebtedness of the Fund has at the time of the declaration of any
such dividend or distribution or at the time of any such purchase an asset
coverage of at least 300%, after deducting the amount of such dividend,
distribution, or purchase price, as the case may be. The Fund's inability to
make distributions as a result of these requirements could cause the Fund to
fail to qualify as a regulated investment company and/or subject the Fund to
income or excise taxes. The Fund may be required to dispose of portfolio
investments on unfavorable terms if market fluctuations or other factors reduce
the required asset coverage to less than the prescribed amount.
Any indebtedness issued by the Fund or borrowing by the Fund either (a) will
mature by the next Repurchase Request Deadline (as defined below under
"Repurchase Offers") or (b) will provide for its redemption, call, or repayment
by the Fund by the next Repurchase Request Deadline without penalty or premium,
as necessary to permit the Fund to repurchase shares in the amount set by the
Board of Trustees in compliance with the asset coverage requirements of the 1940
Act.
17
<PAGE> 24
GENERAL INFORMATION ON SENIOR LOANS
Senior Loans differ from other types of debt in that they generally hold the
most senior position in the capital structure of a borrower. Priority liens are
obtained by the lenders that typically provide the first right to cash flows or
proceeds from the sale of a borrower's collateral, if any, if the borrower
becomes insolvent (subject to the limitations of bankruptcy law, which may
provide higher priority to certain claims such as, for example, employee
salaries, employee pensions and taxes). Thus, Senior Loans are generally repaid
before unsecured bank loans, corporate bonds, subordinated debt, trade
creditors, and preferred or common stockholders.
Senior Loans have contractual terms designed to protect lenders. Loan agreements
often include restrictive covenants that limit the activities of the borrower.
These covenants may include mandatory prepayment out of excess cash flows,
restrictions on dividend payments, the maintenance of minimum financial ratios,
limits on indebtedness and other financial tests. Breach of these covenants
generally is an event of default and, if not waived by the lenders, may give
lenders the right to accelerate principal and interest payments.
Senior Loans are typically secured by pledges of collateral from the borrower in
the form of tangible assets such as cash, accounts receivable, inventory,
property, plant and equipment, common and/or preferred stock of subsidiaries,
and intangible assets including trademarks, copyrights, patent rights and
franchise value. The Fund may also receive guarantees or other credit support as
a form of collateral. In some instances, the Fund may invest in Senior Loans
that are secured only by stock of the borrower or its subsidiaries or
affiliates. Generally, as discussed below, the agent with respect to a Senior
Loan is responsible for monitoring collateral and for exercising remedies
available to the lenders such as foreclosure upon collateral. In certain
circumstances, the loan agreement may authorize the agent to liquidate the
collateral and to distribute the liquidation proceeds pro rata among the
lenders. The Fund may also invest in Senior Loans that are not secured by
specific collateral. Such unsecured Senior Loans involve additional risk.
Senior Loans generally are arranged through private negotiations between a
borrower and several financial institutions ("lenders") represented in each case
by an agent ("agent"), which usually is one or more of the lenders. The Fund
generally will acquire Senior Loans from and sell Senior Loans to the following
lenders: money center banks, selected regional banks and selected non-banks,
investment banks, insurance companies, finance companies, other investment
companies, private investment funds, and lending companies. The Fund may also
acquire Senior Loans from and sell Senior Loans to U.S. branches of foreign
banks which are regulated by the Federal Reserve System or appropriate state
regulatory authorities. On behalf of the lenders, the agent generally is
primarily responsible for negotiating the loan agreement ("loan agreement"),
which establishes the terms and conditions of the Senior Loan and the rights of
the borrower and the lenders. The agent is typically paid a fee by the borrower
for its services. The agent and the other original lenders typically have the
right
18
<PAGE> 25
to sell interests ("participations") in their share of the Senior Loan to other
participants. The agent and the other original lenders also may assign all or a
portion of their interests in the Senior Loan to other participants.
The agent generally is required to administer and manage the Senior Loan on
behalf of other lenders. When evaluating Senior Loans, the Adviser may consider,
and may rely in part, on analysis performed by the agent and other lenders. This
analysis may include an evaluation of the value and sufficiency of any
collateral securing Senior Loans. As to collateralized Senior Loans, the agent
usually is required to monitor the collateral. The agent may rely on independent
appraisals of specific collateral. The agent need not, however, obtain an
independent appraisal of assets pledged as collateral in all cases. The agent
generally is also responsible for determining that the lenders have obtained a
perfected security interest in the collateral (if any) securing a Senior Loan.
The Fund normally relies on the agent to collect principal of and interest on a
Senior Loan. Furthermore, the Fund also relies in part on the agent to monitor
compliance by the borrower with the restrictive covenants in the loan agreement
and to notify the Fund (or the lender from whom the Fund has purchased a
participation) of any adverse change in the borrower's financial condition.
Insolvency of the agent or other persons positioned between the Fund and the
borrower could result in losses for the Fund.
The Fund may be required to pay and may receive various fees and commissions in
connection with purchasing, selling and holding interests in Senior Loans. The
fees normally paid by borrowers include three primary types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to lenders when
a Senior Loan is originated. Commitment fees are paid to lenders on an ongoing
basis based on the unused portion of a Senior Loan commitment. Lenders may
receive prepayment penalties when a borrower prepays a Senior Loan. The Fund
receives these fees directly from the borrower if the Fund is an original lender
or, in the case of commitment fees and prepayment penalties, if the Fund
acquires an assignment. Whether the Fund receives a facility fee in the case of
an assignment, or any fees in the case of a participation, depends on
negotiations between the Fund and the lender selling such interests. When the
Fund buys an assignment, it may be required to pay a fee, or forgo a portion of
interest and fees payable to it, to the lender selling the assignment.
Occasionally, the assignor pays a fee to the assignee. A person selling a
participation to the Fund may deduct a portion of the interest and any fees
payable to the Fund as an administrative fee. The Fund may be required to pass
along to a person that buys a Senior Loan from the Fund a portion of any fees
that the Fund is entitled to.
The Fund may have obligations under a loan agreement, including the obligation
to make additional loans in certain circumstances. The Fund intends to reserve
against such contingent obligations by segregating cash, liquid securities and
liquid Senior Loans as a reserve. The Fund will not purchase a Senior Loan that
would require the Fund to make additional loans if as a result of such purchase
all of the Fund's additional loan commitments in the aggregate would
19
<PAGE> 26
exceed 20% of the Fund's total assets or would cause the Fund to fail to meet
the asset composition requirements set forth under the heading "Investment
Restrictions and Fundamental Policies" in the SAI.
The Fund's investment in Senior Loans generally may take one or a combination of
several forms including: acting as one of the group of lenders originating a
Senior Loan (an "original lender"); purchase of an assignment ("assignment") or
a portion of a Senior Loan from a third party: or acquiring a participation in a
Senior Loan. The Fund may pay a fee or forego a portion of interest payments to
the lender selling a participation or assignment under the terms of such
participation or assignment.
The agent that arranges a Senior Loan is frequently a commercial or investment
bank or other entity that originates a Senior Loan and the entity that invites
other parties to join the lending syndicate. In larger transactions, it is
common to have several agents; however, generally only one such agent has
primary responsibility for documentation and administration of the Senior Loan.
Agents are typically paid fees by the borrower for their services. The Fund may
serve as the agent or co-agent for a Senior Loan. However, the Fund does not
intend to act in the foreseeable future as an agent or co-agent. See "Additional
Information About Investments and Investment Techniques--Originating Senior
Loans" in the SAI.
When the Fund is a member of the originating syndicate group for a Senior Loan,
it may share in a fee paid to the original lenders. When the Fund is an original
lender or acquires an assignment, it will have a direct contractual relationship
with the borrower, may enforce compliance by the borrower with the terms of the
loan agreement, and may have rights with respect to any funds acquired by other
lenders through set-off. Lenders also have certain voting and consent rights
under the applicable Senior Loan agreement. Action subject to lender vote or
consent generally requires the vote or consent of the holders of some specified
percentage of the outstanding principal amount of the Senior Loan. Certain
decisions, such as reducing the amount or increasing the time for payment of
interest on or repayment of principal of a Senior Loan, or releasing collateral
therefor, frequently require the unanimous vote or consent of all lenders
affected.
When the Fund is a purchaser of an assignment it typically succeeds to all the
rights and obligations under the loan agreement of the assigning lender and
becomes a lender under the loan agreement with the same rights and obligations
as the assigning lender. Assignments are, however, arranged through private
negotiations between potential assignees and potential assignors, and the rights
and obligations acquired by the purchaser of an assignment may be more limited
than those held by the assigning lender. The Fund will purchase an assignment or
act as lender with respect to a syndicated Senior Loan only where the agent with
respect to such Senior Loan is determined by the Adviser to be creditworthy at
the time of acquisition.
The Fund may also invest in participations in Senior Loans. With respect to any
given Senior Loan, the rights of the Fund when it acquires a participation may
20
<PAGE> 27
be more limited than the rights of original lenders or of investors who acquire
an assignment. Participations may entail certain risks relating to the
creditworthiness of the parties from which the participations are obtained.
Participation by the Fund in a lender's portion of a Senior Loan typically
results in the Fund having a contractual relationship only with the lender, not
with the borrower. The Fund has 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 such lender of such payments from the
borrower. In connection with purchasing participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the Senior
Loan agreement, nor any rights with respect to any funds acquired by other
lenders through set-off against the borrower with the result that the Fund may
be subject to delays, expenses and risks that are greater than those that exist
where the Fund is the original lender, and the Fund may not directly benefit
from the collateral supporting the Senior Loan because it may be treated as a
creditor of the lender instead of the borrower. As a result, the Fund may assume
the credit risk of both the borrower and the lender selling the participation.
In the event of insolvency of the lender selling a participation, the Fund may
be treated as a general creditor of such lender, and may not benefit from any
set-off between such lender and the borrower. In the event of bankruptcy or
insolvency of the borrower, the obligation of the borrower to repay the Senior
Loan may be subject to certain defenses that can be asserted by such borrower as
a result of improper conduct of the lender selling the participation. The Fund
will only acquire participations if the lender selling the participations and
any other persons interpositioned between the Fund and the lender are determined
by the Adviser to be creditworthy.
When the Fund is an original lender, it will have a direct contractual
relationship with the borrower. If the terms of an interest in a Senior Loan
provide that the Fund is in privity with the borrower, the Fund has direct
recourse against the borrower in the event the borrower fails to pay scheduled
principal or interest. In all other cases, the Fund looks to the agent to use
appropriate credit remedies against the borrower. When the Fund purchases an
assignment, the Fund typically succeeds to the rights of the assigning lender
under the Senior Loan agreement, and becomes a lender under the Senior Loan
agreement. When the Fund purchases a participation in a Senior Loan, the Fund
typically enters into a contractual arrangement with the lender selling the
participation, and not with the borrower.
Should an agent become insolvent, or enter Federal Deposit Insurance Corporation
("FDIC") receivership or bankruptcy, any interest in the Senior Loan transferred
by such person and any Senior Loan repayment held by the agent for the benefit
of participants may be included in the agent's estate where the Fund acquires a
participation interest from an original lender. Should that original lender
become insolvent, or enter FDIC receivership or bankruptcy, any interest in the
Senior Loan transferred by the original lender may be included in its estate. In
either such event, the Fund might incur certain costs and delays in realizing
payment or may suffer a loss of principal and interest.
21
<PAGE> 28
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following discussion summarizes some of the risks that should be taken into
account when considering an investment in the Fund. For additional information
about the risks associated with the instruments or investment techniques that
may be used by the Fund, see "Additional Information About Investments and
Investment Techniques" in the SAI.
CREDIT RISKS AND REALIZATION OF INVESTMENT OBJECTIVE
Senior Loans, like most other debt obligations, are subject to the risk of
default. While all investments involve some amount of risk, Senior Loans
generally involve less risk than equity instruments of the same issuer because
the payment of principal of and interest on debt instruments is a contractual
obligation of the issuer that, in most instances, takes precedence over the
payment of dividends, or the return of capital, to the issuer's shareholders.
Although the Fund will generally invest in Senior Loans that will be fully
collateralized with assets with a market value that, at the time of acquisition,
equals or exceeds the principal amount of the Senior Loan, the value of the
collateral may decline below the principal amount of the Senior Loan subsequent
to the Fund's investment in such Senior Loan. In addition, to the extent that
collateral consists of stock of the borrower or its subsidiaries or affiliates,
the Fund will be subject to the risk that this stock may decline in value, be
relatively illiquid, or may lose all or substantially all of its value, causing
the Senior Loan to be undercollateralized. Senior Loans are also subject to the
risk of default of scheduled interest or principal payments. In the event of a
failure to pay scheduled interest or principal payments on Senior Loans held by
the Fund, the Fund could experience a reduction in its income, and would
experience a decline in the market value of the particular Senior Loan so
affected, and may experience a decline in the NAV of Fund shares or the amount
of its dividends. The risk of default will increase in the event of an economic
downturn or a substantial increase in interest rates. To the extent that the
Fund's investment is in a Senior Loan acquired from another lender, the Fund may
be subject to certain credit risks with respect to that lender. See "About
Senior Loans." Further, there is no assurance that the liquidation of the
collateral (if any) underlying a Senior Loan would satisfy the issuer's
obligation to the Fund in the event of non-payment of scheduled interest or
principal, or that collateral could be readily liquidated. The risk of
non-payment of interest and principal also applies to other debt instruments in
which the Fund may invest. Because of the protective terms of Senior Loans, the
Adviser believes that the Fund is more likely to recover more of its investment
in a defaulted Senior Loan than would be the case for most other types of
defaulted debt securities. The Fund may invest up to 20% of its total assets in
Senior Loans that are not secured by any collateral, and such Senior Loans
entail greater risk than secured Senior Loans.
The Fund may acquire Senior Loans of borrowers that are experiencing, or are
more likely to experience, financial difficulty, including Senior Loans issued
in highly leveraged transactions. The Fund may even acquire and retain in its
22
<PAGE> 29
portfolio Senior Loans of borrowers that have filed for bankruptcy protection or
that have had involuntary bankruptcy petitions filed against them by creditors.
Because of the protective terms of Senior Loans, the Adviser believes that the
Fund is more likely to recover more of its investment in a defaulted Senior Loan
than would be the case for most other types of defaulted debt securities.
Nevertheless, even in the case of collateralized Senior Loans, there is no
assurance that sale of the collateral would raise enough cash to satisfy the
borrower's payment obligation or that the collateral can or will be liquidated.
In the case of bankruptcy, liquidation may not occur and the court may not give
lenders the full benefit of their senior position. If the terms of a Senior Loan
do not require the borrower to pledge additional collateral in the event of a
decline in the value of the original collateral, the Fund will be exposed to the
risk that the value of the collateral will not at all times equal or exceed the
amount of the borrower's obligations under the Senior Loans. To the extent that
a Senior Loan is collateralized by stock in the borrower or its subsidiaries,
such stock may lose all of its value in the event of bankruptcy of the borrower.
Uncollateralized Senior Loans involve a greater risk of loss.
In the event of the bankruptcy, receivership, or other insolvency proceeding of
a borrower, the Fund could experience delays or limitations with respect to its
ability to collect the principal of and interest on the Senior Loan and with
respect to its ability to realize the benefits of the collateral securing the
Senior Loan, if any. Among the credit risks involved in such a proceeding are
the avoidance of the Senior Loan as a fraudulent conveyance, the restructuring
of the payment obligations under the Senior Loan (including, without limitation,
the reduction of the principal amount, the extension of the maturity, and the
reduction of the interest rate thereof), the avoidance of the pledge of
collateral securing the Senior Loan as a fraudulent conveyance or preferential
transfer, the discharge of the obligation to repay that portion of the Senior
Loan that exceeds the value of the collateral, and the subordination of the
Fund's rights to the rights of other creditors of the borrower under applicable
law. Similar delays or limitations of the Fund's ability to collect the
principal of and interest on the Senior Loan and with respect to its ability to
realize the benefits of the collateral securing the Senior Loan may arise in the
event of the bankruptcy, receivership, or other insolvency proceeding of an
original lender or an agent.
Investment decisions will be based largely on the credit analysis performed by
the Adviser's investment personnel and not on analyses prepared by rating
agencies or other independent parties, and such analysis may be difficult to
perform for many borrowers and issuers. The Adviser may also utilize information
prepared and supplied by the agent or other lenders. Information about interests
in Senior Loans generally will not be in the public domain, and interests are
often not currently rated by any nationally recognized rating service. Many
borrowers have not issued securities to the public and are not subject to
reporting requirements under federal securities laws. Generally, borrowers are
required to provide financial information to lenders, including the Fund, and
information may be available from other Senior Loan participants or agents that
originate or administer Senior Loans. There can be no assurance that the
Adviser's analysis will disclose factors that may impair the
23
<PAGE> 30
value of a Senior Loan. A serious deterioration in the credit quality of a
borrower could cause a permanent decrease in the Fund's net asset value.
There is no minimum rating or other independent evaluation of a borrower or its
securities limiting the Fund's investments. Although a Senior Loan often is not
rated by any rating agency at the time the Fund purchases the Senior Loan,
rating agencies have become more active in rating an increasing number of Senior
Loans and at any given time a substantial portion of the Senior Loans in the
Fund's portfolio may be rated. Although the Adviser may consider such ratings
when evaluating a Senior Loan, it does not view such ratings as a determinative
factor in its investments decisions. The lack of a rating does not necessarily
imply that a Senior Loan is of lesser investment quality. There is no limit on
the percentage of the Fund's assets that may be invested in Senior Loans that
are rated below investment grade or that are unrated but of comparable quality,
and the Fund may invest a substantial portion of its assets in such Senior
Loans. Debt securities rated below investment grade and comparable unrated
securities are viewed by the ratings agencies as speculative and are commonly
known as "junk bonds".
While debt instruments generally are subject to the risk of changes in interest
rates, the interest rates of the Senior Loans in which the Fund will invest will
adjust with a specified interest rate. Thus the risk that changes in interest
rates will affect the market value of such Senior Loans is significantly
decreased, but is not eliminated.
NON-DIVERSIFICATION
The Fund may invest a greater proportion of its assets in the securities of a
small number of issuers than would be required if the Fund were a diversified
investment company. In this regard, the Fund is not subject to the general
limitation that, with respect to 75% of its total assets, it not invest more
than 5% of its total assets in the securities of a single issuer. As a result,
because the Fund is permitted greater flexibility to invest its assets in the
obligations of a single issuer it is exposed to increased risk of loss if such
an investment underperforms expectations. However, the Fund intends to limit its
investments so as to comply with diversification requirements imposed by the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a
"regulated investment company."
LIMITED SECONDARY MARKET FOR SENIOR LOANS
Although it is growing, the secondary market for Senior Loans is currently
limited. There is no organized exchange or board of trade on which Senior Loans
may be traded; instead, the secondary market for Senior Loans is an unregulated
inter-dealer or inter-bank market. Accordingly, some or many of the Senior Loans
in which the Fund invests will be relatively illiquid. This means that the Fund
may not be able to sell its Senior Loans quickly at a fair price. The market for
illiquid securities is more volatile than the market for liquid securities. The
market could be disrupted in the event of an economic
24
<PAGE> 31
downturn or a substantial increase or decrease in interest rates. In addition,
Senior Loans in which the Fund invests generally require the consent of the
borrower prior to sale or assignment. These consent requirements may delay or
impede the Fund's ability to sell Senior Loans. The Fund may have difficulty
disposing of its Senior Loans if it needs cash to repay debt, to pay dividends,
to pay expenses or to take advantage of new investment opportunities.
Limitations of a secondary market may result in difficulty raising cash to
purchase shares tendered pursuant to a repurchase offer. These events may cause
the Fund to sell securities at lower prices than it would otherwise consider to
meet cash needs and may cause the Fund to maintain a greater portion of its
assets in cash or cash equivalents than it would otherwise, which could
negatively impact performance. If the Fund purchases a relatively large Senior
Loan to generate income, the limitations of the secondary market may inhibit the
Fund from selling a portion of the Senior Loan and reducing its exposure to the
borrower when the Adviser deems it advisable to do so.
In addition, because the secondary market for Senior Loans may be limited, it
may be difficult to value Senior Loans. Market quotations may not be available
and valuation may require more research than for liquid securities. In addition,
elements of judgment may play a greater role in the valuation, because there is
less reliable, objective data available. To the extent that a secondary market
does exist for Senior Loans, the market may be subject to irregular trading
activity, wide bid/ask spreads, and extended trade settlement periods.
The Fund has no limitation on the amount of its assets that may be invested in
securities that are not readily marketable or that are subject to restrictions
on resale.
DEMAND FOR SENIOR LOANS
Although the volume of Senior Loans has increased in recent years, demand for
Senior Loans has also grown. An increase in demand may benefit the Fund by
providing increased liquidity for Senior Loans, but may also adversely affect
the rate of interest payable on Senior Loans acquired by the Fund and the rights
provided to the Fund under the terms of the Senior Loan. Senior Loans are not
listed on any national securities exchange or automated quotation system and no
active trading market exists for many Senior Loans. As a result, many Senior
Loans are illiquid, meaning that the Fund may not be able to sell them quickly
at a fair price. The market for illiquid securities is more volatile than the
market for liquid securities. However, many Senior Loans are of a large
principal amount and are held by a large number of owners. In the Adviser's
judgment, this should enhance their liquidity.
NO TRADING MARKET FOR SHARES
The Fund is a closed-end investment company designed primarily for long-term
investors and not as a trading vehicle. The Fund does not intend to list the
shares for trading on any national securities exchange. There is no secondary
trading market for Fund shares. The Fund's \shares are therefore not readily
25
<PAGE> 32
marketable. The Fund, as a fundamental policy, will make quarterly repurchases
for 5% to 25% of its outstanding common shares at net asset value. See
"Repurchase of Shares" below for more information. However, the Fund's shares
are less liquid than shares of funds that trade on a stock exchange, and
shareholders who tender Fund shares held for less than four years will pay an
EWC. See "Offers of Shares." In addition, there is no guarantee that
shareholders will be able to sell all of their Fund shares that they desire to
sell.
OFFERING OF SHARES
CLASS B SHARES
During the Initial Offering Period, the Fund will offer Class B shares at a
price of $5.00 per share. Thereafter, the Fund intends to engage in a continuous
public offering of its Class B shares at net asset value per share. Class B
shares are not subject to a front-end sales charge, but incur a declining early
withdrawal charge ("EWC") if the shares are repurchased by the Fund within four
years of purchase. Specifically, if repurchased during the first year after
purchase, the EWC is 3.0%; if repurchased during the second year after purchase,
the EWC is 2.5%; if repurchased during the third year after purchase, the EWC is
2.0%; if repurchased during the fourth year after purchase, the EWC is 1.0%.
Repurchases thereafter do not incur an EWC.
The EWC 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 repurchased; (b) in the event of the death of the shareholder
(including a registered joint owner); (c) for repurchases in a calendar year
that do not exceed 10% of the net asset value of a shareholder's account,
provided such shareholder participates in the Fund's dividend reinvestment
program; (d) for repurchases 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 repurchases 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 EWC will also be waived in connection with the following
repurchases of shares held by employer sponsored employee benefit plans
maintained on the subaccount recordkeeping system made available by Kemper
Service Company (the "Shareholder Service Agent") or its affiliate: (a)
repurchases to satisfy participant loan advances (note that loan repayments
constitute new purchases for purposes of the EWC and the conversion privilege);
(b) repurchases in connection with retirement distributions (limited at any one
time to 10% of the total value of plan assets invested the Fund); (c)
repurchases in connection with distributions qualifying under the hardship
provisions of the Code; and (d) repurchases representing returns of excess
contributions to such plans.
The following example will illustrate the operation of the EWC (assuming no
waiver is applicable). Assume that an investor makes a single purchase of
26
<PAGE> 33
$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 then
submitted for repurchase, and the Fund accepted for repurchase, the entire
$12,000 in share value, the EWC 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 2.5%
($250) because it was in the second year after the purchase was made.
The rate of the EWC 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 1999 will be eligible
for the second year's charge if repurchased on or after December 1, 2000. In the
event no specific order is requested when shares subject to an EWC are
repurchased, the repurchase will be made first from shares representing
reinvested dividends and then from the earliest purchase of shares. The
Distributor receives any EWC directly.
AUTOMATIC CONVERSION FEATURE
Class B shares will automatically convert to Class A shares six years after the
end of the calendar month in which the shareholder's order to purchase was
accepted and after that date will no longer be subject to the distribution fees
applicable to Class B shares. Conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales charge, fee or
other charge. The purpose of the conversion feature is to relieve the holders of
Class B shares from the asset based distribution expenses applicable to such
shares at such time as the Class B shares have been outstanding for a duration
sufficient for the Distributor to have been substantially compensated for
distribution-related expenses incurred in connection with those shares.
For purposes of the conversion of Class B shares to Class A shares, shares
purchased through the reinvestment of dividends and distributions paid on Class
B shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A shares, a pro rata portion of
the Class B shares in the sub-account will also convert to Class A shares.
DISTRIBUTION ARRANGEMENTS
The Fund has entered into an Underwriting and Distribution Services Agreement
with the Distributor (the "Distribution Agreement"), which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
summary of the Distribution Agreement contained herein is qualified by reference
to the Distribution Agreement. Subject to the terms and conditions of the
Distribution Agreement, the Fund may issue and sell shares of the Fund from time
to time through the Distributor, which is the principal underwriter of
27
<PAGE> 34
the shares, and through certain broker-dealers and other financial services
firms which have entered into dealer agreements with the Distributor ("firms").
The Class B shares will be offered on a continuous basis, at net asset value per
share after the Initial Offering Period. Shareholders will have the option of
submitting shares for repurchase quarterly, subject to the terms and conditions
described below under "Repurchase Offers."
Class B shares of the Fund are being offered during an initial period scheduled
to end on May 25, 1999 on a best efforts basis through the Distributor, subject
to the terms and conditions of the Distribution Agreement (the "Initial Offering
Period"). The Initial Offering Period is subject to adjustment by agreement
between the Fund and the Distributor.
All subscriptions received by the firms during the Initial Offering Period will
be forwarded to the Fund on the expiration date of the Initial Offering Period,
and Class B shares will be issued subject to settlement of those trades. The
Distributor will not accept subscriptions from investors other than the firms
prior to the expiration of the Initial Offering Period. To the extent that
investors make payment to the firms prior to the expiration of the Initial
Offering Period, the firms may benefit from the temporary use of the funds.
The Distributor is the principal underwriter and distributor of the Fund's
shares and acts as agent of the Fund in the continuous offering of the Fund's
shares. The Fund and the Distributor reserve the right to withdraw, cancel or
modify the offering of shares during the Initial Offering Period without notice
and the Fund reserves the right to refuse any order for shares in whole or in
part.
The Distributor will compensate firms participating in the Initial Offering
Period at a rate of 4.0% of the aggregate sales price of the shares purchased
from the Fund by or through such firms ("Sales Price"). Firms that submit orders
for shares after the expiration of the Initial Offering Period will be
compensated at a rate of 3.0% of the Sales Price.
In addition, the Distributor may, from time to time, pay or allow to firms a 1%
commission on the amount of shares of the Fund sold under the following
conditions: (i) the purchased shares are held in a Kemper IRA account; (ii) the
shares are purchased as a direct "roll over" of a distribution from a qualified
retirement plan account maintained on a participant subaccount record keeping
system provided by Kemper Service Company; (iii) the registered representative
placing the trade is a member of a group of persons designated by the
Distributor 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, the Distributor
may, during the Initial Offering Period and from time to time, pay or allow
additional discounts, commissions or promotional incentives, in the form of cash
compensation, to firms that sell shares of the Fund. In some instances, such
discounts, commissions or other incentives will be offered only to certain firms
that sell or are expected to sell during specified time periods certain
28
<PAGE> 35
minimum amounts of shares of the Fund, or other funds underwritten by the
Distributor.
After the expiration of the Initial Offering Period, Class B shares will be sold
in a continuous offering through the Distributor and the firms at the public
offering price, which will be the net asset value per share next determined
after receipt of an order by the Distributor.
Settlements of sales of shares will normally occur on the third business day
following the date on which any such sales are made.
The Fund anticipates that from time to time certain of the firms may act as
brokers or dealers in connection with the execution of its portfolio
transactions.
In connection with the sale of the shares on behalf of the Fund, the Distributor
may be deemed to be an underwriter within the meaning of the Securities Act of
1933.
Shares may be purchased with a minimum investment of $1,000 (or $250 in the case
of qualified plans or Individual Retirement Accounts). Additional shares may be
purchased for a minimum investment of $100 (or $50 in the case of qualified
plans or Individual Retirement Accounts). 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 the Fund'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.
Delays may be experienced in the share repurchase procedure, described below, 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).
Brokers, banks and other financial service providers may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and the Distributor may pay them a
transaction fee up to the level of the discount or commission allowable or
payable to the firms, as described above. Banks are currently prohibited under
the Glass-Steagall Act from providing certain underwriting or distribution
services. Brokers, banks or other financial service providers 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. The Distributor does
not believe that termination of a relationship with a bank would result in any
material adverse consequences to the Fund.
After the Initial Offering Period, orders for the purchase of shares will be
confirmed at a price based on the net asset value per share of the Fund next
29
<PAGE> 36
determined after receipt in good order by the Distributor of the order
accompanied by payment. However, orders received by firms prior to the
determination of net asset value and received in good order by the Distributor
prior to the close of its business day will be confirmed at a price based on the
net asset value per share effective on that day. The Fund reserves the right to
determine its net asset value more frequently than once a day if deemed
desirable. 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.
Firms provide varying arrangements for their clients to purchase and submit to
the Fund for repurchase the Fund's shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Distributor or Shareholder Service Agent for
recordkeeping and other expenses relating to these nominee accounts. In
addition, certain privileges with respect to the purchase and repurchase 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 or 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 the Distributor, may receive compensation from the Fund
through the Shareholder Service Agent for these services. This Prospectus should
be read in connection with such firms' materials regarding their fees and
services.
The Fund reserves the right to withdraw all or any part of the offering made by
this Prospectus and to reject purchase orders for any reason. Also, from time to
time, the Fund may temporarily suspend the offering of any class of its shares.
During the period of such suspension, persons who are already shareholders of
the Fund normally are permitted to continue to purchase additional shares of the
Fund and to have dividends reinvested.
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.
30
<PAGE> 37
The Distributor is headquartered at 222 South Riverside Plaza, Chicago, IL
60606.
DISTRIBUTION EXPENSES
Pursuant to the Distribution Agreement, the Distributor bears all of its
expenses of providing services pursuant to the Distribution Agreement, including
the payment of any commissions. The Distributor provides for the preparation of
advertising or sales literature and bears the cost of printing and mailing
prospectuses to persons other than existing shareholders. The Fund bears the
cost of printing and mailing prospectuses and reports to existing shareholders.
The Distributor bears the cost of qualifying and maintaining the qualification
of Fund shares for sale under the securities laws of the various states and the
Fund bears the expense of registering its shares with the Commission. The
Distributor may enter into related selling group agreements with various
broker-dealers, including affiliates of the Distributor, that provide
distribution services to investors. The Distributor also may provide some of the
distribution services.
A distribution plan has been adopted by the Fund with respect to the Class B
shares that complies with the terms of Rule 12b-1 under the 1940 Act (the
"Plan"). The Plan provides for fees payable as an expense of the Class B shares,
that are used by the Distributor to pay for distribution services for that
class. The Plan is approved and reviewed in accordance with Rule 12b-1 under the
1940 Act, which regulates the manner in which an open-end investment company
may, directly or indirectly, bear the expenses of distributing its shares.
Although the Fund is not an open-end investment company, it has undertaken to
comply with the terms of Rule 12b-1 pursuant to exemptive relief applied for
under the 1940 Act.
For its services under the Plan, the Distributor receives a fee from the Fund,
payable monthly, at the annual rate of 0.60% of average daily net assets of the
Fund attributable to the Class B shares. This fee is accrued daily as an expense
of the Class B shares. The Distributor also receives any EWC, as discussed
above.
Under the Plan, the Distributor may compensate various financial services firms
for sales of Fund shares and may pay other commissions, fees and concessions to
such firms. The distribution fee compensates the Distributor for expenses
incurred in connection with activities primarily intended to result in the sale
of the Fund's Class B shares, including the payment of compensation to firms,
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, the Plan provides that the Distributor will prepare reports
for the Board of Trustees on a quarterly basis showing amounts paid to the
various financial services firms firms and such other information as the Board
may reasonably request. The Plan will continue in effect indefinitely, provided
that such continuance is approved at least annually by vote of a majority of the
Board of Trustees, and a majority of the Trustees who are not "interested
31
<PAGE> 38
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 Class B shares.
Any material amendment to the Plan must be approved by vote of a majority of the
Board of Trustees, and of the Qualified Board Members. An amendment to the Plan
to increase materially the amount to be paid to the Distributor by the Fund for
distribution services must be approved by a majority of the outstanding Class B
shares. While the Plan is in effect, the selection and nomination of Trustees
who are not "interested persons" of the Fund shall be committed to the
discretion of the Trustees who are not themselves "interested persons" of the
Fund.
If the Plan is terminated in accordance with its terms, the obligation of the
Fund to make payments to the Distributor pursuant to the 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 the
Distributor in excess of its fees under the Plan, if for any reason the Plan is
terminated in accordance with its terms. Future fees under the Plan may or may
not be sufficient to reimburse the Distributor for its expenses incurred.
TAX IDENTIFICATION NUMBER
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and repurchases
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
repurchase by providing the Fund with a tax identification number during the
30-day notice period. Shareholders should direct their inquiries to Kemper
Service Company, 811 Main Street, Kansas City, Missouri 64105-2005 or to the
firm from which they received this Prospectus.
REPURCHASE OF SHARES
In order to provide shareholders with liquidity and the ability to receive net
asset value on a disposition of shares, the Fund, pursuant to a fundamental
policy that may only be changed upon approval of the Fund's shareholders, will
make quarterly offers to repurchase a percentage of its outstanding shares at
net asset value (each, a "Repurchase Offer"). The first Repurchase Offer will
commence in November 1999. Because the Fund is a closed-end investment company,
shareholders will not be able to redeem their shares on a daily basis.
32
<PAGE> 39
As explained in more detail below, it is anticipated that each quarterly
"Repurchase Request Deadline" will be 5:00 p.m. Central time on the 10th
business day in the months February, May, August and November. The Fund may
determine the net asset value applicable to repurchases no later than the 14th
calendar day (or, if not a business day, the next business day) after the
Repurchase Request Deadline (the "Pricing Date"). The Fund will distribute
payment to shareholders on or before the "Repurchase Payment Deadline", which
will be no later than seven calendar days after Pricing Date. Shareholders of
record of the Fund will be sent notification of each Repurchase Offer 21 to 42
days prior to the Repurchase Request Deadline with respect to such Repurchase
Offer. It is unlikely that a secondary market for the Fund's shares will
develop, and neither the Distributor nor the selected dealers will engage in any
efforts to develop a secondary market.
REPURCHASE AMOUNT
Each quarter, the Fund's Board of Trustees will determine the percentage of
shares to be repurchased ("Repurchase Amount"). The Repurchase Amount may vary
from 5% to 25% of shares outstanding on the Repurchase Request Deadline. The
Fund also may offer to repurchase its shares on a discretionary basis, not
pursuant to its fundamental policy, not more frequently than once every two
years, or more frequently if an exemption is obtained from this limitation.
There is no minimum number of shares that must be tendered before the Fund will
honor repurchase requests. In other words, if, in the aggregate, only one share
is tendered in a given quarter, the Fund must repurchase it. However, there is a
maximum Repurchase Amount, so shareholders should be aware of the risk that the
Fund may not be able to repurchase all shares tendered in any given quarter. See
"Oversubscribed Repurchase Offers; Pro Rata Allocation."
REPURCHASE REQUESTS
Shareholders of record will be sent a Notification of Repurchase Offer
("Notification") 21 to 42 days before the next Repurchase Request Deadline. The
Notification will provide information about the Repurchase Offer, including the
Repurchase Amount, the Repurchase Request Deadline, the manner of submitting a
Repurchase Request, and the means by which shareholders may obtain the Fund's
net asset value. It is anticipated that each Repurchase Request Deadline will be
5:00 p.m. Central time on the 10th business day in the months of February, May,
August and November.
Shareholders who wish to tender shares for repurchase must notify the Fund on or
before the Repurchase Request Deadline in the manner designated by the Fund in
the Notification. THE REPURCHASE REQUEST DEADLINE IS A DEADLINE THAT WILL BE
STRICTLY OBSERVED. Repurchase Requests may not be revoked after the Repurchase
Request Deadline. Shareholders that fail to submit Repurchase Requests in good
order by this deadline will be unable to liquidate shares until a subsequent
Repurchase Offer.
33
<PAGE> 40
A shareholder may tender all or a portion of his or her holdings (although the
Fund may not be able to repurchase the shareholder's entire tender if aggregate
tenders exceed the Repurchase Amount (as discussed further below)). However, a
shareholder's tax results may differ depending on whether the shareholder has
tendered all or only a portion of his or her shares. See "Tax Matters."
DETERMINATION OF REPURCHASE PRICE
The Fund will establish the Repurchase Price at a share's net asset value on the
Pricing Date. The Fund will compute net asset value daily (as described under
"Net Asset Value" in the SAI), and shareholders may obtain daily net asset
values by calling 800-621-1048.
The Fund does not presently intend to deduct any repurchase fees from repurchase
proceeds (other than any applicable EWC). However, in the future, the Board of
Trustees may determine to charge a repurchase fee payable to the Fund to
compensate the Fund for its reasonable expenses directly related to the
repurchase. These fees could be used to compensate the Fund for, among other
things, its costs incurred in disposing of securities or in borrowing in order
to make payment for repurchased shares. Any repurchase fee will not exceed two
percent of the proceeds of the repurchase, unless permitted by applicable
regulation or exemption therefrom, and will be charged to all repurchased shares
on a pro rata basis. The Board may implement repurchase fees without a
shareholder vote.
PAYMENT
The Fund expects to distribute payment no later than seven calendar days after
the Pricing Date. Repurchase proceeds will be paid by wire transfer or check.
EARLY WITHDRAWAL
Repurchases of Class B shares are subject to an EWC of 3.0% during the first
year after purchase, 2.5% during the second year, 2.0% during the year, and 1.0%
during the fourth year.
OVERSUBSCRIBED REPURCHASE OFFERS; PRO RATA ALLOCATION
In any given quarter shareholders may tender a number of shares that exceeds the
Repurchase Offer Amount (this Prospectus refers to this situation as an
"Oversubscribed Repurchase Offer"). In the event of an Oversubscribed Repurchase
Offer, the Fund may, but is not required to, repurchase additional shares up to
a maximum aggregate of two percent of the shares outstanding on the Repurchase
Request Deadline ("Additional Repurchase Amount"). If the Fund determines not to
repurchase the Additional Repurchase Amount, or if shareholders tender an amount
exceeding the Repurchase Offer Amount, the Fund will repurchase the shares on a
pro rata basis.
34
<PAGE> 41
In the event of an Oversubscribed Repurchase Offer, shareholders may be unable
to liquidate some or all of their Fund shares during that quarterly Repurchase
Offer. A shareholder may have to wait until a later quarter to tender shares
that the Fund is unable to repurchase, and would be subject to the risk of net
asset value fluctuations during this time period.
ADOPTION OF REPURCHASE POLICY
The Board has adopted a resolution setting forth the Fund's fundamental policy
to conduct Repurchase Offers ("Repurchase Policy"). The Repurchase Policy may be
changed only by a majority vote of the Fund's outstanding voting securities, as
defined in the 1940 Act. The Repurchase Policy states that the Fund will make
Repurchase Offers at periodic intervals of three months between Repurchase
Request Deadlines, such Repurchase Request Deadlines to be on a business day and
time in the months of February, May, August and November to be determined by the
Board. The Repurchase Policy also provides that the Pricing Date will be no
later than 14 calendar days after each Repurchase Request Deadline (or the next
business day if the 14th calendar day is not a business day).
LIQUIDITY REQUIREMENTS
The Fund must maintain liquid assets equal to the Repurchase Offer Amount from
the time that the Notification is sent to shareholders until the Repurchase
Date. In connection with this requirement, the Fund will maintain a percentage
of its net assets equal to at least 100 percent of the Repurchase Amount in
assets: (a) that can be sold or disposed of in the ordinary course of business
at approximately the price at which the Fund has valued the asset within the
time period between the Repurchase Request Deadline and the Repurchase Payment
Deadline; or (b) that mature by the Repurchase Payment Deadline.
If, at any time, the Fund falls out of compliance with these liquidity
requirements, the Board will take whatever action it deems appropriate to ensure
compliance.
The Fund intends to finance Repurchase Offers with cash on hand, cash raised
through borrowings, or the liquidation of portfolio securities. There is some
risk that the need to sell Senior Loans to fund Repurchase Offers may affect the
market for those Senior Loans. In turn, this could diminish the Fund's net asset
value.
SUSPENSION OR POSTPONEMENT OF A REPURCHASE OFFER
The Fund may suspend or postpone a Repurchase Offer in limited circumstances,
and only by vote of a majority of the Board of Trustees, including a majority of
the Fund's Trustees who are not interested persons of the Fund. These
circumstances include the following:
(a) if the repurchase would cause the Fund to lose its status as a regulated
investment company under Subchapter M of the Code;
35
<PAGE> 42
(b) for any period during which an emergency exists as a result of which it is
not reasonably practicable for the Fund to dispose of securities it owns or
to determine the value of the Fund's net assets; or
(c) for any other periods that the Commission permits by order for the
protection of shareholders.
In addition, although the Fund currently does not intend to list its shares on a
national securities exchange or provide for share quotations on an inter-dealer
quotation system of a national securities association (e.g., Nasdaq), if it does
so in the future, the Fund may suspend or postpone a Repurchase Offer in the
event that:
(a) the repurchase would cause the shares to lose their status on such exchange
or inter-dealer quotation system; or
(b) during any period in which any market on which the shares are principally
traded is closed, or during any period in which trading on the market is
restricted.
CONSEQUENCES OF REPURCHASE OFFERS
Although the Board believes that Repurchase Offers generally will be beneficial
to the Fund's shareholders, repurchases will decrease the Fund's total assets
and therefore have the possible effect of increasing the Fund's expense ratio.
Furthermore, if the Fund borrows to finance repurchases, interest on that
borrowing may reduce the Fund's net investment income. The Fund intends to offer
new shares continuously after the expiration of the Initial Offering Period,
which may alleviate these potential consequences, although there is no assurance
that the Fund will be able to secure new investments.
Repurchase Offers provide shareholders with the opportunity to dispose of shares
at net asset value. The Fund does not anticipate that a secondary market will
develop, but in the event that a secondary market were to develop, it is
possible that shares would trade in that market at a discount to net asset
value. The existence of periodic Repurchase Offers at net asset value may not
alleviate such a discount.
GENERAL
The Fund will mail a Notification to shareholders of record in connection with
each quarterly Repurchase Offer. Any shareholder of record may request that the
Fund repurchase his or her shares pursuant to the terms and conditions described
above. When shares are held for the account of a shareholder by the Fund's
transfer agent, the shareholder may submit such shares for repurchase 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 repurchase. Repurchase requests and a stock
power must be endorsed by the account
36
<PAGE> 43
holder with signatures guaranteed by a commercial bank, trust company, savings
and loan association, federal savings bank, member firm of a national securities
exchange or other eligible financial institution. The repurchase 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.
If the proceeds of the repurchase (prior to the imposition of any EWC) are
$50,000 or less and the proceeds are payable to the shareholder of record at the
address of record, normally a written request by any one account holder without
a signature guarantee is sufficient for repurchases 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 feature of
tendering shares for repurchase by written request without signature guarantee
subject to the same conditions as individual account holders and subject to the
limitation on liability described below, provided that this privilege has been
pre-authorized by the institutional account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. This privilege of
tendering shares for repurchase by written request without a signature guarantee
may not be used if the shareholder's account has had an address change within 30
days of the request.
If the account holder has given authorization, proceeds of repurchases can be
sent by federal wire transfer to a single previously designated account. Once
authorization is on file, shares may be tendered for repurchase without
signature guarantee subject to the limitation on liability described below. 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 repurchase minimum. To change the designated account to receive wire
repurchase 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. The Fund reserves the right to terminate or
modify this privilege at any time.
The Fund or its agents may be liable for any losses, expenses or costs arising
out of fraudulent or unauthorized requests pursuant to the pre-authorized
privilege for institutional account holders to tender shares for redemption in
writing without signature guarantee and the pre-authorized privilege of sending
proceeds of repurchases by federal wire transfer unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
written instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as
37
<PAGE> 44
reasonable verification procedures are followed. Verification procedures include
requiring certain identifying information before acting upon instructions and
sending written confirmations.
When the Fund is asked to repurchase 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 repurchase 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.
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 recordkeeping system made available through the Shareholder
Service Agent.
38
<PAGE> 45
SPECIAL FEATURES
EXCHANGES
In conjunction with each quarterly Repurchase Offer and subject to terms and
conditions of such Offers, Class B shares of the Fund may be exchanged for the
Class B shares of any of the following funds at their relative net asset values:
Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper
Small Capitalization Equity Fund, Kemper Income and Capital Preservation Fund,
Kemper Municipal Bond Fund, Kemper Diversified Income Fund, Kemper High Yield
Series, Kemper U.S. Government Securities Fund, Kemper International Fund,
Kemper State Tax-Free Income Series, Kemper Short-Term U.S. Government Fund,
Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper Intermediate Municipal
Bond Fund, Kemper Cash Reserves Fund, Kemper U.S. Mortgage 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 and Kemper
High Yield Fund II ("Kemper Funds"). Class B shares of the Fund may be exchanged
without an EWC being imposed at the time of exchange. For purposes of
calculating the EWC that may be imposed upon the redemption of the Class B
shares of a Kemper Fund received in an exchange, the shares received in the
exchange will retain the original cost and purchase date of the Class B shares
of the Fund originally purchased by the investor, but the contingent deferred
sales charge ("CDSC") schedule of the Kemper Fund shares received in the
exchange will be applicable. Accordingly, you may pay a higher CDSC upon
redemption of Kemper Fund Class B shares received in an exchange than you would
have if you had held the Class B shares of the Fund for the same period of time
and then submitted those shares to the Fund for repurchase. You should consult
the prospectus of the applicable Kemper Fund before exchanging into a Kemper
Fund. Exchanges into the Fund from the Kemper Funds are not permitted.
Therefore, shareholders who exchange Fund shares for shares of other Kemper
Funds will not be able to exchange those shares back into shares of the Fund.
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 Kemper 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 Kemper Fund. In particular, a pattern of exchanges
that coincides with a "market timing" strategy may be disruptive to a 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
39
<PAGE> 46
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 net asset 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 repurchase of shares of the Fund held and purchase
of shares of the Kemper Fund at net asset value of the Kemper Fund with the
proceeds on the Repurchase Payment Date. 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 Kemper Funds from dealers, other firms or the Distributor. Exchanges may
be accomplished by a designation on the Fund's quarterly repurchase request
form. Any share certificates must be deposited prior to any exchange of such
shares. 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.
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.
40
<PAGE> 47
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.
TAX-SHELTERED RETIREMENT PLANS
The Shareholder Service Agent provides retirement plan services and documents
and the Distributor can establish investor accounts in any of the following
types of retirement plans:
- - Traditional, Roth and Education Individual Retirement Accounts ("IRAs"). This
includes Simplified Employee Pension Plan ("SEP") IRA accounts and prototype
documents.
- - 403(b)(7) Custodial Accounts. This type of plan is available to employees of
most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from the Shareholder Service Agent upon request. Investors
should consult with their own tax advisers before establishing a retirement
plan.
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
41
<PAGE> 48
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. Of course, withdrawals with respect to investments in the Fund may only be
effected pursuant to the Fund's quarterly repurchase feature.
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. 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.
42
<PAGE> 49
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.
The illiquid nature of the shares of the Fund may affect the nature and timing
of distributions from tax sheltered retirement plans, including the ability to
meet minimum distribution requirements, and may affect the ability of
participants in such plans to rollover assets to other tax sheltered retirement
plans.
Shareholders should consult their tax advisers about the application of the
provisions of tax law in light of their particular tax situations.
DESCRIPTION OF THE FUND
The Fund was organized as a Massachusetts business trust on March 23, 1999, and
is registered with the Commission as a closed-end management investment company.
The Fund's Declaration of Trust, a copy of which is on file in the
43
<PAGE> 50
office of the Secretary of State of the State of Massachusetts and which is
included in the Fund's registration statement of which this Prospectus is a
part, authorizes the issuance of an unlimited number of shares of beneficial
interest without par value. The Declaration of Trust provides that the Trustees
may authorize separate classes of shares of beneficial interest and may
establish separate series of shares, all without shareholder vote.
Under Massachusetts law, shareholders of a Massachusetts business trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the Fund. The Declaration of Trust contains an express disclaimer
of shareholder liability in connection with the Fund's property or the acts,
obligations or affairs of the Fund. The Declaration of Trust also provides for
indemnification out of the Fund's property of any shareholder held personally
liable for the claims and liabilities to which a shareholder may become subject
by reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
DIVIDENDS, VOTING AND LIQUIDATION RIGHTS
Each common share of beneficial interest of the Fund has one vote and shares
equally in dividends and distributions when and if declared by the Fund and in
the Fund's net assets upon liquidation. All shares, when issued, are fully paid
and are non-assessable by the Fund. There are no preemptive or conversion rights
applicable to any of the common shares. Fund shares do not have cumulative
voting rights and, as such, holders of more than 50% of the shares voting for
trustees can elect all trustees and the remaining shareholders would not be able
to elect any Trustees. The Fund does not intend to hold annual meetings of
shareholders.
STATUS OF SHARES
The Board of Trustees may classify or reclassify any issued or unissued shares
of the Fund into shares of any series by redesignating such shares or by setting
or changing in any one or more respects, from time to time, prior to the
issuance of such shares, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of repurchase of such shares. Any such classification or
reclassification will comply with the provisions of the 1940 Act.
44
<PAGE> 51
The following table sets forth information about the Fund's Class B shares, as
of the date of this Prospectus. As of that date Class B shares are the only
shares authorized and issued by the Fund.
<TABLE>
<CAPTION>
(1) (2) (4)
(3) AMOUNT OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF
REGISTRANT OR FOR ITS AMOUNT SHOWN
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT UNDER (3)
-------------- ----------------- --------------------- ------------------
<S> <C> <C> <C>
Class B shares None Shares*
</TABLE>
- ---------------
* Held by Scudder Kemper Investments, Inc.
FUNDAMENTAL AND NON-FUNDAMENTAL POLICIES OF THE FUND
Certain policies of the Fund specified herein as "fundamental" and the
investment restrictions of the Fund designated as fundamental as described in
the SAI are fundamental policies of the Fund and may not be changed without a
"Majority Vote" of the shareholders of the Fund. The term "Majority Vote" means
the affirmative vote of (a) more than 50% of the outstanding shares of the Fund
or (b) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy, whichever is less. All other policies of the Fund, including the Fund's
investment objective, may be modified by resolution of the Board of Trustees of
the Fund.
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
The Fund's Declaration of Trust includes provisions that could have the effect
of limiting the ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board of Trustees by discouraging a
third party from seeking to obtain control of the Fund. In addition, in the
event a secondary market were to develop in the shares, such provisions could
have the effect of depriving holders of shares of an opportunity to sell their
shares at a premium over prevailing market prices.
The Declaration of Trust requires the favorable vote of the holders of at least
two-thirds of the outstanding common shares of beneficial interest of the Fund
then entitled to vote to approve, adopt or authorize certain transactions with
5%-or-greater holders of the common shares (a "Principal Shareholder") and their
associates, unless the Board of Trustees shall by resolution have approved a
memorandum of understanding with such holders, in which case normal voting
requirements would be in effect. For purposes of these provisions, a Principal
Shareholder refers to any person who, whether directly or indirectly and whether
alone or together with its affiliates and associates, beneficially owns 5% or
more of the outstanding common shares of beneficial interest of the Fund. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the Fund to any
Principal Shareholder for cash; (iii) the sale, lease or exchange of all or
45
<PAGE> 52
any substantial part of the assets of the Fund to any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period);
or (iv) the sale, lease or exchange to the Fund or any subsidiary thereof, in
exchange for securities of the Fund, of any assets of any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purposes of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period).
A Trustee may be removed from office without cause by a written instrument
signed by at least two-thirds of the remaining trustees or by a vote of the
holders of at least two-thirds of the Fund's common shares of beneficial
interest.
Conversion of the Fund from a "closed-end company" to an "open-end company"
under the 1940 Act will require the vote of the holders of two-thirds of the
common shares outstanding. However, if such conversion is unanimously
recommended by the Trustees, the Majority Vote of the shareholders of the Fund
will be sufficient to authorize conversion.
Such votes by the holders of the Fund's common shares will be in addition to any
other vote required by law or pursuant to the terms of any preferred shares of
the Fund that may be issued and outstanding.
The Board of Trustees has determined that the voting requirements described
above, which, in some cases, are greater than the minimum requirements under
Massachusetts law or the 1940 Act, are in the best interests of shareholders
generally. Reference should be made to the Declaration of Trust on file with the
Commission for the full text of these provisions.
46
<PAGE> 53
INVESTMENT MANAGEMENT AND OTHER SERVICES
ADVISER
Scudder Kemper Investments, Inc. is the Fund's investment adviser. The principal
address of the Adviser is 345 Park Avenue, New York, NY 10154-0010. The Adviser,
a subsidiary of Zurich Financial Services, is one of the largest and most
experienced investment counsel firms in the United States. Zurich Financial
Services is a financial services holding company incorporated in Switzerland and
owned 57% by Zurich Allied AG and 43% by Allied Zurich p.l.c. The Adviser has
served as investment manager to the Fund since its inception. As of December 31,
1998, the Adviser had more than $281.1 billion in assets under management. The
Trustees have overall responsibility for the Fund under Massachusetts law.
The Fund's portfolio is managed by a portfolio management team consisting of
Jonathan Trutter and Mark Wittnebel. Mr. Trutter is a Senior Vice President and
director of the Bank Loan Department of the Adviser and has been with the
Adviser since 1989. Mr. Wittnebel is a Senior Vice President in the Bank Loan
Department of the Adviser and has been with the Adviser since 1989. Messrs.
Trutter and Wittnebel have been co-managers of the Fund since its inception.
INVESTMENT MANAGEMENT AGREEMENT
The Investment Management Agreement (the "Management Agreement") with the
Adviser, dated March 31, 1999, provides that the Adviser acts as investment
adviser, manages the Fund's investments, administers the Fund's business
affairs, furnishes offices, necessary facilities and equipment, provides
clerical, bookkeeping and administrative services, provides shareholder and
information services and permits any of its officers or employees to serve
without compensation as Trustees or officers of the Fund if duly elected to such
positions. Under the Management Agreement, the Fund is responsible for all of
its expenses, including fees and expenses incurred in connection with its
organization and initial offering, which will be charged as an operating expense
of the Fund; fees and expenses incurred in connection with membership in
investment company organizations; fees and expenses of the Fund's accounting
agent; brokers' commissions; legal, auditing and accounting expenses; taxes and
governmental fees; the fees and expenses of the transfer agent; the expenses of
and the fees for registering and qualifying securities for sale; the fees and
expenses of Trustees, officers and employees of the Fund who are not affiliated
with the Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians.
For its investment management services, the Fund pays the Adviser an investment
management fee, payable monthly, at the annual rate, expressed as a percentage
of average daily net assets, of 0.50% of the first $1 billion of average daily
net assets, 0.49% of the next $2 billion, 0.48% of the next $2 billion, 0.47% of
the next $5 billion, and 0.45% of average daily net assets over
47
<PAGE> 54
$10 billion. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid.
The Management Agreement provides that the Adviser 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 Management 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 obligations and duties or by reason of its
reckless disregard of its obligations and duties under the Management Agreement.
CUSTODIAN
The Fund's securities and cash are held under a custodian agreement by State
Street Bank and Trust Company, whose principal place of business is 225 Franklin
Street, Boston, Massachusetts 02110.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Kemper Service Company ("KSvC"), an affiliate of the Adviser, serves as transfer
agent, registrar and dividend disbursing agent for the Fund's shares. KSvC also
serves as Shareholder Service Agent for the Fund.
FUND ACCOUNTING AGENT
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund.
ADMINISTRATIVE SERVICES
The Distributor provides information and administrative services for
shareholders of the Fund pursuant to an Administrative Services Agreement with
the Fund (the "Administrative Services Agreement"). The Distributor may enter
into related arrangements with broker-dealer firms or other service or
administrative firms ("service firms"), that provide services and facilities for
their customers or clients who are investors in the Fund. Such administrative
services and assistance may include, but are not limited to, establishing and
maintaining shareholder accounts and records, processing purchase and repurchase
transactions, answering routine inquiries regarding the Fund and its special
features, and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. The Distributor bears all
of its expenses of providing services pursuant to the Administrative Services
Agreement, including the payment of any service fees. For services under the
Administrative Services Agreement, the Fund pays the Distributor a fee, payable
monthly, at the annual rate of up to 0.25% of average daily net assets of the
Fund. The Distributor then pays each service firm a service fee at an annual
rate of up to 0.25% of net assets of the Fund maintained and serviced by the
service firm. Service firms to which service fees are paid may include
affiliates of the Distributor.
48
<PAGE> 55
The Distributor also may provide some of the above services and may retain any
portion of the fee under the Administrative Services Agreement not paid to
service firms to compensate itself for administrative functions performed for
the Fund. Currently, the administrative services fee payable to the Distributor
is based only upon Fund assets in accounts for which there is a service firm
listed on the Fund's records and it is intended that the Distributor will pay
all of the administrative services fee that it receives from the Fund to service
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 service firm of record. In addition, the Distributor may, from
time to time, from its own resources pay certain service firms additional
amounts for ongoing administrative services and assistance provided to their
customers and clients who are shareholders of the Fund.
YEAR 2000 READINESS
Like other investment companies and financial and business organizations
worldwide, the Fund could be adversely affected if computer systems on which the
Fund relies, which primarily include those used by the Adviser, its affiliates
or other service providers, are unable to process correctly date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to address successfully the Year 2000 Issue could result in
interruptions to and other material adverse effects on the Fund's business and
operations. The Adviser has commenced a review of the Year 2000 Issue as it may
affect the Fund and is taking steps it believes are reasonably designed to
address the Year 2000 Issue, although there can be no assurances that these
steps will be sufficient. In addition, there can be no assurances that the Year
2000 Issue will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies generally.
DIVIDENDS AND DISTRIBUTIONS
DISTRIBUTION POLICY
The Fund's present policy is to declare daily distributions on Class B shares
for which the Fund has received payment in an amount approximating the net
investment income of the Fund. Net investment income of the Fund consists of all
interest income, fee income, other ordinary income earned by the Fund on its
portfolio assets and net short-term capital gains, less all expenses of the
Fund. Expenses of the Fund are accrued each day. Distributions to shareholders
cannot be assured, and the amount of each monthly distribution is likely to
vary. Distributions of income will normally be made monthly and distributions of
net realized capital gains will normally be made annually.
Income dividends may be distributed in cash or reinvested in additional full and
fractional shares pursuant to the Fund's Dividend Reinvestment Program,
discussed below. Shareholders receive statements on a periodic basis reflecting
any distributions credited or paid to their account. Any fees or commissions
49
<PAGE> 56
paid to facilitate the sale of portfolio securities, including Senior Loans, in
connection with quarterly repurchase offers or other portfolio transactions may
reduce the dividend yield.
DIVIDEND REINVESTMENT PROGRAM
The Fund's Dividend Reinvestment Program (the "Program") allows participating
shareholders to reinvest all dividends and capital gain distributions in
additional shares of the Fund. Shares purchased by participants in the Program
in connection with the reinvestment of dividends will be issued by the Fund at
net asset value. Generally for Federal income tax purposes, shareholders
receiving additional shares under the Program will be treated as having received
a distribution equal to the amount payable to them in cash as a distribution had
the shareholder not participated in the Program. All distributions to
shareholders whose shares are registered in their own names automatically will
be paid in shares, unless the shareholder elects to receive the distributions in
cash. Shareholders may elect to receive dividends and capital gain distributions
in cash by notifying KSvC, as Program Agent. Additional information about the
Program may be obtained from KSvC at 1-800-641-1048. If your shares are
registered in the name of a broker-dealer or other nominee (an "intermediary"),
you must contact the intermediary regarding its status under the Program,
including whether the intermediary will participate in the Program on your
behalf.
DIVIDEND DIVERSIFICATION
A shareholder also may, upon written request by completing the appropriate
section of the application form or by calling 1-800-641-1048, elect to have all
dividends and other distributions paid on shares invested into Class B shares of
certain mutual funds advised by the Adviser or its affiliates, so long as a pre-
existing account for such shares exists for the shareholder. A shareholder may
call the phone number shown above to obtain a list of the mutual funds available
and to request current prospectuses.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the distribution payment
date.
TAX MATTERS
The Fund intends to operate as a "regulated investment company" under the Code.
To do so, the Fund must meet certain income, distribution and diversification
requirements. In any fiscal year in which the Fund so qualifies and distributes
to shareholders substantially all of its net investment income and net capital
gains, the Fund itself is generally relieved of any federal income or excise
tax.
50
<PAGE> 57
All dividends and capital gains distributed to shareholders are taxable whether
they are reinvested or received in cash, unless the shareholder is exempt from
taxation or entitled to tax deferral. Dividends paid out of the Fund's
investment company taxable income (including interest, dividends, if any, and
net short-term capital gains) will be taxable to shareholders as ordinary
income. If a portion of the Fund's income consists of dividends paid by U.S.
corporations, a portion of the dividends paid by the Fund may be eligible for
the corporate dividends-received deduction. Distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital losses),
if any, designated as capital gain dividends are taxable as long-term capital
gains, regardless of how long a shareholder has held the Fund's shares, and will
generally be subject to a maximum federal tax rate of 20%. Early each year,
shareholders will be notified as to the amount and federal tax status of all
dividends and capital gains paid during the prior year. Such dividends and
capital gains may also be subject to state or local taxes. Dividends declared in
October, November, or December with a record date in such month and paid during
the following January will be treated as having been paid by the Fund and
received by shareholders on December 31 of the calendar year in which declared,
rather than the calendar year in which the dividends are actually received.
If, pursuant to an offer by the Fund to repurchase its shares, a shareholder
tenders all shares of the Fund that he or she owns or is considered to own, the
shareholder may realize a taxable gain or loss. This gain or loss will be
treated as capital gain or loss if the Fund shares are held as capital assets
and will be long-term or short-term depending upon the shareholder's holding
period for the shares. If, pursuant to an offer by the Fund to repurchase its
shares, a shareholder tenders less than all of the shares of the Fund that he or
she owns or is considered to own, the repurchase may not qualify as an exchange,
and the proceeds received may be treated as a dividend, return of capital or
capital gain, depending on the Fund's earning and profits and the shareholder's
basis in the tendered shares. If that occurs, there is a risk that non-tendering
shareholders may be considered to have received a deemed distribution as a
result of the Fund's purchase of tendered shares, and all or a portion of that
deemed distribution may be taxable as a dividend.
If a shareholder has not furnished a certified correct taxpayer identification
number (generally a Social Security number) and has not certified that
withholding does not apply, or if the Internal Revenue Service has notified the
Fund that the taxpayer identification number listed on the account is incorrect
according to their records or that the shareholder is subject to backup
withholding, federal law generally requires the Fund to withhold 31% from any
dividends and/or repurchases (including exchange repurchases). Amounts withheld
are applied to federal tax liability; a refund may be obtained from the Internal
Revenue Service if withholding results in overpayment of taxes. Federal law also
requires the Fund to withhold 30% or the applicable tax treaty rate from
ordinary income dividends paid to certain non-resident alien and other non-U.S.
shareholder accounts.
51
<PAGE> 58
This is a brief summary of some of the federal income tax laws that affect an
investment in the Fund. Please see the SAI and a tax adviser for further
information.
PERFORMANCE INFORMATION
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information may include a distribution rate and an average compounded
distribution rate of the Fund for specified periods of time. Such information
may also include performance rankings and similar information from independent
organizations such as Lipper Analytical Services, Inc., Business Week, Forbes or
other industry publications.
The Fund's distribution rate generally is determined on a monthly basis with
respect to the immediately preceding monthly distribution period. The
distribution rate is computed by first annualizing the Fund's distributions per
share during such a monthly distribution period and dividing the annualized
distribution by the Fund's maximum offering price per share on the last day of
such period. The Fund calculates the compounded distribution rate by adding one
to the monthly distribution rate, raising the sum to the power of 12 and
subtracting one from the product. In circumstances in which the Fund believes
that, as a result of decreases in market rates of interest, its expected monthly
distributions may be less than the distributions with respect to the immediately
preceding monthly distribution period, the Fund reserves the right to calculate
the distribution rate on the basis of a period of less than one month.
When utilized by the Fund, distribution rate and compounded distribution rate
figures are based on historical performance and are not intended to indicate
future performance. Distribution rate, compounded distribution rate and net
asset value per share can be expected to fluctuate over time.
Advertisements and other sales materials for the Fund may also include
information depicting the Fund's average annual total return and total return.
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 the Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in the Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if any such period has not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
Class B shares are sold at net asset value. Repurchases of Class B shares within
the first four years after purchase may be subject to an EWC that ranges from
52
<PAGE> 59
3% during the first year to 0% after four years. Average annual total return
figures do, and total return figures may, include the effect of the EWC for the
Class B shares that may be imposed at the end of the period in question.
Performance figures for the Class B shares not including the effect of the
applicable EWC would be reduced if it were included.
LEGAL MATTERS
The validity of the shares offered hereby will be passed on for the Fund by
Dechert Price & Rhoads, Washington, D.C., counsel to the Fund.
REGISTRATION STATEMENT
The Fund has filed with the Securities and Exchange Commission, Washington,
D.C., a Registration Statement under the Securities Act of 1933, relating to the
shares offered hereby. For further information with respect to the Fund and its
shares, reference is made to such Registration Statement and the exhibits filed
with it.
SHAREHOLDER REPORTS
The Fund issues reports to its shareholders semi-annually that include financial
information.
FINANCIAL STATEMENTS
The Fund will furnish without charge, when available, copies of its Annual
Report and any subsequent Semi-Annual Report to Shareholders upon request to the
Fund, 222 South Riverside Plaza, Chicago, Illinois 60606, toll-free
1-800-621-1048.
53
<PAGE> 60
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
General Information 3
- ----------------------------------------------------------------
Investment Restrictions and Fundamental Policies 3
- ----------------------------------------------------------------
Repurchase Offer Fundamental Policy 4
- ----------------------------------------------------------------
Additional Information about Investments and Investment
Techniques 4
- ----------------------------------------------------------------
Management 11
- ----------------------------------------------------------------
Portfolio Transactions 17
- ----------------------------------------------------------------
Liquidity Requirements 18
- ----------------------------------------------------------------
Net Asset Value 18
- ----------------------------------------------------------------
Taxation 19
- ----------------------------------------------------------------
Financial Statements 23
- ----------------------------------------------------------------
Appendix A -- Ratings of Fixed Income Investments 24
- ----------------------------------------------------------------
</TABLE>
54
<PAGE> 61
[KEMPER FUNDS LOGO]
KEMPER FLOATING RATE FUND
222 South Riverside Plaza, Chicago, Illinois 60606
(800)-621-1048
FUND INVESTMENT ADVISER AND AGENTS
INVESTMENT ADVISER
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS
Ernst & Young LLP
222 South Wacker Drive
Chicago, Illinois 60606
DISTRIBUTOR AND ADMINISTRATIVE SERVICES PROVIDER
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
TRANSFER AGENT
Kemper Service Company
811 Main Street
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR THE ADVISER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN
THE SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY SUCH
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. HOWEVER, IF ANY MATERIAL
CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS
PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
PROSPECTUS
, 1999
<PAGE> 62
SUBJECT TO COMPLETION
DATED APRIL 27, 1999
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
KEMPER FLOATING RATE FUND
STATEMENT OF ADDITIONAL INFORMATION
, 1999
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus for the Fund dated , 1999.
This Statement of Additional Information does not include all information that a
prospective investor should consider before purchasing shares of the Fund, and
investors should obtain and read the Prospectus prior to purchasing shares. A
copy of the Prospectus may be obtained without charge, by calling
1-800-621-1048. This Statement of Additional Information incorporates by
reference the entire Prospectus.
The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. The registration statement
may be obtained from the Commission upon payment of the fee prescribed, or
inspected at the Commission's office at no charge.
<PAGE> 63
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................... 3
INVESTMENT RESTRICTIONS AND FUNDAMENTAL POLICIES............ 3
REPURCHASE OFFER FUNDAMENTAL POLICY......................... 4
ADDITIONAL INFORMATION ABOUT INVESTMENTS AND
INVESTMENT TECHNIQUES..................................... 4
MANAGEMENT.................................................. 11
PORTFOLIO TRANSACTIONS...................................... 17
LIQUIDITY REQUIREMENTS...................................... 18
NET ASSET VALUE............................................. 18
TAXATION.................................................... 19
FINANCIAL STATEMENTS........................................ 23
APPENDIX A -- RATINGS OF FIXED INCOME INVESTMENTS........... 24
</TABLE>
2
<PAGE> 64
GENERAL INFORMATION
Kemper Floating Rate Fund (the "Fund") is a newly organized,
non-diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), that continuously
offers its shares to the public. The Fund will conduct quarterly repurchase
offers for its shares. The Fund's investment manager is Scudder Kemper
Investments, Inc. (the "Adviser"). The Fund's primary investment objective is to
seek as high a level of current income as is consistent with the preservation of
capital. The Fund's principal office is located at 222 South Riverside Plaza,
Chicago, Illinois 60606.
Capitalized terms not defined in this Statement of Additional Information
have the same meaning as that set forth in the Prospectus.
INVESTMENT RESTRICTIONS AND FUNDAMENTAL POLICIES
The following fundamental policies cannot be changed without the approval
of the holders of a majority of the Fund's outstanding voting securities. In
accordance with the requirements of the 1940 Act a "majority of the Fund's
outstanding voting securities" means the lesser of either: (a) the vote of 67
percent or more of the voting securities present at the annual or a special
meeting of the Fund's shareholders, if the holders of more than 50 percent of
the Fund's outstanding voting securities are present or represented by proxy; or
(b) the vote of more than 50 percent of the Fund's outstanding voting
securities.
The Fund may not, as a fundamental policy:
1. Borrow money, except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
2. Issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
3. Concentrate its investments in a particular industry, as that term is
used in the 1940 Act, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
4. 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, except that the Fund may (i) acquire Senior Loans,
debt securities and other obligations in which the Fund is authorized to
invest in accordance with its investment objective and policies, (ii)
enter into repurchase agreements, and (iii) lend its portfolio
securities.
5. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investment secured
by real estate or interests therein, except that the Fund reserves
freedom of action to hold and to sell real estate as acquired as a
result of the Fund's ownership of securities.
6. Purchase physical commodities or contracts relating to physical
commodities.
7. Engage in the business of underwriting securities issued by others, to
the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities.
The Fund has adopted the following non-fundamental investment policies
which may be changed by the Fund's Board of Trustees without shareholder
approval. As a matter of non-fundamental policy, the Fund may not:
1. Invest for the purpose of exercising control over management of any
company.
2. Invest its assets in securities of any investment company, except by
open market purchases, including an ordinary broker's commission, or in
connection with a merger, acquisition of assets, consolidation or
reorganization, and any investments in the securities of other
investment companies, in compliance with the 1940 Act.
3
<PAGE> 65
3. Purchase securities on margin or make short sales of securities,
provided that the Fund may enter into futures contracts and related
options and make initial and variation margin deposits in connection
therewith.
4. Mortgage, pledge, or hypothecate any assets except in connection with
borrowings in amounts not in excess of the lesser of the amount borrowed
or 10% of the value of its total assets at the time of such borrowing;
provided that the Fund may enter into futures contracts and related
options. Optioned securities are not considered to be pledged for
purposes of this limitation.
5. Invest in oil, gas or mineral exploration or development programs.
Notwithstanding the Fund's investment policies and restrictions, the Fund
may invest all or part of its investable assets in a management investment
company with substantially the same investment objective policies and
restrictions as the Fund. This could allow creation of a "master/feeder"
structure in the future, although the Fund has no current intention to
restructure in this manner.
If a percentage restriction on investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
REPURCHASE OFFER FUNDAMENTAL POLICY
The Board of Trustees has adopted a resolution setting forth the Fund's
fundamental policy that it will conduct quarterly Repurchase Offers (the
"Repurchase Offer Fundamental Policy").
The Repurchase Offer Fundamental Policy states that the Fund will make
Repurchase Offers at periodic intervals of three months between Repurchase
Request Deadlines, such Repurchase Request Deadlines to be on a business day in
the months of February, May, August and November determined by the Board of
Trustees. The Repurchase Offer Fundamental Policy also provides that the Pricing
Date will be no later than 14 calendar days after each Repurchase Request
Deadline (or the next business day if the 14th calendar day is not a business
day).
The Repurchase Offer Fundamental Policy may be changed only with approval
of a majority of the Fund's outstanding voting securities.
The First Repurchase Offer is scheduled to commence in November 1999.
ADDITIONAL INFORMATION ABOUT INVESTMENTS
AND INVESTMENT TECHNIQUES
Some of the different types of securities in which the Fund may invest,
subject to its investment objective, policies and restrictions, are described in
the Prospectus under "Investment Objective and Policies." Additional information
concerning certain of the Fund's investments and investment techniques is set
forth below.
EQUITY SECURITIES
In connection with its purchase or holding of interests in Senior Loans,
CLOs, subordinated and unsecured loans, high yield securities or other
investments of the Fund, the Fund may acquire (and subsequently sell) equity
securities or exercise warrants that it receives. The Fund normally will not
hold more than 20% of its total assets in equity securities. Equity securities
will not be treated as Senior Loans; therefore, an investment in such securities
will not count toward the 80% of the Fund's total assets that normally will be
invested in Senior Loans. Equity securities are subject to financial and market
risks and can be expected to fluctuate in value.
4
<PAGE> 66
LEASE PARTICIPATIONS
The credit quality standards and general requirements that the Fund applies
to Lease Participations including collateral quality, the credit quality of the
borrower and the likelihood of payback are substantially the same as those
applied to conventional Senior Loans. A Lease Participation is also required to
have a floating interest rate that is indexed to the federal funds rate, LIBOR,
or Prime Rate in order to be eligible for investment.
REPURCHASE AGREEMENTS
In general, the Fund does not engage, nor does it intend to engage in the
foreseeable future, in repurchase agreements. The Fund has the ability, however,
pursuant to its investment objective and policies, to enter into repurchase
agreements (a purchase of, and a simultaneous commitment to resell, a financial
instrument at an agreed upon price on an agreed upon date) only with member
banks of the Federal Reserve System, member firms of the New York Stock Exchange
("NYSE") or other entities determined by the Adviser to be creditworthy. When
participating in repurchase agreements, the Fund buys securities from a vendor,
e.g., a bank or brokerage firm, with the agreement that the vendor will
repurchase the securities at a higher price at a later date. The Fund may be
subject to various delays and risks of loss if the vendor is unable to meet its
obligation to repurchase. Under the 1940 Act, repurchase agreements are deemed
to be collateralized loans of money by the Fund to the seller. In evaluating
whether to enter into a repurchase agreement, the Adviser will consider
carefully the creditworthiness of the vendor. If the member bank or member firm
that is the party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to the U.S. Bankruptcy Code, the law regarding the
rights of the Fund to enforce the terms of the repurchase agreement is
unsettled. The securities underlying a repurchase agreement will be marked to
market every business day so that the value of the collateral is at least equal
to the value of the loan, including the accrued interest thereon, and the
Adviser will monitor the value of the collateral. No specific limitation exists
as to the percentage of the Fund's assets which may be used to participate in
repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
In general, the Fund does not engage, nor does it intend to engage in the
foreseeable future, in reverse repurchase agreements. The Fund has the ability,
however, pursuant to its investment objective and policies, to enter into
reverse repurchase agreements. A reverse repurchase agreement is an instrument
under which the Fund may sell an underlying debt instrument and simultaneously
obtain the commitment of the purchaser to sell the security back to the Fund at
an agreed upon price on an agreed upon date. Reverse repurchase agreements will
be considered borrowings by the Fund and as such are subject to the restrictions
on borrowing. Borrowings by the Fund create an opportunity for greater total
return, but at the same time, increase exposure to capital risk. The Fund will
maintain in a segregated account with its custodian cash or liquid high grade
portfolio securities in an amount sufficient to cover its obligations with
respect to reverse repurchase agreements. The Fund will receive payment for such
securities only upon physical delivery or evidence of book entry transfer by its
custodian. Regulations of the Commission require either that securities sold by
the Fund under a reverse repurchase agreement be segregated pending repurchase
or that the proceeds be segregated on the Fund's books and records pending
repurchase. Reverse repurchase agreements may involve certain risks in the event
of default or insolvency of the other party, including possible loss from delays
or restrictions upon the Fund's ability to dispose of the underlying securities.
An additional risk is that the market value of securities sold by the Fund under
a reverse repurchase agreement could decline below the price at which the Fund
is obligated to repurchase them.
LENDING SENIOR LOANS AND OTHER PORTFOLIO INSTRUMENTS
To generate additional income, the Fund may lend its portfolio securities,
including an interest in a Senior Loan, in an amount up to 33 1/3% of Fund's
total assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made with any companies
affiliated with the Adviser. During the time portfolio securities are on loan,
the borrower pays the Fund any dividends or interest paid on such securities,
and the Fund may invest the cash collateral and earn additional income, or it
may
5
<PAGE> 67
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially.
The Fund may seek to increase its income by lending financial instruments
in its portfolio in accordance with present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the Commission. The
lending of financial instruments is a common practice in the securities
industry. The loans are required to be secured continuously by collateral,
consistent with the requirements of the 1940 Act discussed below, maintained on
a current basis at an amount at least equal to the market value of the portfolio
instruments loaned. The Fund has the right to call a Senior Loan and obtain the
portfolio instruments loaned at any time on such notice as specified in the
transaction documents. For the duration of the Senior Loan, the Fund will
continue to receive the equivalent of the interest paid by the issuer on the
portfolio instruments loaned and may also receive compensation for the loan of
the financial instrument. Any gain or loss in the market price of the
instruments loaned that may occur during the term of the Senior Loan will be for
the account of the Fund.
The Fund may lend its portfolio instruments so long as the terms and the
structure of such loans are not inconsistent with the requirements of the 1940
Act, which currently require that (a) the borrower pledge and maintain with the
Fund collateral consisting of cash, a letter of credit issued by a domestic U.S.
bank, or securities issued or guaranteed by the U.S. government having a value
at all times not less than 100% of the value of the instruments loaned, (b) the
borrowers add to such collateral whenever the price of the instruments loaned
rises (i.e., the value of the loan is "marked to the market" on a daily basis),
(c) the loan be made subject to termination by the Fund at any time, and (d) the
Fund receive reasonable interest on the loan (which may include the Fund's
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned instruments and any increase in their market value.
The Fund may lend its portfolio instruments to member banks of the Federal
Reserve System, members of the NYSE or other entities determined by the Adviser
to be creditworthy. All relevant facts and circumstances, including the
creditworthiness of the qualified institution, will be monitored by the Adviser,
and will be considered in making decisions with respect to the lending of
portfolio instruments.
The Fund may pay reasonable negotiated fees in connection with loaned
instruments. In addition, voting rights may pass with the loaned securities, but
if a material event were to occur affecting such a loan, the Fund will retain
the right to call the loan and vote the securities. If a default occurs by the
other party to such transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transaction but such remedies may be
subject to bankruptcy and insolvency laws which could materially and adversely
affect the Fund's rights as a creditor. However, the loans will be made only to
firms deemed by the Adviser to be of good financial standing and when, in the
judgment of the Adviser, the consideration which can be earned currently from
loans of this type justifies the attendant risk.
INTEREST RATE HEDGING TRANSACTIONS
The Fund may, pursuant to its investment objective and policies, engage in
certain hedging transactions including interest rate swaps and the purchase or
sale of interest rate caps and floors. The Fund may undertake these transactions
primarily for the following reasons: to preserve a return on or value of a
particular investment or portion of the Fund's portfolio, to protect against
decreases in the anticipated rate of return on floating or variable rate
financial instruments which the Fund owns or anticipates purchasing at a later
date, or for other risk management strategies such as managing the effective
dollar-weighted average duration of the Fund's portfolio. Market conditions will
determine whether and in what circumstances the Fund would employ any of the
hedging techniques described below.
Interest Rate Swaps, Caps and Floors. 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 an obligation to make floating rate
payments on a specified dollar amount, referred to as the "notional" principal
amount, for an obligation to make fixed rate payments. For example, the Fund may
seek to shorten the effective interest rate redetermination period of a Senior
Loan in its portfolio that has an interest rate redetermination period of
6
<PAGE> 68
one year. The Fund could exchange its right to receive fixed income payments for
one year from a borrower for the right to receive payments under an obligation
that readjusts monthly. In such event, the Fund would consider the interest rate
redetermination period of such Senior Loan to be the shorter period. The
purchase of an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Fund will not enter into swaps, caps or
floors if, on a net basis, the aggregate notional principal amount with respect
to such agreements exceeds the net assets of the Fund or to the extent the
purchase of swaps, caps or floors would be inconsistent with the Fund's other
investment restrictions.
The Fund will not treat swaps covered in accordance with applicable
regulatory guidance as senior securities. The Fund will usually enter into
interest rate swaps on a net basis, i.e., where the two parties make net
payments with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlement with respect to each interest rate swap will be
accrued and an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account. If the Fund enters into a swap on other than a net basis, the Fund will
maintain in the segregated account the full amount of the Fund's obligations
under each such swap. The Fund may enter into swaps, caps and floors with member
banks of the Federal Reserve System, members of the NYSE or other entities
determined by the Adviser. If a default occurs by the other party to such
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction but such remedies may be subject to bankruptcy and
insolvency laws which could materially and adversely affect the Fund's rights as
a creditor.
The swap, cap and floor market has grown substantially in recent years with
a large number of banks and financial services firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, this
market has become relatively liquid. There can be no assurance, however, that
the Fund will be able to enter into interest rate swaps or to purchase interest
rate caps or floors at prices or on terms the Adviser believes are advantageous
to the Fund. In addition, although the terms of interest rate swaps, caps and
floors may provide for termination, there can be no assurance that the Fund will
be able to terminate an interest rate swap or to sell or offset interest rate
caps or floors that it has purchased.
General. The successful utilization of hedging and risk management
transactions requires skills different from those needed in the selection of the
Fund's portfolio securities and depends on the Adviser's ability to predict
correctly the direction and degree of movements in interest rates. Although the
Fund believes that use of the hedging and risk management techniques described
above will benefit the Fund, if the Adviser's judgment about the direction or
extent of the movement in interest rates is incorrect, the Fund's overall
performance would be worse than if it had not entered into any such
transactions. For example, if the Fund had purchased an interest rate swap or an
interest rate floor to hedge against its expectation that interest rates would
decline but instead interest rates rose, the Fund would lose part or all of the
benefit of the increased payments it would receive as a result of the rising
interest rates because it would have to pay amounts to its counterparty under
the swap agreement or would have paid the purchase price of the interest rate
floor. The Fund will incur brokerage and other transaction costs in connection
with its hedging transactions.
BORROWING
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless
immediately after such incurrence the Fund has an asset coverage of 300% of the
aggregate outstanding principal balance of indebtedness. Additionally, under the
1940 Act, the Fund may not declare any dividend or other distribution upon any
class of its capital stock, or purchase any such capital stock, unless the
aggregate indebtedness of the Fund has at the time of the declaration of any
such dividend or distribution or at the time of any such purchase an asset
coverage of at least 300% after deducting the amount of such dividend,
distribution, or purchase price, as the case may be.
7
<PAGE> 69
ORIGINATING SENIOR LOANS
Although the Fund does not currently act, nor does it intend to act in the
foreseeable future, as an "agent" in originating and administering a loan on
behalf of all lenders or as one of a group of "co-agents" in originating Senior
Loans, it does have the ability to do so. Senior Loans are typically arranged
through private negotiations between a borrower and several financial
institutions ("lenders") represented in each case by one or more such lenders
acting as agent of the several lenders. On behalf of the several lenders, the
agent, which is frequently the entity that originates the Senior Loan and
invites the other parties to join the lending syndicate, will be primarily
responsible for negotiating the Senior Loan agreements that establish the
relative terms, conditions and rights of the borrower and the several lenders.
The co-agents, on the other hand, are not responsible for administration of a
Senior Loan, but are part of the initial group of lenders that commit to
providing funding for a Senior Loan. In large transactions, it is common to have
several agents; however, one such agent typically has primary responsibility for
documentation and administration of the Senior Loan. The agent is required to
administer and manage the Senior Loan and to service or monitor the collateral.
The agent is also responsible for the collection of principal and interest and
fee payments from the borrower and the apportionment of these payments to the
credit of all lenders which are parties to the loan agreement. The agent is
charged with the responsibility of monitoring compliance by the borrower with
the restrictive covenants in the loan agreement and of notifying the lenders of
any adverse change in the borrower's financial condition. In addition, the agent
generally is responsible for determining that the lenders have obtained a
perfected security interest in the collateral securing the Senior Loan.
Lenders generally rely on the agent to collect their portion of the
payments on the Senior Loan and to use appropriate creditor remedies against the
borrower. Typically under loan agreements, the agent is given broad discretion
in enforcing the loan agreement and is obligated to use the same care it would
use in the management of its own property. The borrower compensates the agent
for these services. Such compensation may include special fees paid on
structuring and funding the Senior Loan and other fees paid on a continuing
basis. The precise duties and rights of an agent are defined in the loan
agreement.
When the Fund is an agent, it has, as a party to the loan agreement, a
direct contractual relationship with the borrower and, prior to allocating
portions of the Senior Loan to the lenders, if any, assumes all risks associated
with the Senior Loan. The agent may enforce compliance by the borrower with the
terms of the loan agreement. Agents also have voting and consent rights under
the applicable loan agreement. Action subject to agent vote or consent generally
requires the vote or consent of the holders of some specified percentage of the
outstanding principal amount of the Senior Loan, which percentage varies
depending on the relevant loan agreement. Certain decisions, such as reducing
the amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefor, frequently require
the unanimous vote or consent of all lenders affected.
Pursuant to the terms of a loan agreement, the Fund as agent typically has
sole responsibility for servicing and administering a loan on behalf of the
other lenders. Each lender in a Senior Loan is generally responsible for
performing their own credit analysis and their own investigation of the
financial condition of the borrower. Generally, loan agreements will hold the
Fund liable for any action taken or omitted that amounts to gross negligence or
willful misconduct. In the event of a borrower's default on a loan, the loan
agreements provide that the lenders do not have recourse against the Fund for
its activities as agent. Instead, lenders will be required to look to the
borrower for recourse.
Acting in the capacity of an agent in a Senior Loan may subject the Fund to
certain risks in addition to those associated with the Fund's current role as a
lender. An agent is charged with the above described duties and responsibilities
to lenders and borrowers subject to the terms of the loan agreement. Failure to
adequately discharge such responsibilities in accordance with the standard of
care set forth in the loan agreement may expose the Fund to liability for breach
of contract. If a relationship of trust is found between the agent and the
lenders, the agent will be held to a higher standard of conduct in administering
the loan. In consideration of such risks, the Fund will invest no more than 10%
of its total assets in Senior Loans in which it acts as agent or co-agent and
the size of any individual loan will not exceed 5% of the Fund's total assets.
8
<PAGE> 70
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS
The Fund may also purchase and sell interests in Senior Loans and other
portfolio securities on a "when issued" and "delayed delivery" basis. No income
accrues to the Fund on such interests or securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
interests or securities. These transactions are subject to market fluctuation;
the value of the interests in Senior Loans and other portfolio debt securities
at delivery may be more or less than their purchase price, and yields generally
available on such interests or securities when delivery occurs may be higher or
lower than yields on the interests or securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. When the Fund is the buyer in such a
transaction, however, it will maintain, in a segregated account with its
custodian, cash or liquid securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. The Fund will make
commitments to purchase such interests or securities on such basis only with the
intention of actually acquiring these interests or securities, but the Fund may
sell such interests or securities prior to the settlement date if such sale is
considered to be advisable. To the extent the Fund engages in "when issued" and
"delayed delivery" transactions, it will do so for the purpose of acquiring
interests or securities for the Fund's portfolio consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage. No specific limitation exists as to the percentage of the Fund's
assets which may be used to acquire securities on a "when issued" or "delayed
delivery" basis.
ADDITIONAL INFORMATION ON SENIOR LOANS
Senior Loans are direct obligations of corporations or other business
entities and are arranged by banks or other commercial lending institutions and
made generally to finance internal growth, mergers, acquisitions, stock
repurchases, and leveraged buyouts. Senior Loans usually include restrictive
covenants which must be maintained by the borrower. Such covenants, in addition
to the timely payment of interest and principal, may include mandatory
prepayment provisions arising from free cash flow, restrictions on dividend
payments and usually state that a borrower must maintain specific minimum
financial ratios as well as establishing limits on total debt. A breach of a
covenant, which is not waived by the agent, is normally an event of
acceleration, i.e., the agent has the right to call the outstanding Senior Loan.
In addition, loan covenants may include mandatory prepayment provisions stemming
from free cash flow. Free cash flow is cash that is in excess of capital
expenditures plus debt service requirements of principal and interest. The free
cash flow shall be applied to prepay the Senior Loan in an order of maturity
described in the loan documents. Under certain interests in Senior Loans, the
Fund may have an obligation to make additional loans upon demand by the
borrower. The Fund intends to reserve against such contingent obligations by
segregating sufficient assets in high quality short-term liquid investments or
borrowing to cover such obligations.
In a typical interest in a Senior Loan, the agent administers the loan and
has the right to monitor the collateral. The agent is also required to segregate
the principal and interest payments received from the borrower and to hold these
payments for the benefit of the lenders. The Fund normally looks to the agent to
collect and distribute principal of and interest on a Senior Loan. Furthermore,
the Fund looks to the agent to use normal credit remedies, such as to foreclose
on collateral; monitor credit loan covenants; and notify the lenders of any
adverse changes in the borrower's financial condition or declarations of
insolvency. At times the Fund may also negotiate with the agent regarding the
agent's exercise of credit remedies under a Senior Loan. The agent is
compensated for these services by the borrower as is set forth in the loan
agreement. Such compensation may take the form of a fee or other amount paid
upon the making of the Senior Loan and/or an ongoing fee or other amount.
The loan agreement in connection with Senior Loans sets forth the standard
of care to be exercised by the agents on behalf of the lenders and usually
provides for the termination of the agent's agency status in the event that it
fails to act properly, becomes insolvent, enters FDIC receivership, or if not
FDIC insured, enters into bankruptcy or if the agent resigns. In the event an
agent is unable to perform its obligations as agent, another lender would
generally serve in that capacity.
9
<PAGE> 71
The Fund believes that the principal credit risk associated with acquiring
Senior Loans from another lender is the credit risk associated with the borrower
of the underlying Senior Loan. The Fund may incur additional credit risk,
however, when the Fund acquires a participation in a Senior Loan from another
lender because the Fund must assume the risk of insolvency or bankruptcy of the
other lender from which the Senior Loan was acquired. However, in acquiring
Senior Loans, the Fund conducts an analysis and evaluation of the financial
condition of each such lender. The Fund has taken the following measures in an
effort to reduce such risks. The Fund will only acquire participations in Senior
Loans if the lender selling the participation, and any other persons
interpositioned between the Fund and the lender, at the time of investment has
outstanding debt or deposit obligations rated investment grade (BBB or A-3 or
higher by Standard & Poor's Ratings Group ("S&P") or Baa or P-3 or higher by
Moody's Investors Service ("Moody's")) or determined by the Adviser to be of
comparable quality. Long-term debt rated BBB by S&P is regarded by S&P as having
adequate capacity to pay interest and repay principal and debt rated Baa by
Moody's is regarded by Moody's as a medium grade obligation, i.e., it is neither
highly protected nor poorly secured. Commercial paper rated A-1 by S&P indicates
that the degree of safety regarding timely payment is considered by S&P to be
either overwhelming or very strong and issues of commercial paper rated Prime-1
by Moody's are considered by Moody's to have a superior ability for repayment of
senior short-term debt obligations.
Senior Loans, unlike certain bonds, usually do not have call protection.
This means that interests comprising the Fund's portfolio, while having a stated
one to ten-year term, may be prepaid, often without penalty. The Fund generally
holds Senior Loans to maturity unless it has become necessary to sell them to
satisfy any Repurchase Offers or to adjust the Fund's portfolio in accordance
with the Adviser's view of current or expected economic or specific industry or
borrower conditions.
Senior Loans frequently require full or partial prepayment of a loan when
there are asset sales or a securities issuance. Prepayments on Senior Loans may
also be made by the borrower at its election. The rate of such prepayments may
be affected by, among other things, general business and economic conditions, as
well as the financial status of the borrower. Prepayment would cause the actual
duration of a Senior Loan to be shorter than its stated maturity. Prepayment may
be deferred by the Fund. This should, however, allow the Fund to reinvest in a
new loan and recognize as income any unamortized loan fees. This may result in a
new facility fee payable to the Fund.
Because interest rates paid on these Senior Loans periodically fluctuate
with the market, it is expected that the prepayment and a subsequent purchase of
a new Senior Loan by the Fund will not have a material adverse impact on the
yield of the portfolio. See "Portfolio Transactions."
Under a Senior Loan, the borrower generally must pledge as collateral
assets which may include one or more of the following: cash; accounts
receivable; inventory; property, plant and equipment; both common and preferred
stock in its subsidiaries, trademarks, copyrights, patent rights and franchise
value. The Fund may also receive guarantees as a form of collateral. In some
instances, a Senior Loan may be secured only by stock in a borrower or its
affiliates. The market value of the assets serving as collateral will, at the
time of investment, in the opinion of the Adviser, equal or exceed the principal
amount of the Senior Loan. The valuations of these assets may be performed by an
independent appraisal. If the agent becomes aware that the value of the
collateral has declined, the agent may take action as it deems necessary for the
protection of its own interests and the interests of the other lenders,
including, for example, giving the borrower an opportunity to provide additional
collateral or accelerating the loan. There is no assurance, however, that the
borrower would provide additional collateral or that the liquidation of the
existing collateral would satisfy the borrower's obligation in the event of
nonpayment of scheduled interest or principal, or that such collateral could be
readily liquidated. The Fund may invest up to 20% of its total assets in Senior
Loans that are not secured by specific collateral.
The Fund may be required to pay and may receive various fees and
commissions in the process of purchasing, selling and holding Senior Loans. The
fee component may include any, or a combination of, the following elements:
arrangement fees, non-use fees, facility fees, letter of credit fees and ticking
fees. Arrangement fees are paid at the commencement of a loan as compensation
for the initiation of the transaction. A non-use fee is paid based upon the
amount committed but not used under the loan. Facility fees
10
<PAGE> 72
are on-going annual fees paid in connection with a loan. Letter of credit fees
are paid if a loan involves a letter of credit. Ticking fees are paid from the
initial commitment indication until loan closing if for an extended period. The
amount of fees is negotiated at the time of transaction.
If legislation or state or federal regulators impose additional
requirements or restrictions on the ability of financial institutions to make
loans that are considered highly leveraged transactions, the availability of
Senior Loans for investment by the Fund may be adversely affected. In addition,
such requirements or restrictions could reduce or eliminate sources of financing
for certain borrowers. This would increase the risk of default. If legislation
or federal or state regulators require financial institutions to dispose of
Senior Loans that are considered highly leveraged transactions or subject such
Senior Loans to increased regulatory scrutiny, financial institutions may
determine to sell such Senior Loans. Such sales could result in prices that, in
the opinion of the Adviser, do not represent fair value. If the Fund attempts to
sell a Senior Loan at a time when a financial institution is engaging in such a
sale, the price the Fund could get for the Senior Loan may be adversely
affected.
MANAGEMENT
INVESTMENT ADVISER
Scudder Kemper Investments, Inc. (the "Adviser"), 345 Park Avenue, New
York, New York 10154, the global investment management business of Zurich
Financial Services Group (the "Group"), is one of the largest and most
experienced investment management organizations in the world, managing assets
for institutional and corporate clients, retirement and pension plans, insurance
companies, mutual fund investors, and individuals. The Adviser offers a full
range of investment counsel and asset management capabilities, based on a
combination of proprietary research and disciplined, long-term investment
strategies.
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is
one of the global leaders in the financial services industry, providing its
customers with the products and solutions in the area of financial protection
and asset accumulation. The Group has four core businesses: non-life and life
insurance, reinsurance and asset management.
The Investment Management Agreement provides that the Adviser will provide
portfolio management services, place portfolio transactions in accordance with
policies expressed in the Fund's Registration Statement, pay the Fund's office
rent, and render significant administrative services on behalf of the Fund (not
otherwise provided by third parties) necessary for the Fund's operating as a
closed-end investment company, including, but not limited to, preparing reports
to and meeting materials for the Fund's Board and reports and notices to Fund
shareholders; supervising, negotiating contractual arrangements with, to the
extent appropriate, and monitoring the performance of various third-party and
affiliated service providers to the Fund (such as the Fund's transfer and
pricing agents, fund accounting agent, custodian, accountants and others) and
other persons in any capacity deemed necessary or desirable to Fund operations;
preparing and making filings with the SEC and other regulatory and
self-regulatory organizations, including but not limited to, preliminary and
definitive proxy materials, post-effective amendments to the Registration
Statement and semi-annual reports on Form N-SAR; overseeing the tabulation of
proxies by the Fund's transfer agent; assisting in the preparation of filing of
the Fund's Federal, state and local tax returns; preparing and filing the Fund's
Federal excise tax returns pursuant to Section 4982 of the Internal Revenue Code
of 1986, as amended; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable Federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent such books, records and reports and
other information are not maintained by the Fund's custodian or other agents of
the Fund; assisting in establishing accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and other agents as necessary in connection therewith; establishing and
monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund
11
<PAGE> 73
to its shareholders, preparing and arranging for the printing of dividend
notices to shareholders, and providing the transfer and dividend paying agent,
the custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Fund's Board.
Under the Investment Management Agreement, the Fund is responsible for
other expenses, including organizational expenses (including out-of-pocket
expenses, but not including the Adviser's overhead or employee costs); brokers'
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; legal, auditing and accounting expenses; payment for portfolio
pricing or valuation services to pricing agents, accountants, bankers and other
specialists, if any; taxes and governmental fees; the fees and expenses of the
Fund's transfer agent; expenses of preparing share certificates and any other
expenses, including clerical expenses, of issuance, offering, distribution,
sale, redemption or repurchase of shares; the expenses of and fees for
registering or qualifying securities for sale; the fees and expenses of those
Trustees who are not "interested persons" of the Fund (as defined in the 1940
Act); the cost of printing and distributing reports, notices and dividends to
current shareholders; and the fees and expenses of the Fund's custodians,
subcustodians, accounting agent, dividend disbursing agents and registrars. 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 expenses of shareholders' and other meetings and its expenses
incurred in connection with litigation and the legal obligation it may have to
indemnify officers and Trustees of the Fund with respect thereto. The Fund is
also responsible for the maintenance of books and records which are required to
be maintained by the Fund's custodian or other agents of the Fund; telephone,
telex, facsimile, postage and other communications expenses; any fees, dues and
expenses incurred by the Fund in connection with membership in investment
company trade organizations; expenses of printing and mailing prospectuses and
statements of additional information of the Fund and supplements thereto to
current shareholders; costs of stationery; fees payable to the Adviser and to
any other Fund advisors or consultants; expenses relating to investor and public
relations; interest charges, bond premiums and other insurance expense; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; and other expenses.
The Adviser is responsible for the payment of the compensation and expenses
of all Trustees, officers and executive employees of the Fund (including the
Fund's share of payroll taxes) affiliated with the Adviser and making available,
without expense to the Fund, the services of such Trustees, officers and
employees as may duly be elected officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law. The Fund is
responsible for the fees and expenses (specifically including travel expenses
relating to Fund business) of Trustees not affiliated with the Adviser
("Non-Interested Trustees") Under the Investment Management Agreement, the
Adviser also pays the Fund's share of payroll taxes. During the Fund's most
recent fiscal year, no compensation, direct or otherwise (other than through
fees paid to the Adviser), was paid or became payable by the Fund to any of its
officers or Trustees who were affiliated with the Adviser.
In return for the services provided by the Adviser as investment manager
and the expenses it assumes under the Investment Management Agreement, the Fund
pays the Adviser a management fee which is payable monthly, at the annual rate,
expressed as a percentage of average daily net assets, of 0.50% of the first $1
billion of average daily net assets, 0.49% of the next $2 billion, 0.48% of the
next $2 billion, 0.47% of the next $5 billion, and 0.45% of average daily net
assets over $10 billion. The fee is payable monthly, provided that the Fund will
make such interim payments as may be requested by the Adviser not to exceed 75%
of the amount of the fee then accrued on the books of the Fund and unpaid.
The Adviser has agreed to reduce its investment management fee to 0% of the
Fund's average daily net assets through November 30, 1999. The investment
management fee will be gradually reinstated during the one year period ending
November 30, 2000.
The Investment Management Agreement further 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 such 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 such agreement. The
Investment Management Agreement also provides that purchase and
12
<PAGE> 74
sale opportunities, which are suitable for more than one client of the Adviser,
will be allocated by the Adviser in an equitable manner. Lastly, the Investment
Management Agreement contains a provision stating that it supersedes all prior
agreements.
The Investment Management Agreement may be terminated without penalty upon
sixty (60) days' written notice by either party. The Fund may agree to terminate
its Investment Management Agreement either by the vote of a majority of the
outstanding voting securities of the Fund, or by a vote of the Board. The
Investment Management Agreement may also be terminated at any time without
penalty by the vote of a majority of the outstanding voting securities of the
Fund or by a vote of the Board if a court establishes that the Adviser or any of
its officers or directors has taken any action resulting in a breach of the
Adviser's covenants under the Investment Management Agreement. As stated above,
the Investment Management Agreement automatically terminates in the event of its
assignment.
FUND ACCOUNTING AGENT
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110, a subsidiary of the Adviser, is responsible for
determining the net asset value of the Fund, recording daily trading activity,
and maintaining all accounting records related thereto. SFAC receives a fee for
its services to the Fund at the annual rate of 0.025% of the first $150,000,000
of average daily net assets, 0.0075% of the next $850,000,000, and 0.0045% of
the excess over $1 billion. This fee will increase by 1/3 for each additional
class of shares the Fund establishes. The minimum monthly fee is $3,125. SFAC
also charges $7.50 per month for each issue maintained by the Fund and a fee
ranging from $5.00 to $25.00 per portfolio or derivatives transaction.
DISTRIBUTOR
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. The Distributor 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
the Distributor pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. The Distributor
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 Trustees of the Fund, including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
Distribution 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 the Distributor upon 60 days' notice.
Termination by the Fund with respect to a class may be by vote of a majority of
the Board of Trustees, and a majority of the Trustees who are not interested
persons of the 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 the Fund, as defined under the 1940 Act.
ADMINISTRATIVE SERVICES
Administrative services are provided to the Fund under an Administrative
Services Agreement ("Administrative Agreement") with the Distributor. The
Distributor bears all its expenses of providing services pursuant to the
Administrative Agreement, including the payment of service fees. For the
services under the Administrative Agreement, the Fund pays the Distributor an
administrative services fee, payable monthly, at an annual rate of up to 0.25%
of average daily net assets of the shares of the Fund.
The Distributor 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
13
<PAGE> 75
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
repurchase 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 B shares, the Distributor 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, the Distributor
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 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 the Distributor or the Fund. Firms to which service fees may be
paid may include affiliates of the Distributor.
The Distributor 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 the Distributor 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 the Distributor
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 Trustees of the Fund, in its
discretion, may approve basing the fee to the Distributor on all Fund assets in
the future. In addition, the Distributor 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.
Certain directors or officers of the Fund are also directors or officers of
the Adviser or the Distributor, as indicated under "Officers and Trustees."
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Fund's custodian and maintains custody of all
securities and cash held by the Fund.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT
Kemper Service Company ("KSvC"), 811 Main Street, Kansas City, Missouri
64105, a subsidiary of the Adviser, is the Fund's transfer agent and dividend
disbursing agent and, as such, generally serves as "Shareholder Service Agent"
of the Fund. KSvC receives as transfer agent the following from the Fund: annual
account fees of $14.00 ($23.00 for retirement accounts) per account, plus set up
charges, annual fees associated with the early withdrawal charge, an asset-based
fee of 0.05% and out-of-pocket reimbursement.
14
<PAGE> 76
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Fund and their principal
occupations during the last five years are set forth below.
<TABLE>
<CAPTION>
POSITION
WITH PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE THE FUND THE PAST FIVE YEARS
- --------------------- -------------- -----------------------------------------------
<S> <C> <C>
James E. Akins Trustee Consultant on International, Political and
2904 Garfield Terrace, N.W Economic Affairs; formerly a career United
Washington, DC 20008 States Foreign Service Officer, Energy Advisor
Date of birth: 10/15/26 for the White House, and United States
Ambassador to Saudi Arabia.
Arthur R. Gottschalk Trustee Retired; formerly, President, Illinois
10642 Brookridge Drive Manufacturers Association; Trustee, Illinois
Frankfort, IL Masonic Medical Center; formerly, Illinois
Date of birth: 2/13/25 State Senator, Vice President, The Reuben H.
Donnelly Corporation, and attorney.
*Cornelia M. Small Trustee Managing Director, Scudder Kemper Investments,
345 Park Avenue Chairman Inc.
New York, NY 10154 of the Board
Date of birth: 7/28/44
*Thomas W. Littauer Trustee Managing Director, Scudder Kemper Investments,
Two International Place Vice President Inc.; formerly, Head of Broker Dealer Division
Boston, MA 02110 of an unaffiliated investment management firm
Date of birth: 4/26/55 during 1997; prior thereto, President of Client
Management Services of an unaffiliated
investment management firm from 1991 to 1996.
Frederick T. Kelsey Trustee Retired; formerly, consultant to Goldman, Sachs
4010 Arbor Lane & Co.; formerly, President, Treasurer and
Unit 102 Trustee of Institutional Liquid Assets and its
Northfield, IL 60093 affiliated mutual funds; Trustee of the
Date of birth: 4/25/27 Northern Institutional Funds; formerly Trustee
of the Pilot Funds.
Fred B. Renwick Trustee Professor of Finance, New York University,
3 Hanover Square Stern School of Business; Director, the
Suite 20H Wartburg Home Foundation; Chairman, Investment
New York, NY 10004 Committee of Morehouse College Board of
Date of birth: 2/1/30 Trustees; Director, 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 Trustee Retired; formerly, Chairman of the Board and
311 Springlake Chief Executive Officer, Chicago Stock
Hinsdale, IL 60521 Exchange; Director, Federal Life Insurance
Date of birth: 8/8/33 Company; President of the Members of the
Corporation and Trustee, DePaul University.
*Mark S. Casady President Managing Director, Scudder Kemper Investments,
Two International Place Inc.
Boston, MA 02110
Date of birth: 9/21/60
</TABLE>
15
<PAGE> 77
<TABLE>
<CAPTION>
POSITION
WITH PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE THE FUND THE PAST FIVE YEARS
- --------------------- -------------- -----------------------------------------------
<S> <C> <C>
*Philip J. Collora Vice President Senior Vice President, Scudder Kemper
222 South Riverside Plaza and Secretary Investments, Inc.
Chicago, IL 60606
Date of birth: 11/15/45
*John R. Hebble Treasurer Senior Vice President, Scudder Kemper
222 South Riverside Plaza, Investments, Inc.
Chicago, IL 60606
Date of birth: 6/27/58
*Ann M. McCreary Vice President Managing Director
345 Park Avenue Scudder Kemper Investments, Inc.
New York, NY 10154
Date of birth: 11/6/56
*Robert C. Peck Vice President Managing Director, Scudder Kemper Investments,
222 South Riverside Plaza, Inc.; formerly, Executive Vice President, Van
Chicago, IL 60606 Kampen American Capital, Inc.; Senior Vice
Date of birth: 10/1/46 President, Manufacturers Hanover Investment
Corporation
*Jonathan Trutter Vice President Senior Vice President, Scudder Kemper
222 South Riverside Plaza Investments, Inc.
Chicago, IL 60606
Date of birth: 11/29/57
*Maureen E. Kane Assistant Vice President, Scudder Kemper Investments,
Two International Place Secretary Inc.; formerly, Assistant Vice President of an
Boston, MA 02110 unaffiliated investment management firm;
Date of birth: 2/14/62 formerly, Associate Staff Attorney of an
unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
*Brenda Lyons Assistant Senior Vice President, Scudder Kemper
Two International Place Treasurer, Investments, Inc.
Boston, MA 02110 Treasurer
Date of birth: 2/21/63
*Caroline Pearson Assistant Senior Vice President,
Two International Place Secretary Scudder Kemper Investments Inc.; formerly,
Boston, MA 02110 Associate, Dechert Price & Rhoads (law firm)
Date of birth: 4/1/62 from 1989 to 1997.
*Elizabeth C. Werth Assistant Vice President, Scudder Kemper Investments, Inc
222 South Riverside Plaza Secretary
Chicago, IL 60606
Date of birth: 10/1/47
</TABLE>
- ---------------
* Interested person of the Fund as defined in the 1940 Act.
The Board has an audit and governance committee that is composed of Messrs.
Akins, Gottschalk, Kelsey, Renwick, and Weithers. The Committee makes
recommendations regarding the selection of independent auditors for the Fund,
confers with the independent auditors regarding the Fund's financial statements,
the results of audits and related matters, seeks and reviews nominees for Board
membership and performance other tasks as the Board assigns.
16
<PAGE> 78
COMPENSATION OF TRUSTEES
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows estimated amounts
to be paid or accrued to those trustees who are not designated "interested
persons" from March 31, 1999 through the end of the Fund's current fiscal year,
except that the information regarding the total compensation from the Fund and
Fund complex in the last column is for the calendar year 1998 and does not
include estimated amounts received from the Fund for the current fiscal year.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND COMPLEX(2)
NAME FROM FUND PAID TO TRUSTEES
- ---- ------------ --------------------
<S> <C> <C>
James E. Akins............................................ $2,300 $140,800
Arthur R. Gottschalk(1)................................... $2,300 $146,300
Frederick T. Kelsey....................................... $2,300 $141,300
Fred B. Renwick........................................... $2,300 $141,300
John G. Weithers.......................................... $2,300 $146,300
</TABLE>
- ---------------
(1) Includes deferred fees. Pursuant to a deferred compensation agreement with
the Fund, deferred amounts accrued interest monthly at a rate approximate to
the yield of Zurich Money Funds -- Zurich Money Market Fund.
(2) Includes compensation for service on the Boards of 15 Kemper Funds with 50
fund portfolios. Each trustee currently serves as trustee of 16 Kemper Funds
with 56 funds portfolios.
PORTFOLIO TRANSACTIONS
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 compatible transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund may purchase Senior Loans in individually negotiated transactions
with commercial banks, thrifts, insurance companies, finance companies and other
financial institutions. In determining whether to purchase Senior Loans from
these financial institutions, the Adviser may consider, among other factors, the
financial strength, professional ability, level of service and research
capability of the institution. While financial institutions generally are not
required to repurchase Senior Loans which they have sold, they may act as
principal or on an agency basis in connection with the Fund's disposition of
Senior Loans. The Fund has no obligation to deal with any bank, broker or dealer
in execution of transactions in portfolio securities.
The Fund's purchases and sales of fixed-income securities may be placed by
the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by the Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Adviser or the Fund. The term "research, market and statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and analyses and reports concerning issuers,
17
<PAGE> 79
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. The Adviser is authorized when placing portfolio
transactions for the Fund to pay a brokerage commission in excess of that which
another broker might charge for executing the same transaction on account of the
receipt of research, market or statistical information. The Adviser has entered
into arrangements with certain broker/dealers pursuant to which a broker/dealer
will provide research, market or statistical information to the Adviser or the
Fund in exchange for the direction by the Adviser of brokerage transactions to
the broker/dealer. The Adviser may give consideration to those firms that have
sold or are selling shares of a fund managed by the Adviser. 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.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Trustees of the Fund review from time to time whether the recapture for
the benefit of the Fund of some portion of the brokerage commissions, if any, or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.
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 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 whenever necessary, in management's
opinion, to meet the Fund's objective.
It is not anticipated that the Fund will pay significant brokerage
commissions. However, on occasion it may be necessary or desirable to purchase
or sell a security through a broker on an agency basis, in which case the Fund
will incur a brokerage commission.
The Fund will not purchase securities from its affiliates in principal
transactions unless an exemption is available from applicable regulations.
LIQUIDITY REQUIREMENTS
From the time that the Fund sends a Notification to shareholders until the
Pricing Date, the Fund will maintain a percentage of the Fund's assets equal to
at least 100 percent of the Repurchase Offer Amount in assets: (a) that can be
sold or disposed of in the ordinary course of business at approximately the
price at which the Fund has valued the asset within the time period between the
Repurchase Request Deadline and the next Repurchase Payment Deadline; or (b)
that mature by the next Repurchase Payment Deadline.
In the event that the Fund's assets fail to comply with the requirements in
the preceding paragraph, the Board shall cause the Fund to take such action as
the Board deems appropriate to ensure compliance.
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 classes of shares will vary based
on expenses borne by each class. The net asset value of shares of the Fund is
computed as of the close of regular trading on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading. The Exchange is
scheduled
18
<PAGE> 80
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.
Securities listed primarily on foreign exchanges 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 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
market maker. If it is not possible to value a particular debt security pursuant
to the above methods, the Adviser may calculate the price of that debt security,
subject to limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price.
If a security is traded on more than one exchange, or upon one or more
exchanges and 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, 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 the fair market value of the property on the valuation date.
TAXATION
Set forth below is a discussion of certain U.S. Federal income tax issues
concerning the Fund and the purchase, ownership, and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive. Prospective
investors should consult their own tax advisers with regard to the federal tax
consequences of the purchase, ownership, or
19
<PAGE> 81
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
TAX STATUS OF THE FUND
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies).
As a regulated investment company, the Fund generally is not subject to
U.S. federal income tax on income and gains that it distributes to shareholders,
if at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a calendar year if
it is declared by the Fund in October, November or December of that year with a
record date in such a month and paid by the Fund during January of the following
year. Such a distribution will be taxable to shareholders in the calendar year
in which the distribution is declared, rather than the calendar year in which it
is received.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
The excess of net long-term capital gains over net short-term capital
losses realized, distributed and properly designated by the Fund, whether paid
in cash or reinvested in Fund shares, will generally be taxable to shareholders
as long-term gain, regardless of how long a shareholder has held Fund shares.
Net capital gains from assets held for one year or less will be taxed as
ordinary income.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a
20
<PAGE> 82
distribution. The price of shares purchased at this time will include the amount
of the forthcoming distribution, but the distribution will generally be taxable
to the shareholder.
DISPOSITIONS
Upon a redemption, sale or exchange of shares of the Fund, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands, and the rate of tax will depend upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days, beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case the basis of the shares acquired will be
adjusted to reflect the disallowed loss. If a shareholder holds Fund shares for
six months or less and during that period receives a distribution taxable to the
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term loss to the extent of
such distribution.
If, within 90 after purchasing Fund shares with a sales charge, a
shareholder exchanges the shares and acquires new shares at a reduced (or
without any) sales charge pursuant to a right acquired with the original shares,
then the shareholder may not take the original sales charge into account in
determining the shareholder's gain or loss on the disposition of the shares.
Gain or loss will generally be determined by excluding all or a portion of the
sales charge from the shareholder's tax basis in the exchanged shares, and the
amount excluded will be treated as an amount paid for the new shares.
If, pursuant to an offer by the Fund to repurchase its shares, a
shareholder tenders all shares of the Fund that he or she owns or is considered
to own, the shareholder may realize a taxable gain or loss. This gain or loss
will be treated as capital gain or loss if the Fund shares are held as capital
assets and will be long-term or short-term depending upon the shareholder's
holding period for the shares. If, pursuant to an offer by the Fund to
repurchase its shares, a shareholder tenders less than all of the shares of the
Fund that he or she owns or is considered to own, the repurchase may not qualify
as an exchange, and the proceeds received may be treated as a dividend, return
of capital or capital gain, depending on the Fund's earning and profits and the
shareholder's basis in the tendered shares. If that occurs, there is a risk that
non-tendering shareholders may be considered to have received a deemed
distribution as a result of the Fund's purchase of tendered shares, and all or a
portion of that deemed distribution may be taxable as a dividend.
BACKUP WITHHOLDING
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid (other than
exempt-interest dividends), capital gain distributions, and redemption proceeds
to shareholders if (1) the shareholder fails to furnish the Fund with the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders may
be subject to U.S. tax rules that differ significantly from those summarized
above, including the likelihood that ordinary income dividends to them would be
subject to withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if
applicable).
FUND INVESTMENTS
Market Discount. If the Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market
21
<PAGE> 83
discount". If the amount of market discount is more than a de minimis amount, a
portion of such market discount must be included as ordinary income (not capital
gain) by the Fund in each taxable year in which the Fund owns an interest in
such debt security and receives a principal payment on it. In particular, the
Fund will be required to allocate that principal payment first to the portion of
the market discount on the debt security that has accrued but has not previously
been includable in income. In general, the amount of market discount that must
be included for each period is equal to the lesser of (i) the amount of market
discount accruing during such period (plus any accrued market discount for prior
periods not previously taken into account) or (ii) the amount of the principal
payment with respect to such period. Generally, market discount accrues on a
daily basis for each day the debt security is held by the Fund at a constant
rate over the time remaining to the debt security's maturity or, at the election
of the Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary interest income (not
capital gain) to the extent of the "accrued market discount."
Original Issue Discount. Certain debt securities acquired by the Fund may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).
Options, Futures and Forward Contracts. Any regulated futures contracts
and certain options (namely, nonequity options and dealer equity options) in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by the
Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund, and
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that the Fund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales. Under certain circumstances, the Fund may recognize
gain from a constructive sale of an "appreciated financial position" it holds if
it enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the
22
<PAGE> 84
application of various loss deferral provisions of the Code. Constructive sale
treatment does not apply to transactions closed in the 90-day period ending with
the 30th day after the close of the taxable year, if certain conditions are met.
Section 988 Gains or Losses. Gains or losses attributable to fluctuations
in exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other 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 some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS
Ernst & Young LLP, 222 South Wacker Drive, Chicago, Illinois 60606, are the
Fund's independent auditors providing audit and tax return preparation services
and assistance and consultation in connection with the review of various
Commission filings.
REPORTS
When available, the Fund will furnish, without charge, a copy of its Annual
and Semi-Annual Reports to Shareholders upon request to the Fund, 222 South
Riverside Plaza, Chicago, Illinois 60606 or call 1-800-621-1048.
23
<PAGE> 85
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.
24
<PAGE> 86
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.
25
<PAGE> 87
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements: Not applicable
2. Exhibits
(a) Declaration of Trust of Registrant.*
(b) By-Laws of Registrant.*
(c) Not Applicable.
(d) Declaration of Trust and By-laws of Registrant.*
(e) Not Applicable.
(f) Not Applicable.
(g) Investment Management Agreement between Registrant and Scudder
Kemper Investments, Inc.*
(h) (1) Underwriting and Distribution Services Agreement between
Registrant and Kemper Distributors, Inc.*
(2) Form of Selling Group Agreement.*
(i) Not Applicable.
(j) Form of Custodian Contract between Registrant and State Street
Bank and Trust Company.*
(k) (1) Administrative Services Agreement between Registrant and
Kemper Distributors, Inc.*
(2) Agency Agreement between Registrant and Kemper Service
Company.*
(3) Fund Accounting Services Agreement between Registrant and
Scudder Fund Accounting Corporation.*
(4) Distribution Plan for Class B shares.*
<PAGE> 88
(5) Multi-Distribution System Plan of Registrant.*
(l) Opinion and Consent of Dechert Price & Rhoads. To be filed by
amendment.
(m) Not Applicable
(n) (1) Consent of Ernst & Young LLP.*
(2) Powers of Attorney*
(o) Not Applicable.
(p) Subscription Agreement for Initial Capital. To be filed by
amendment.
(q) Not Applicable.
(r) Not Applicable.
- ----------
* Filed herewith.
ITEM 25. MARKETING AGREEMENTS
See Form of Distribution Agreement to be filed as Exhibit (h) to this
Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Registration Fees.............................................
---------------
Printing and Engraving Expenses...............................
---------------
Legal Fees and Expenses.......................................
---------------
National Association of Securities Dealers, Inc. Fees.........
---------------
Accounting Fees and Expenses..................................
---------------
Miscellaneous Expenses........................................
---------------
Total................................................
---------------
- ----------
* To be completed by amendment.
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL
Not Applicable.
-2-
<PAGE> 89
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Not Applicable
ITEM 29. INDEMNIFICATION
A policy of insurance covering Scudder Kemper Investment , Inc., its affiliates
including Scudder Investor Services, Inc., and all of the registered investment
companies advised by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by reason of an
alleged breach of duty caused by any negligent act, error or accidental omission
in the scope of their duties. Article IV, Sections 4.1 - 4.3 of the Registrant's
Declaration of Trust states as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of the one or more
Series of which the shareholder who is entitled to indemnification or
reimbursement was a shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith,
-3-
<PAGE> 90
willful misfeasance, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other body before
which a proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b)(i) or (b)(ii) resulting in a
payment by a Trustee or officer, unless there has been a determination that such
Trustee or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed to a
full trial-type inquiry) by (x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may
-4-
<PAGE> 91
now or hereafter be entitled, shall continue as to a person who has ceased to be
such Trustee or officer and shall insure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained herein shall
affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be insured
against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion shall determine, based upon a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the recipient ultimately will be found
entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has been
exempted from being an Interested Person by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or proceeding.
* * *
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.
-5-
<PAGE> 92
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of the business of Scudder Kemper Investments, Inc. is
set forth under the caption "Investment Management and Other Services" in the
Prospectus and "Management-Investment Adviser" in the SAI forming part of this
Registration Statement.
The information as to the Directors and officers of Scudder Kemper
Investments, Inc. set forth in Scudder Kemper Investment's Form ADV filed with
the Securities and Exchange Commission (File No. 801-252), as amended through
the date hereof, is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Accounts and Records of the Fund are maintained at (i) the Fund's
office at 222 South Riverside Plaza, Chicago, Illinois 60606, (ii) the offices
of Scudder Kemper Investments, Inc. at 345 Park Avenue, New York, New York,
10154-0010, and (iii) the offices of Scudder Kemper Investments, Inc. at 2
International Place, Boston, Massachusetts 02110-4103.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, maintains all the records in its capacity as custodian of
the Registrant's assets. Kemper Service Company, 811 Main Street, Kansas City,
Missouri, maintains all the required records in its capacity as transfer,
dividend paying and shareholder service agent of the Registrant.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
1. Not Applicable
2. Not Applicable.
3. Not Applicable.
4. a. To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the Prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
-6-
<PAGE> 93
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
c. To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
5. Not Applicable.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
-7-
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and State of Massachusetts, on this 20th day
of April, 1999.
KEMPER FLOATING RATE FUND
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 by the following persons in the
capacities and on the date indicated:
<TABLE>
<S> <C> <C>
/s/ Mark S. Casady President (Principal April 20, 1999
- --------------------------- Executive Officer)
Mark S. Casady
/s/ John R. Hebble Treasurer (Principal Financial April 20, 1999
- --------------------------- and Accounting Officer)
John R. Hebble
* Trustee April 20, 1999
- ---------------------------
James E. Akins
Trustee --------------
- ---------------------------
Arthur R. Gottschalk
* Trustee April 20, 1999
- ---------------------------
Frederick T. Kelsey
* Trustee April 20, 1999
- ---------------------------
Thomas W. Littauer
Trustee --------------
- ---------------------------
Kathryn L. Quirk
* Trustee April 20, 1999
- ---------------------------
Fred B. Renwick
* Trustee April 20, 1999
- ---------------------------
Cornelia M. Small
* Trustee April 20, 1999
- ---------------------------
John G. Weithers
</TABLE>
* By: /s/ Maureen Kane
----------------
Maureen Kane
As Attorney-In-Fact
* Pursuant to Powers of Attorney filed herewith
<PAGE> 95
KEMPER FLOATING RATE FUND
EXHIBITS FILED WITH PRE-EFFECTIVE AMENDMENT NO. 1
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ---------- -------
<S> <C>
2(a) Declaration of Trust
2(b) By-Laws
2(g) Investment Management Agreement
2(h)(1) Underwriting and Distribution Services Agreement
2(h)(2) Form of Selling Group Agreement
2(j) Form of Custodian Contract
2(k)(1) Administrative Services Agreement
2(k)(2) Agency Agreement
2(k)(3) Fund Accounting Services Agreement
2(k)(4) Distribution Plan
2(k)(5) Multi-Distribution System Plan
2(n)(1) Consent of Ernst & Young LLP
2(n)(2) Powers of Attorney
</TABLE>
<PAGE> 1
EXHIBIT 2(a)
KEMPER FLOATING RATE FUND
DECLARATION OF TRUST
DATED MARCH 23,1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I ........................................................................ 1
Section 1.1. Name .......................................................... 1
Section 1.2. Definitions ................................................... 1
ARTICLE II ....................................................................... 4
Section 2.1. General Powers ................................................ 4
Section 2.2. Investments ................................................... 4
Section 2.3. Legal Title ................................................... 6
Section 2.4. Issuance and Repurchase of Shares ............................. 6
Section 2.5. Delegation; Committees ........................................ 7
Section 2.6. Collection and Payment ........................................ 7
Section 2.7. Expenses ...................................................... 7
Section 2.8. Manner of Acting; By-laws ..................................... 7
Section 2.9. Miscellaneous Powers .......................................... 8
Section 2.10. Principal Transactions ........................................ 8
Section 2.11. Number of Trustees ............................................ 8
Section 2.12. Election and Term ............................................. 8
Section 2.13. Resignation and Removal ....................................... 9
Section 2.14. Vacancies ..................................................... 9
Section 2.15. Delegation of Power to Other Trustees ......................... 10
Section 2.16. Shareholder Vote, etc. Not Required ........................... 10
ARTICLE III ...................................................................... 10
Section 3.1. Distribution Contract ......................................... 10
Section 3.2. Advisory or Management Contract ............................... 10
Section 3.3. Affiliations of Trustees or Officers, Etc. .................... 11
Section 3.4. Compliance with 1940 Act ...................................... 11
ARTICLE IV ....................................................................... 12
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. ......... 12
Section 4.2. Non-Liability of Trustees, Etc. ............................... 12
Section 4.3. Mandatory Indemnification ..................................... 12
Section 4.4. No Bond Required of Trustees .................................. 14
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc. ... 14
Section 4.6. Reliance on Experts, Etc. ..................................... 15
ARTICLE V ........................................................................ 15
Section 5.1. Beneficial Interest ........................................... 15
Section 5.2. Preferred Shares .............................................. 16
Section 5.3. Rights of Shareholders ........................................ 16
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 5.4. Trust Only ................................................... 16
Section 5.5. Issuance of Shares ........................................... 16
Section 5.6. Register of Shares ........................................... 17
Section 5.7. Transfer of Shares ........................................... 17
Section 5.8. Notices, Reports ............................................. 17
Section 5.9. Treasury Shares .............................................. 18
Section 5.10. Voting Powers ................................................ 18
Section 5.11. Meetings of Shareholders ..................................... 18
Section 5.12. Series Designation ........................................... 19
Section 5.13. Assent to Declaration of Trust ............................... 21
Section 5.14. Class Designation ............................................ 21
ARTICLE VI ...................................................................... 22
Section 6.1. Redemption or Repurchase of Shares ............................ 22
Section 6.2. Price ......................................................... 22
Section 6.3. Payment ....................................................... 22
Section 6.4. Repurchase by Agreement ....................................... 23
Section 6.5. Redemption or Repurchase of Shareholder's Interest ............ 23
Section 6.6. Redemption or Repurchase of Shares in Order to Qualify as
Regulated Investment Company; Disclosure of Holding ........... 23
Section 6.7. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula ........................................... 24
ARTICLE VII ..................................................................... 24
Section 7.1. Net Asset Value ............................................... 24
Section 7.2. Distributions to Shareholders ................................. 25
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares ............................... 25
Section 7.4. Allocation Between Principal and Income ....................... 26
Section 7.5. Power to Modify Foregoing Procedures .......................... 26
ARTICLE VIII .................................................................... 26
Section 8.1. Duration ...................................................... 26
Section 8.2. Termination of Trust .......................................... 27
Section 8.3. Amendment Procedure ........................................... 27
Section 8.4. Merger, Consolidation and Sale of Assets ...................... 28
Section 8.5. Conversion .................................................... 29
Section 8.6. Incorporation ................................................. 29
Section 8.7. Certain Transactions .......................................... 30
Section 8.8. Vote of Preferred Shares ...................................... 31
ARTICLE IX ...................................................................... 32
ARTICLE X ....................................................................... 32
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 10.1. Filing ....................................................... 32
Section 10.2. Governing Law ................................................ 32
Section 10.3. Counterparts ................................................. 32
Section 10.4. Reliance by Third Parties .................................... 33
Section 10.5. Provisions in Conflict with Law or Regulations ............... 33
</TABLE>
-iii-
<PAGE> 5
DECLARATION OF TRUST
OF
KEMPER FLOATING RATE FUND
DATED MARCH 23,1999
DECLARATION OF TRUST made March 23, 1999 by the Trustees (together with
all other persons from time to time duly elected, qualified and serving as
Trustees in accordance with the provisions of Article II hereof, the
"Trustees").
WHEREAS, the Trustees desire to establish a trust for the investment
and reinvestment of funds contributed thereto;
WHEREAS, the Trust has a principal place of business at 222 South
Riverside Plaza, Chicago, Illinois 60606; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name.
The name of the Trust created hereby is the "Kemper Floating Rate
Fund."
Section 1.2. Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
(a) "Affiliate" and "Associate" shall have the meanings given
to those terms by Rule 12b-2 under the Securities Exchange Act
of 1934 as in effect on March 23, 1999.
(b) "By-laws" means the By-laws referred to in Section 2.8
hereof, as from time to time amended.
<PAGE> 6
(c) "Class" means the one or more Classes as may be
established and designated from time to time by the Trustees
pursuant to Section 5.14 hereof.
(d) The term "Commission" has the meaning given it in the 1940
Act. The term "Interested Person" has the meaning given it in
the 1940 Act, as modified by any applicable order or orders of
the Commission. Except as otherwise defined by the Trustees in
conjunction with the establishment of any Series of Shares,
the term "vote of a majority of the Shares outstanding and
entitled to vote" shall have the same meaning as the term
"vote of a majority of the outstanding voting securities"
given it in the 1940 Act.
(e) "Common Shares" means the equal proportionate units of
interest into which the common shares of beneficial interest
in the Trust shall be divided from time to time, including the
common shares of any and all Series and Classes which may be
established by the Trustees, and includes fractions of common
shares as well as whole common shares. "Outstanding Shares"
means those common shares shown as of a time and from time to
time on the books of the Trust or its Transfer Agent as then
issued and outstanding, but shall not include Common Shares
which have been redeemed or repurchased by the Trust and which
are at the time held in the Treasury of the Trust.
(f) "Custodian" means any Person other than the Trust who has
custody of any Trust Property as required by Section 17(f) of
the 1940 Act, but does not include a system for the central
handling of securities described in said Section 17(f).
(g) "Declaration" means this Declaration of Trust as further
amended from time to time. Reference in this Declaration of
Trust to "Declaration," "hereof," "herein," and "hereunder"
shall be deemed to refer to this Declaration rather than
exclusively to the article or section in which such words
appear.
(h) "Distributor" means the party, other than the Trust, to
the contract described in Section 3.1 hereof.
(i) "His" shall include the feminine and neuter, as well as
the masculine genders.
(j) "Investment Adviser" means the party, other than the
Trust, to the contract described in Section 3.2 hereof.
(k) The "1940 Act" means the Investment Company Act of 1940,
as amended from time to time.
-2-
<PAGE> 7
(l) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
(m) "Preferred Shares" means the equal proportionate interest
in which the preferred shares of beneficial interest in the
Trust shall be divided, and which may have such designations,
preferences and relative, participating, optional, or other
rights (including voting rights) relative to the Common Shares
as the Trustees may determine and in compliance with
applicable law.
(n) "Principal Shareholder" means any corporation, person or
other entity which is the beneficial owner, directly or
indirectly, of more than five percent (5%) of the Outstanding
Shares and shall include any Affiliate or Associate of a
Principal Shareholder.
(o) "Series" individually or collectively means the one or
more Series as may be established and designated from time to
time by the Trustees pursuant to Section 5.12 hereof. Unless
the context otherwise requires, the term "Series" shall
include Classes into which shares of the Trust, or of a
Series, may be divided from time to time.
(p) "Shares" means the Common Shares and the Preferred Shares
of the Fund.
(q) "Shareholder" means a record owner of the issued and
outstanding Shares.
(r) A "Successor" means a successor in interest to the Trust.
(s) "Transfer Agent" means any one or more Persons other than
the Trust who maintains the Shareholder records of the Trust,
such as the list of Shareholders, the number of Shares
credited to each account, and the like.
(t) "Trust" means the Kemper Floating Rate Fund.
(q) The "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or
for the account of the Trust or the Trustees.
(r) The "Trustees" means the person or persons who has or have
signed this Declaration, so long as he or they shall continue
in office in accordance with the terms hereof, and all other
persons who may from time to time be duly qualified and
serving as Trustees in accordance with the provisions of
Article II hereof, and reference herein to a Trustee or the
Trustees shall refer to such person or persons in this
capacity or their capacities as trustees hereunder.
-3-
<PAGE> 8
ARTICLE II
TRUSTEES
Section 2.1. General Powers.
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 2.2. Investments.
The Trustees shall have the power:
(a) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate
to the conduct of such operations.
(b) To invest in, hold for investment, or reinvest in, all
types of securities and loans or interests in loans issued by
corporations, companies, trusts, associations, firms, or other
persons or business organizations however established,
domestic or foreign, or issued or guaranteed by the United
States of America or any agency or instrumentality thereof, by
the government of any foreign country, by any State of the
United States, or by any political subdivision, municipality
or agency of any State or foreign country, or any governmental
or quasi-governmental agency or instrumentality, including but
not limited to shares of open-end investment companies; common
and preferred stocks; warrants and rights to purchase
securities; bonds, debentures, bills, time notes and all other
evidences of indebtedness; negotiable or non-negotiable
instruments; government securities, including securities of
any state, municipality or other political subdivision
thereof, or any governmental or quasi-governmental agency or
instrumentality; all types of
-4-
<PAGE> 9
secured or unsecured loans or interests in loans (or
derivatives related thereto), including senior floating rate
loans; notes, evidences of indebtedness, and other
participations in securities or loans, however named or
described; money market instruments of any rating including
bank certificates of deposit, finance paper, commercial paper,
bankers acceptances and all kinds of repurchase agreements;
and to engage in "when issued" and delayed delivery
transactions.
(c) To acquire (by purchase, subscription or otherwise), to
hold, to trade in and deal in, to acquire any rights or
options to purchase or sell, to sell or otherwise dispose of,
to lend, and to pledge any such securities or indices of such
securities, currency, precious metals and other commodities,
and to enter into repurchase and reverse repurchase agreements
and forward foreign currency exchange contracts, to purchase
and sell futures contracts on securities, securities indices
and foreign currencies, to purchase or sell options on such
contracts, foreign currency contracts, and foreign currencies
and to engage in all types of financial instruments and
hedging and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership
or interest in all securities, repurchase agreements, futures
contracts and options and other assets included in the Trust
Property, including the right to vote thereon and otherwise
act with respect thereto and to do all acts for the
preservation, protection, improvement and enhancement in value
of all such assets.
(e) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise)
any property, real or personal, including cash, and any
interest therein, and to deposit any assets of the Trust in
any bank, trust company or banking institution or retain any
such assets in cash.
(f) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by
mortgaging, pledging or otherwise subjecting as security the
Trust Property; to endorse, guarantee, or undertake the
performance of any obligation or engagement of any other
Person and to lend Trust Property.
(g) To aid by further investment any corporation, company,
trust, association or firm, any obligation of or interest in
which is included in the Trust Property or in the affairs of
which the Trustees have any direct or indirect interest; to do
all acts and things designed to protect, preserve, improve or
enhance the value of such obligation or interest, and to
guarantee or become surety on any or all of the contracts,
stocks, bonds, notes, debentures and other obligations of any
such corporation, company, trust, association or firm.
-5-
<PAGE> 10
(h) To enter into a plan of distribution and any related
agreements whereby the Trust may finance directly or
indirectly any activity which is primarily intended to result
in the sale of Shares.
(i) To invest, through a transfer of cash, securities and
other assets or otherwise, all or a portion of the Trust
Property, or to sell all or a portion of the Trust Property
and invest the proceeds of such sales, in another investment
company that is registered under the 1940 Act.
(j) In general to carry on any other business in connection
with or incidental to any of the foregoing powers, to do
everything necessary, suitable or proper for the
accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either
alone or in association with others, and to do every other act
or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or
powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title.
Legal title to all the Trust Property, including the property of any
Series of the Trust, shall be vested in the Trustees as joint tenants except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property and the property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property or the property of any Series of the Trust, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles VI
and VII and Section 5.12 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of
-6-
<PAGE> 11
the particular Series of the Trust with respect to which such Shares are issued,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 2.5. Delegation; Committees.
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient, to
the same extent as such delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment.
The Trustees shall have power to collect all property due to the Trust;
to pay all claims, including taxes, against the Trust Property; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 2.7. Expenses.
The Trustees shall have the power to incur and pay any expenses which
in the opinion of the Trustees are necessary or incidental to carry out any of
the purposes of this Declaration, and to pay reasonable compensation from the
funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws.
Except as otherwise provided herein or in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office. The
Trustees may adopt By-laws not inconsistent with this Declaration to provide for
the conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
-7-
<PAGE> 12
Section 2.9. Miscellaneous Powers.
Subject to Section 5.12 hereof, the Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent and selected dealers, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
Section 2.10. Principal Transactions.
Except in transactions not permitted by the 1940 Act or rules and
regulations adopted by the Commission, the Trustees may, on behalf of the Trust,
buy any securities from or sell any securities to, or lend any assets of the
Trust to, any Trustee or officer of the Trust or any firm of which any such
Trustee or officer is a member acting as principal, or have any such dealings
with the Investment Adviser, Distributor or transfer agent or with any
Interested Person or such Person, and the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, dealer,
legal counsel, registrar, transfer agent, dividend disbursing agent or
Custodian upon customary terms.
Section 2.11. Number of Trustees.
The number of Trustees shall initially be one (1), and thereafter shall
be such number as shall be fixed from time to time by a written instrument
signed by a majority of the Trustees.
Section 2.12. Election and Term.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 2.14 hereof, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Common Shares voting at a
meeting of Shareholders. Such a meeting shall be held on a date fixed by the
Trustees. Except in the event of resignation or removals pursuant to Section
2.13
-8-
<PAGE> 13
hereof, each Trustee shall hold office until such time as less than a majority
of the Trustees holding office have been elected by Shareholders, and thereafter
until the holding of a Shareholders' meeting as required by the next following
sentence. In such event the Trustees then in office will call a Shareholders'
meeting for the election of Trustees. Except for the foregoing circumstances,
the Trustees shall continue to hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal.
Any Trustee may resign his trust (without the need for any prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument. Any of
the Trustees may be removed (provided the aggregate number of Trustees after
such removal shall not be less than one) with cause, by the action of two-thirds
of the remaining Trustees. Any Trustee may be removed at any meeting of
Shareholders by vote of two-thirds of the Outstanding Shares. The Trustees shall
promptly call a meeting of the Shareholders for the purpose of voting upon the
question of removal of any such Trustee or Trustees when requested in writing so
to do by the holders of not less than ten percent of the Outstanding Shares and,
in that connection, the Trustees will assist Shareholder communications to the
extent provided for in Section 16(c) under the 1940 Act. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
purpose of conveying to the Trust or the remaining Trustees any Trust Property
or property of any Series of the Trust held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
Section 2.14. Vacancies.
The term of office of a Trustee shall terminate and a vacancy shall
occur in the event of the death, resignation, removal, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No such vacancy shall operate to annul the Declaration or to revoke any
existing agency created pursuant to the terms of the Declaration. In the case of
an existing vacancy, including a vacancy existing by reason of an increase in
the number of Trustees, subject to the provisions of Section 16(a) of the 1940
Act, the remaining Trustees shall fill such vacancy by the appointment of such
other person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall
-9-
<PAGE> 14
discharge all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
Section 2.15. Delegation of Power to Other Trustees.
Any Trustee may, by power of attorney, delegate his power for a period
not exceeding six (6) months at any one time to any other Trustee or Trustees;
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided.
Section 2.16. Shareholder Vote, etc. Not Required.
Except to the extent specifically provided to the contrary in this
Declaration, the Trustees may exercise each of the powers granted to them in
this Declaration without the vote, approval or agreement of the Shareholders,
unless such a vote, approval or agreement is required by the 1940 Act or
applicable laws of the Commonwealth of Massachusetts or, with respect to the
Preferred Shares, the terms thereof.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract.
The Trustees may in their discretion from time to time enter into an
exclusive or non-exclusive underwriting contract or contracts providing for the
sale of the Shares at a price based on the net asset value of a Common Share or
at such other price as is in compliance with the 1940 Act or any exemption
therefrom, whereby the Trustees may either agree to sell the Shares to the other
party to the contract or appoint such other party their sales agent for the
Shares, and in either case on such terms and conditions, if any, as may be
prescribed in the By-laws, and such further terms and conditions as the Trustees
may in their discretion determine not inconsistent with the provisions of this
Article III or of the By-laws; and such contract may also provide for the
repurchase of the Shares by such other party as principal or as agent of the
Trustees.
Section 3.2. Advisory or Management Contract.
The Trustees may in their discretion from time to time enter into an
investment advisory or management contract or separate advisory contracts with
respect to one or more Series whereby the other party to such contract shall
undertake to furnish to the Trust such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine, including the grant of authority to such other party
to determine what securities shall be purchased or sold by the Trust and what
portion of its assets shall be uninvested, which authority shall include the
power to make changes in the investments of the Trust or any Series.
-10-
<PAGE> 15
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee,
employee, manager, adviser or distributor of or for any
partnership, corporation, trust, association or other
organization or of or for any parent or affiliate of any
organization, with which a contract of the character described
in Sections 3.1 or 3.2 above or for services as Custodian,
Transfer Agent, accounting agent or disbursing agent or for
related services may have been or may hereafter be made, or
that any such organization, or any parent or affiliate
thereof, is a Shareholder of or has an interest in the Trust,
or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described
in Sections 3.1 or 3.2 above or for services as Custodian,
Transfer Agent, accounting agent or disbursing agent or for
related services may have been or may hereafter be made also
has any one or more of such contracts with one or more other
partnerships, corporations, trusts, associations or other
organizations, or has other business or interests, shall not
affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon
or executing the same or create any liability or
accountability to the Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act.
Any contract entered into pursuant to Sections 3.1 or 3.2 shall be
consistent with and subject to the requirements of Section 15 of the 1940 Act
(including any amendment thereof or other applicable act of Congress hereafter
enacted), as modified by any applicable order or orders of the Commission, with
respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
-11-
<PAGE> 16
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
No Shareholder shall be subject to any personal liability whatsoever to
any Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties with respect to such Person; and
all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
for his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of the one or more
Series of which the Shareholder who is entitled to indemnification or
reimbursement was a Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc.
No Trustee, officer, employee or agent of the Trust shall be liable to
the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee,
or agent thereof for any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 4.3. Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
-12-
<PAGE> 17
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal, administrative
or other, including appeals), actual or threatened;
and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final
adjudication by a court or other body before which a
proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in
good faith in the reasonable belief that his action
was in the best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as
provided in paragraph (b)(i) or (b)(ii) resulting in
a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did
not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type
inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in office act on
the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as
-13-
<PAGE> 18
to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing contained
herein shall affect any rights to indemnification to which
personnel of the Trust other than Trustees and officers may be
entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 4.3 may be
advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to
repay such amount if it is ultimately determined that he is
not entitled to indemnification under this Section 4.3,
provided that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the
recipient, or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion shall
determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an Interested Person of the Trust (including anyone who
has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Section 4.4. No Bond Required of Trustees.
No Trustee shall be obligated to give any bond or other security for
the performance of any of his duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments,
Etc.
No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written
-14-
<PAGE> 19
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees may recite that the same is
executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of the Trust under any such instrument are
not binding upon any of the Trustees or Shareholders individually, but bind only
the trust estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc.
Each Trustee and officer or employee of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers or employees
or by the Investment Adviser, the Distributor, Transfer Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest.
The interest of the beneficiaries hereunder shall initially be divided
into Common Shares all of one Class, par value $.01 per share, which is
designated "Class B Shares." The Trustees may, in their discretion and as
provided in Section 5.12 and Section 5.14 hereof, divide the beneficial
interests in the Trust into additional Classes or Series, which may include a
Class or Classes of Common Shares or Preferred Shares. The number of Shares of
beneficial interest authorized hereunder is unlimited. All Shares issued
hereunder including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and non-assessable.
Subject to all of the rights of the holders of Preferred Shares
provided for by resolution or resolutions of the Trustees, the Trustees shall
have the power to cause the Trust to issue (on either a pro rata or a non-pro
rata basis) rights, options and warrants for the purchase of Shares or any
Series thereof, other securities of the Trust, or Shares or other securities of
any Successor, at such times, in such amounts, to such persons, for such
consideration (if any), with such form and content (including without limitation
the consideration for which any Shares or any Series thereof, other securities
of the Trust or shares or other securities of any Successor are to be issued)
and upon such terms and conditions as they may from time to time determine,
subject only to the restrictions, limitations, conditions and requirements
imposed under applicable law.
-15-
<PAGE> 20
Section 5.2. Preferred Shares.
The Trustees shall have the power to authorize the issue of one or more
Classes or Series of Preferred Shares and, with respect to each such Class or
Series and notwithstanding and provision hereof, to fix by resolution or
resolutions providing for the issue of such Class or Series the voting powers,
full or limited, if any, of the Shares of such Class or Series, the
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof.
Section 5.3. Rights of Shareholders.
The ownership of the Trust Property and the property of each Series of
the Trust of every description and the right to conduct any business
herein-before described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights specifically set forth in this
Declaration or as specifically established by the Trustees. The Shares shall not
entitle the holder to preference, preemptive, appraisal, conversion or exchange
rights, except as the Trustees may determine with respect to any Series of
Shares.
Section 5.4. Trust Only.
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, corporation, bailment or any form
of legal relationship other than a trust. Nothing in this Declaration shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
Section 5.5. Issuance of Shares.
The Trustees in their discretion may, from time to time without vote of
the Shareholders, issue Shares, in addition to the then issued and outstanding
Shares and Shares held in the treasury, to such party or parties and for such
amount and type of consideration, including cash or property, at such time or
times and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and Shares
held in the treasury. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Contributions to the Trust may
be accepted for, and, subject to the discretion of the Trustees, Shares may be
redeemed or repurchased as, whole Shares and/or 1/1,000ths of a Share or
integral multiples thereof.
-16-
<PAGE> 21
Section 5.6. Register of Shares.
A register shall be kept at the principal office of the Trust or an
office of the Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.7. Transfer of Shares.
Except as otherwise provided by the Trustees, shares shall be
transferable on the records of the Trust only by the record holder thereof or by
his agent thereunto duly authorized, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any transfer agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.8. Notices, Reports.
Any and all notices to which any Shareholder may be entitled and any
and all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust. A notice of a meeting, an annual report
and any other communication to Shareholders need not be sent to a Shareholder
(i) if an annual report and a proxy statement for two consecutive Shareholder
meetings have been mailed to such Shareholder's address and have been returned
as undeliverable, (ii) if all, and at least two, checks (if sent by first class
mail) in payment of dividends on Shares during a twelve-month period have been
mailed to such Shareholder's address and have been returned as undeliverable or
(iii) in any other case in which a proxy
-17-
<PAGE> 22
statement concerning a meeting of security holders is not required to be given
pursuant to the Commission's proxy rules as from time to time in effect under
the Securities Exchange Act of 1934. However, delivery of such proxy statements,
annual reports and other communications shall resume if and when such
Shareholder delivers or causes to be delivered to the Trust written notice
setting forth such Shareholder's then current address.
Section 5.9. Treasury Shares.
Shares held in the treasury shall, until reissued pursuant to Section
5.5, not confer any voting rights on the Trustees, nor shall such Shares be
entitled to any dividends or other distributions declared with respect to the
Shares.
Section 5.10. Voting Powers.
The holders of Common Stock shall have power to vote only (i) for the
election of Trustees as provided in Section 2.12; (ii) for the removal of
Trustees as provided in Section 2.13; (iii) with respect to any amendment of
this Declaration to the extent and as provided in Section 8.3; (iv) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
Series or Class thereof or the Shareholders (provided, however, that a
Shareholder of a particular Series or Class shall not be entitled to bring a
derivative or class action on behalf of any other Series or Class (or
Shareholder of any other Series or Class) of the Trust); and (v) with respect to
such additional matters relating to the Trust as may be required by this
Declaration, the By-laws or any registration of the Trust as an investment
company under the 1940 Act with the Commission (or any successor agency) or as
the Trustees may consider necessary or desirable. Each whole Common Share shall
be entitled to one vote as to any matter on which it is entitled to vote and
each fractional Common Share shall be entitled to bring a proportionate
fractional vote, except that the Trustees may, in conjunction with the
establishment of any Series or Class of Shares, establish or reserve the right
to establish conditions under which the several Series or Classes shall have
separate voting rights or no voting rights. There shall be no cumulative voting
in the election of Trustees. Until Common Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
this Declaration or the By-laws to be taken by Shareholders. The By-laws may
include further provisions for Shareholders' votes and meetings and related
matters. Holders of any Class or Series of Preferred Shares shall have such
voting rights and powers as established by the terms thereof.
Section 5.11. Meetings of Shareholders.
Meetings of Shareholders may be called at any time by the President,
and shall be called by the President and Secretary at the request in writing or
by resolution, of a majority of Trustees, or at the written request of the
holder or holders of ten percent (10%) or more of the total number of Common
Shares then issued and outstanding of the Trust entitled to vote at such
meeting. Any such request shall state the purpose of the proposed meeting.
-18-
<PAGE> 23
Section 5.12. Series Designation.
The Trustees, in their discretion, may authorize the division of Shares
into one or more Series, and the different Series shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series shall be fixed and determined, by the Trustees; provided,
that all Series of Common Shares shall be identical except that there may be
variations so fixed and determined between different Series as to investment
objective, purchase price, allocation of expenses, right of redemption, special
and relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several Series shall have separate voting rights.
Series of Preferred Shares may have such rights and preferences as may be
established by the terms thereof. All references to Shares in this Declaration
shall be deemed to be Shares of any or all Series as the context may require.
(a) All provisions herein relating to the Trust shall apply
equally to each Series of the Trust except as the context
requires otherwise.
(b) The number of authorized Shares and the number of Shares
of each Series that may be issued shall be unlimited. The
Trustees may classify or reclassify any issued or unissued
Shares or any Shares previously issued and reacquired or any
Series thereof into one or more Series that may be established
and designated from time to time. The Trustees may hold as
treasury Shares (of the same or some other Series), reissue
for such consideration and on such terms as they may
determine, or cancel any Shares of any Series reacquired by
the Trust at their discretion from time to time.
(c) All consideration received by the Trust for the issue or
sale of Common Shares of a particular Series, together with
all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to
that Series for all purposes, subject only to the rights of
creditors of such Series and except as may otherwise be
required by applicable laws, and shall be so recorded upon the
books of account of the Trust. In the event that there are any
assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall
allocate them among any one or more of the Series established
and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for
all purposes.
(d) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that
Series and with all expenses, costs, charges and reserves
attributable to that Series, and any general liabilities,
expenses, costs,
-19-
<PAGE> 24
charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be
allocated and charged by the Trustees to and among any one or
more of the Series established and designated from time to
time in such manner and on such basis as the Trustees in their
sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act,
to determine which items are capital; and each such
determination and allocation shall be conclusive and binding
upon the Shareholders. The assets of a particular Series of
the Trust shall, under no circumstances, be charged with
liabilities attributable to any other Series of the Trust. All
persons extending credit to, or contracting with or having any
claim against a particular Series of the Trust shall look only
to the assets of that particular Series for payment of such
credit, contract or claim. No Shareholder or former
Shareholder of any Series shall have any claim on or right to
any assets allocated or belonging to any other Series.
(e) Each Common Share of a Series of the Trust shall represent
a beneficial interest in the net assets of such Series. Each
holder of Common Shares of a Series shall be entitled to
receive his pro rata share of distributions of income and
capital gains made with respect to such Series, except as
provided in Section 5.14 hereof. Upon redemption or repurchase
of his Common Shares or indemnification for liabilities
incurred by reason of his being or having been a Shareholder
of a Series, such Shareholder shall be paid solely out of the
funds and property of such Series of the Trust. Upon
liquidation or termination of a Series of the Trust, holders
of Common Shares of such Series shall be entitled to receive a
pro rata share of the net assets of such Series, except as
provided in Section 5.14. hereof. A Shareholder of a
particular Series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any
other Series or the Shareholders of any other Series of the
Trust. The entitlement of holders of any Class or Series of
Preferred Shares to the assets of any Series of the Fund shall
be determined in accordance with the terms of such Preferred
Shares, and such Preferred Shares may have preferences
relative to Common Shares of the same Series.
(f) The establishment and designation of any Series of Shares
shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such
instrument. The Trustees may by an instrument executed by a
majority of their number abolish any Series and the
establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power
to determine the designations, preferences, privileges,
limitations and rights, of each Class and Series of Shares.
Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
-20-
<PAGE> 25
Section 5.13. Assent to Declaration of Trust.
Every Shareholder, by virtue of having become a shareholder, shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto.
Section 5.14. Class Designation.
The Trustees, in their discretion, may authorize the division of the
Shares of the Trust, or, if any Series be established, the shares of beneficial
interest of any Series, into one or more Classes, which may include a Class or
Classes of Common Shares or Preferred Shares, and the different Classes shall be
established and designated, and the variations in the relative rights and
preferences as between the different Classes shall be fixed and determined, by
the Trustees; provided, that all Common Shares of the Trust or of any Series
shall be identical to all other Common Shares of the Trust or the same Series,
as the case may be, except that there may be variations between different
Classes as to allocation of expenses, right of redemption, special and relative
rights and preferences as to dividends and distributions and on liquidation,
conversion rights, and conditions under which the several Classes shall have
separate voting rights. Classes of Preferred Shares may have such rights and
preferences as may be established by the terms thereof. All references to Shares
in this Declaration shall be deemed to be Shares of any or all Classes as the
context may require.
If the Trustees shall divide the Shares of the Trust or any Series into one or
more Classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any Series
of the Trust, shall apply equally to each Class of Shares of
the Trust or of any Series of the Trust, except as the context
requires otherwise.
(b) The number of Shares of each Class that may be issued
shall be unlimited. The Trustees may classify or reclassify
any Shares or any Series of any Shares into one or more
Classes that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or
some other Class), reissue for such consideration and on such
terms as they may determine, or cancel any Shares of any Class
reacquired by the Trust at their discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related
to the distribution of, and other identified expenses that
should property be allocated to, the Shares of a particular
Class may be charged to and borne solely by such Class and the
bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the
Trustees) and cause differences in the net asset value
attributable to, and the dividend, redemption and liquidation
rights of, the Shares of different Classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders
of all Classes for all purposes.
-21-
<PAGE> 26
(d) The establishment and designation of any Class of Shares
shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such
instrument, except with respect to the Class B Shares, which
are established herein. The Trustees may, by an instrument
executed by a majority of their number, abolish any Class and
the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an
amendment to this Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption or Repurchase of Shares.
From time to time the Trust may redeem or repurchase its Shares, all
upon such terms and conditions as may be determined by the Trustees and subject
to any applicable provisions of the 1940 Act or any exemption therefrom. The
Trust may require Shareholders to pay a withdrawal charge, a sales charge, or
any other form of charge to the Trust, to the underwriter or to any other person
designated by the Trustees upon redemption or repurchase of Shares in such
amount as shall be determined from time to time by the Trustees. The Trust may
also charge a redemption or repurchase fee in such amount as may be determined
from time to time by the Trustees.
The Trust shall repurchase or redeem the Shares upon the appropriately
verified written application of the record holder thereof (or upon such other
form of request as the Trustees may determine) at such office or agency as may
be designated from time to time for that purpose in the Trust's then effective
registration statement under the Securities Act of 1933. The Trustees may from
time to time specify additional conditions, not inconsistent with the 1940 Act
or any exemption therefrom regarding the redemption or repurchase of Shares in
the Trust's then effective registration statement under the Securities Act of
1933.
Section 6.2. Price.
Subject to Section 6.1 hereof, Shares may be redeemed or repurchased at
their net asset value or at such other price as is in compliance with the 1940
Act or any exemption therefrom, which may be reduced by any redemption fee,
withdrawal charge, or sales charge authorized by the Trustees. Net asset value
shall be determined as set forth in Section 7.1 hereof as of such time as the
Trustees shall have theretofore prescribed by resolution.
Section 6.3. Payment.
Payment for such Shares shall be made in cash or in property out of the
assets of the relevant Series of the Trust to the Shareholder of record at such
time and in the manner, not inconsistent with the 1940 Act or other applicable
laws, as may be specified from time to time in the Trust's then effective
registration statement under the Securities Act of 1933.
-22-
<PAGE> 27
Section 6.4. Repurchase by Agreement.
The Trust may repurchase Shares directly, or through the Distributor or
another agent designated for the purpose, by agreement with the owner thereof at
a price not exceeding the net asset value per Share determined as of the time
when the purchase or contract of purchase is made or the net asset value as of
any time which may be later determined pursuant to Section 7.1 hereof, provided
payment is not made for the Shares prior to the time as of which such net asset
value is determined, or at such other price as is in compliance with the 1940
Act or any exemption therefrom.
Section 6.5. Redemption or Repurchase of Shareholder's Interest.
The Trust shall have the right at any time without prior notice to the
Shareholder to redeem or repurchase Shares of any Shareholder for their then
current net asset value per Share, or at such other price as is in compliance
with the 1940 Act or any exemption therefrom, if
(a) at such time the Shareholder owns Shares having an
aggregate net asset value of less than an amount set from time
to time by the Trustees subject to such terms and conditions
as the Trustees may approve, and subject to the Trust's giving
general notice to all Shareholders of its intention to avail
itself of such right, either by publication in the Trust's
registration statement, if any, or by such other means as the
Trustees may determine, or
(b) The Trustees believe that it is in the best interest of
the Trust to do so because of prior involvement by the
Shareholder in fraudulent acts relating to securities
transactions.
Section 6.6. Redemption or Repurchase of Shares in Order to Qualify as
Regulated Investment Company; Disclosure of Holding.
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust has
or may become concentrated in any Person to an extent which would disqualify any
Series of the Trust as a regulated investment company under the Internal Revenue
Code, then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption by or repurchase from any such
Person a number, or principal amount, of Shares or other securities of the Trust
sufficient to maintain or bring the direct or indirect ownership of Shares or
other securities of the Trust into conformity with the requirements for such
qualification and (ii) to refuse to transfer or issue Shares or other securities
of the Trust to any Person whose acquisition of the Shares or other securities
of the Trust in question would result in such disqualification. The redemption
or repurchase shall be effected at the price and in the manner provided in
Section 6.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or
-23-
<PAGE> 28
other securities of the Trust as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code, or to comply with the requirements of
any other taxing authority.
Section 6.7. Reductions in Number of Outstanding Shares Pursuant to
Net Asset Value Formula.
The Trust may also reduce the number of Outstanding Shares pursuant to
the provisions of Section 7.3.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME DISTRIBUTIONS
Section 7.1. Net Asset Value.
The value of the assets of the Trust or any Series of the Trust shall
be determined by appraisal of the securities of the Trust or allocated to such
Series, such appraisal to be on the basis of such method as shall be deemed to
reflect the fair value thereof, determined in good faith by or under the
direction of the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate. The
net asset value of a Share shall be determined by dividing the net asset value
of the Class, or, if no Class has been established, of the Series, or, if no
Series has been established, of the Trust, by the number of Shares of that
Class, or Series, or of the Trust, as applicable, outstanding. The net asset
value of Shares of the Trust or any Class or Series of the Trust shall be
determined pursuant to the procedure and methods prescribed or approved by the
Trustees in their discretion and as set forth in the most recent Registration
Statement of the Trust as filed with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933, as amended, the 1940
Act, as amended, and the Rules thereunder. The net asset value of the Common
Shares shall be determined not less frequently than as may be required by the
1940 Act or exemption therefrom and at such time or times as the Trustees shall
determine. The power and duty to make the daily calculations may be delegated by
the Trustees to the Investment Adviser, the Custodian, the Transfer Agent or
such other Person as the Trustees may determine by resolution or by approving a
contract which delegates such duty to another Person. The net asset value of the
Preferred Shares shall be determined, if at all, at such times as the Trustees
may deem desirable and in accordance with the 1940 Act or any exemption
therefrom. The Trustees may suspend the determination of net asset value to the
extent permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders.
The Trustees shall from time to time distribute ratably among the
Shareholders of the Trust or a Series such proportion of the net profits,
earnings, surplus (including paid-in surplus),
-24-
<PAGE> 29
capital, or assets of the Trust or such Series held by the Trustees as they may
deem proper. Such distributions may be made in cash or property (including
without limitation any type of obligations of the Trust or such Series or any
assets thereof), and the Trustees may distribute ratably among the Shareholders
additional Shares of the Trust or such Series issuable hereunder in such manner,
at such times, and on such terms as the Trustees may deem proper and in
accordance with the terms of any outstanding Preferred Shares. Such
distributions may be among the Shareholders of record at the time of declaring a
distribution or among the Shareholders of record at such other date or time or
dates or times as the Trustees shall determine. The Trustees may in their
discretion determine that, solely for the purposes of such distributions, Shares
outstanding shall exclude Shares for which orders have been placed subsequent to
a specified time on the date the distribution is declared. The Trustees may
always retain from the net profits such amount as they may deem necessary to pay
the debts or expenses of the Trust or the Series or to meet obligations of the
Trust or the Series, or as they may deem desirable to use in the conduct of its
affairs or to retain for future requirements or extensions of the business. The
Trustees may adopt and offer to Shareholders such dividend reinvestment plans,
cash dividend payout plans or related plans as the Trustees shall deem
appropriate. The above provisions may be modified to the extent required by a
plan adopted by the Trustees to establish Classes of Shares of the Trust or of a
Series.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares.
Subject to Section 5.12 and Section 5.14 hereof, the net income of the
Trust or any Series shall be determined in such manner as the Trustees shall
provide by resolution. Expenses of the Trust or a Series, including the advisory
or management fee, shall be accrued each day. Such net income may be determined
by or under the direction of the Trustees as of the close of trading on the New
York Stock Exchange on each day on which such Exchange is open or as of such
other time or times as the Trustees shall determine, and, except as provided
herein, all the net income of the Trust or any Series, as so determined, may be
declared as a dividend on the Outstanding Shares of the Trust or such Series,
subject to any rights or preferences as to distributions or dividends among
Common Shares and Preferred Shares as may be established by the Trustees. If,
for any reason, the net income of the Trust or any Series, determined at any
time is a negative amount, the Trustees shall have the power with respect to the
Trust or such Series (i) to offset each Shareholder's pro rata share of such
negative amount from the accrued dividend account of such Shareholder, or (ii)
to reduce the number of Outstanding Shares of the Trust or such Series by
reducing the number of Shares in the account of such Shareholder by that number
of full and fractional Shares which represents the amount of such excess
negative net income, or (iii) to cause to be recorded on the books of the Trust
or such Series an asset account in the amount of such negative net income, which
account may be reduced by the amount, provided that the same shall
-25-
<PAGE> 30
thereupon become the property of the Trust or such Series with respect to the
Trust or such Series and shall not be paid to any Shareholder, of dividends
declared thereafter upon the Outstanding Shares of the Trust or such Series on
the day such negative net income is experienced, until such asset account is
reduced to zero; or (iv) to combine the methods described in clauses (i) and
(ii) and (iii) of this sentence, in order to cause the net asset value per
Common Share or Preferred Share of the Trust or such Series to remain at a
constant amount per Share immediately after each such determination and
declaration. The Trustees shall also have the power to fail to declare a
dividend out of net income for the purpose of causing the net asset value per
Share to be increased to a constant amount. The Trustees shall not be required
to adopt, but may at any time adopt, discontinue or amend the practice of
maintaining the net asset value per Common Share or Preferred Share of the Trust
or a Series at a constant amount.
Section 7.4. Allocation Between Principal and Income.
The Trustees shall have full discretion to determine whether any cash
or property received shall be treated as income or as principal and whether any
item of expense shall be charged to the income or the principal amount, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VII,
the Trustees may prescribe, in their absolute discretion, such other bases and
times for determining the per Share net asset value or net income, or the
declaration and payment of dividends and distributions as they may deem
necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration.
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
Section 8.2. Termination of Trust.
(a) The Trust or any Series of the Trust may be terminated by
an instrument in writing signed by a majority of the Trustees,
or, subject to Section 8.8 hereof, by the affirmative vote of
a majority of the Shares of the Trust or Series outstanding
and entitled to vote at any meeting of Shareholders. Upon the
termination of the Trust or any Series,
-26-
<PAGE> 31
(i) the Trust or any Series shall carry on no
business except for the purpose of winding up its
affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust or Series and all of the powers
of the Trustees under this Declaration shall continue
until the affairs of the Trust or Series shall have
been wound up, including the power to fulfill or
discharge the contracts of the Trust or Series,
collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of
the remaining Trust Property or property of the
Series to one or more persons at public or private
sale for consideration which may consist in whole or
in part of cash, securities or other property of any
kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements as
they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property
or property of the Series, in cash or in kind or
partly each, among the Shareholders of the Trust or
Series according to their respective rights.
(b) After termination of the Trust or any Series and
distribution to the Shareholders as herein provided, a
majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth
the fact of such termination, and the Trustees shall thereupon
be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders of
the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure.
(a) Subject to Section 8.8. hereof, this Declaration may be
amended by a vote of the holders of a majority of the Shares
outstanding and entitled to vote. Amendments shall be
effective upon the taking of action as provided in this
Declaration or at such later time as shall be specified in the
applicable vote or instrument. The Trustees may also amend
this Declaration without the vote or consent of Shareholders
if they deem it necessary to conform this Declaration to the
requirements of applicable federal or state laws or
regulations or the requirements of the regulated investment
company provisions of the Internal Revenue Code (including
those provisions of such Code relating to the retention of the
exemption from federal income tax with respect to dividends
paid by the Trust out of interest income received on Municipal
Bonds), but the Trustees shall not be liable for failing so to
do. The Trustees may also amend this Declaration without the
vote or consent of Shareholders if they deem it necessary or
desirable to change the name of the Trust or any Series
thereof, to supply any omission, to
-27-
<PAGE> 32
cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or to make any other changes in
the Declaration which do not materially adversely affect the
rights of Shareholders hereunder.
(b) No amendment may be made under this Section 8.3 which
would change any rights with respect to any Shares of the
Trust or Series by reducing the amount payable thereon upon
liquidation of the Trust or Series or by diminishing or
eliminating any voting rights pertaining thereto, except with
the vote or consent of the holders of two-thirds of the Shares
of the Trust or Series outstanding and entitled to vote and
effected thereby. Nothing contained in this Declaration shall
permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by
the Shareholders or by the Trustees as aforesaid or a copy of
the Declaration, as amended, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
(d) Notwithstanding any other provision hereof, until such
time as a Registration Statement under the Securities Act of
1933, as amended, covering the first public offering of
securities of the Trust shall have become effective, this
Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets.
The Trust or any Series thereof may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property or the property of any
Series, including its good will, upon such terms and conditions and for such
consideration when and as authorized by an instrument in writing signed by a
majority of the Trustees.
Section 8.5. Conversion.
Notwithstanding any other provision of this Declaration, and subject to
Section 8.8 hereof, the conversion of the Trust from a "closed-end company" to
an "open-end company," as those terms are defined in Sections 5(a)(2) and
5(a)(1), respectively, of the 1940 Act, shall require the affirmative vote or
consent of the holders of two-thirds of each Class of Shares outstanding and
entitled to vote (with each Class separately voting thereon or consenting
thereto as a separate Class), Such affirmative vote or consent shall be in
addition to the vote or consent of the holders of the Shares otherwise required
by law or by any agreement between the Trust and any national securities
exchange. However, if such conversion is unanimously recommended by the
Trustees,
-28-
<PAGE> 33
the vote or written consent of the holders of a majority of the outstanding
Shares of the Trust (which voting securities shall, unless otherwise provided by
the Trustees, vote together on the matter as a single Class) shall be sufficient
to authorize such conversion. Notwithstanding Section 8.3 hereof, this Section
8.5 may only be amended by the affirmative vote or consent of the holders of
two-thirds of each Class of the Shares outstanding and entitled to vote (with
each Class separately voting thereon or consenting thereto as a separate
Class), unless such amendment is unanimously recommended by the Trustees, in
which case the vote or written consent of the holders of a majority of the
outstanding Shares of the Trust (which voting securities shall, unless otherwise
provided by the Trustees, vote together on the matter as a single Class) shall
be sufficient to authorize such amendment.
Section 8.6. Incorporation.
When authorized by an instrument in writing signed by a majority of the
Trustees, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the property of any Series or to carry on any business in
which the Trust or the Series shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property or the property of any
Series to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
Series or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
Section 8.7. Certain Transactions.
(a) Notwithstanding any other provision of this Declaration
and subject to the exceptions provided in paragraph (d) of
this Section, the types of transactions described in paragraph
(c) of this Section shall require the affirmative vote or
consent of the holders of not less than two-thirds of the
Shares outstanding and entitled to vote when a Principal
Shareholder is a party to the transaction. Such affirmative
vote or consent shall be in addition to the vote or consent of
the holders of Shares otherwise required by law or any
agreement between the Trust and any national securities
exchange.
(b) For the purposes of this Section, in addition to the
Common Shares which a corporation, person or other entity
beneficially owns directly, (a) any
-29-
<PAGE> 34
corporation, person or other entity shall be deemed to be the
beneficial owner of any Common Shares (i) which it has the
right to acquire pursuant to any agreement or upon exercise of
conversion rights or warrants, or otherwise (but excluding
share options granted by the Trust) or (ii) which are
beneficially owned, directly or indirectly (including Common
Shares deemed owned through application of clause (i) above),
by any other corporation, person or entity with which it or
its Affiliate or Associate has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of Common Shares, or which is its Affiliate, or
Associate, and (b) the outstanding Common Shares shall include
Common Shares deemed owned through application of clauses (i)
and (ii) above but shall not include any other Common Shares
which may be issuable pursuant to any agreement, or upon
exercise of conversion rights or warrants, or otherwise.
(c) This Section shall apply to the following transactions:
(i) The merger or consolidation of the Trust or any
subsidiary of the Trust with or into any Principal
Shareholder.
(ii) The issuance of any securities of the Trust to
any Principal Shareholder for cash.
(iii) The sale, lease or exchange of all or any
substantial part of the assets of the Trust to any
Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all
assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period).
(iv) The sale, lease or exchange to the Trust or any
subsidiary thereof, in exchange for securities of the
Trust of any assets of any Principal Shareholder
(except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purposes
of such computation all assets sold, leased or
exchanged in any series of similar transactions
within a twelve-month period).
(d) The provisions of this Section shall not be applicable to
(i) any of the transactions described in paragraph (c) of this
Section if the Trustees shall by resolution have approved a
memorandum of understanding with such Principal Shareholder
with respect to and substantially consistent with such
transaction, or (ii) any such transaction with any corporation
of which a majority of the outstanding shares of all classes
of stock normally entitled to vote in elections of directors
is owned of record or beneficially by the Trust and its
subsidiaries.
(e) The Board of Trustees shall have the power and duty to
determine for the purposes of this Section on the basis of
information known to the Trust, whether (i) a corporation,
person or entity beneficially owns more than five percent (5%)
of
-30-
<PAGE> 35
the outstanding Common Shares, (ii) a corporation, person or
entity is an Affiliate or Associate of another, (iii) the
assets being acquired or leased to or by the Trust or any
subsidiary thereof, constitute a substantial part of the
assets of the Trust and have an aggregate fair market value of
less than $1,000,000, and (iv) the memorandum of understanding
referred to in paragraph (d) hereof is substantially
consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes
of this Section.
(f) Notwithstanding Section 8.3 hereof, this Section 8.7 may
only be amended by the affirmative vote or consent of the
holders of two-thirds of each Class of the Shares outstanding
and entitled to vote (with each Class separately voting
thereon or consenting thereto as a separate Class), unless
such amendment is unanimously recommended by the Trustees, in
which case the vote or written consent of the holders of a
majority of the outstanding Shares of the Trust (which voting
securities shall, unless otherwise provided by the Trustees,
vote together on the matter as a single Class) shall be
sufficient to authorize such amendment.
Section 8.8. Vote of Preferred Shares.
The Shareholder voting requirements set forth in this Declaration shall
be in addition to any voting rights or requirements established by the terms of
any Class or Series of Preferred Shares, whether now or hereafter authorized,
and in conformity with applicable law. Nothing herein shall be deemed to require
a vote of the holders of any Series or Class of Preferred Shares with respect to
any matter unless approval of the matter by such Series or Class of Preferred
Shares is required by the terms of such Series or Class of Preferred Shares or
by applicable law.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus or
statement of additional information, of the transactions of the Trust, including
financial statements which shall at least annually be certified by independent
public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Filing.
This Declaration and any amendment hereto shall be filed in the office
of the Secretary of the Commonwealth of Massachusetts and in such other places
as may be required under the laws of the Commonwealth of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a
-31-
<PAGE> 36
majority of the Trustees, each amendment filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein. A restated Declaration, integrating into
a single instrument all of the provisions of the Declaration which are then in
effect and operative, may be executed from time to time by a majority of the
Trustees and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may hereafter be referred to in lieu of the original Declaration and the various
amendments thereto. The restated Declaration may include any amendment which the
Trustees are empowered to adopt, whether or not such amendment has been adopted
prior to the execution of the restated Declaration.
Section 10.2. Governing Law.
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the internal laws thereof,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to the internal
laws of said State without regard to the choice of law rules thereof.
Section 10.3. Counterparts.
This Declaration may be simultaneously executed in several
counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
Section 10.4. Reliance by Third Parties.
Any certificate executed by an individual who, according to the records
of the Trust appears to be a Trustee hereunder, certifying to (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
-32-
<PAGE> 37
If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
23rd day of March, 1999.
/s/ Maureen Kane
-----------------------------------------
Maureen Kane, as sole Trustee and not
Individually
Two International Place, 10th floor
Boston, Massachusetts 02110
-33-
<PAGE> 38
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk March 23,1999
Then personally appeared the above-named Maureen Kane who acknowledged
the foregoing instrument to be her free act and deed.
Before me,
/s/ Joan E. Shaughnessy
-----------------------------------------
Notary Public
My commission expires: April 8, 1999
------------------
-34-
<PAGE> 1
EXHIBIT 2(b)
BY-LAWS
OF
KEMPER FLOATING RATE FUND
ARTICLE I
DEFINITIONS
The terms "Commission", "Common Shares" "Custodian", "Declaration",
"Distributor", "Investment Adviser", "1940 Act", "Preferred Shares",
"Shareholder", "Shares", "Transfer Agent", "Trust", "Trust Property",
"Trustees", and "vote of a majority of the shares outstanding and entitled to
vote", have the respective meanings given them in the Declaration of Trust of
Kemper Floating Rate Fund dated March 23, 1999, as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in The Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other
places without as well as within The Commonwealth as the Trustees from time to
time may determine.
<PAGE> 2
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as
provided in the Declaration at such place within or without The Commonwealth of
Massachusetts as the Trustees shall designate. The holders of one-third of the
outstanding Common Shares present in person or by proxy shall constitute a
quorum at any meeting of the Shareholders.
Section 2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his/her address as recorded
on the register of the Trust mailed at least ten (10) days and not more than
ninety (90) days before the meeting. Only the business stated in the notice of
the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any
Shareholder who should have failed to inform the Trust of his/her current
address, if notice is not required by the Declaration, if a written waiver of
notice, executed before or after the meeting by the Shareholder or his/her
attorney thereunto authorized, is filed with the records of the meeting, or,
with respect to Preferred Shares, if the terms thereof do not provide for notice
or the power to vote with respect to the business at the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose
of determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as
2
<PAGE> 3
a record date for the determinations of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole Common Share shall be entitled to one vote as to any matter on
which it is entitled by the Declaration to vote, and each fractional Common
Share shall be entitled to a proportionate fractional vote. Each whole or
fractional Preferred Share shall be entitled to vote on any matter only as is
provided in accordance with the terms of such Preferred Share. When any Share is
held jointly by several persons, any one of them may vote at any meeting in
person or by proxy in respect of such Share, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Share. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
If the holder of any such share is a minor or a person of unsound mind, and
subject to guardianship or the legal control of any other person as regards the
charge or management of such Share, he/she may vote by his/her guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy.
Section 5. Action Without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for
3
<PAGE> 4
approval of such matter) consent to the action in writing and the written
consents are filed with the records of the meetings of Shareholders. Such
consents shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the
Chairperson, or by any one of the Trustees, at the time being in office. Notice
of the time and place of each meeting other than regular or stated meetings
shall be given by the Secretary or an Assistant Secretary or by the officer or
Trustee calling the meeting and shall be mailed to each Trustee at least two
days before the meeting, or shall be telegraphed, cabled, sent by facsimile or
electronic mail, or other communication leaving a visual record to each Trustee
at his/her business address, or personally delivered to him/her at least one day
before the meeting. Such notice may, however, be waived by any Trustee. Notice
of a meeting need not be given to any Trustee if a written waiver of notice,
executed by him/her before or after the meeting, is filed with the records of
the meeting, or to any Trustee who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him/her. A notice or waiver
of notice need not specify the purpose of any meeting. Meetings can be held in
conjunction with investment companies having the same investment adviser or an
affiliated investment adviser. The Trustees may meet by means of a telephone
conference circuit or similar communications equipment by means of which all
persons participating in the meeting shall be deemed to have been present at a
place designated by the Trustees at the meeting. Any action required or
4
<PAGE> 5
permitted to be taken at any meeting of the Trustees may be taken by the
Trustees without a meeting if all the Trustees consent to the action in writing
and the written consents are filed with the records of the Trustees' meetings.
Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these By-Laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE IV.A
HONORARY TRUSTEES
Section 1. Number; Qualification; Term: The Trustees may from time to
time designate and appoint one or more qualified persons to the position of
"honorary trustee." Each honorary trustee shall serve for such term as shall be
specified in the resolution of the Trustees appointing him or her until his or
her earlier resignation or removal. An honorary trustee may be removed from such
position with or without cause by the vote of a majority of the Trustees given
at any regular meeting or special meeting of the Board.
Section 2. Duties; Remuneration. An honorary trustee shall be invited
to attend all meetings of the Trustees but shall not be present at any portion
of a meeting from which the honorary trustee shall have been excluded by vote of
the Trustees. An honorary trustee shall not be a "Trustee" or "officer" within
the meaning of the Trust's Declaration of Trust or of these By-Laws, shall not
be deemed to be a member of an "advisory board" within the meaning of the
5
<PAGE> 6
Investment Company Act of 1940, as amended from time to time, shall not hold
himself or herself out as any of the foregoing, and shall not be liable to any
person for any act of the Trust. Notice of special meetings may be given to an
honorary trustee but the failure to give such notice shall not affect the
validity of any meeting or the action taken thereat. An honorary trustee shall
not have the powers of a Trustee, may not vote at meetings of the Trustees and
shall not take part in the operation or governance of the Trust. An honorary
trustee shall not receive any compensation but may, in the discretion of the
Trustees, be reimbursed for expenses incurred in attending meetings of the
Trustees or otherwise.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By-Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees, the powers conferred
upon the same (subject to the same limitations as with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees. The Trustees may designate a Chairperson of any such Committee. In the
absence of such designation, the Committee may elect its own Chairperson.
6
<PAGE> 7
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, and (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting. Unless otherwise specified by the Trustees, the members of a
Committee may meet by means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Executive Vice Presidents, one
or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee the
power to appoint any subordinate officers or agents. The Trustees by vote of a
majority of all the Trustees may elect, but shall not be required to elect, from
their own number a Chairperson and Vice-Chairperson of the Trustees.
Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the Treasurer
and the Secretary shall each hold
7
<PAGE> 8
office until his/her successor shall have been duly elected and qualified, and
all other officers shall hold office at the pleasure of the Trustees. The
Secretary and Treasurer may be the same person. An Executive Vice President or
Vice President and the Treasurer or Assistant Treasurer or an Executive Vice
President or a Vice President and the Secretary or Assistant Secretary may be
the same person, but the offices of Executive Vice President or Vice President
and Secretary and Treasurer shall not be held by the same person. The President
shall hold no other office. Except as above provided, any two offices may be
held by the same person. Any officer may be, but none need be, a Trustee or
Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer without cause, by a vote of a majority of
the Trustees then in office. Any officer or agent appointed by an officer or
Committee may be removed with or without cause by such appointing officer or
Committee.
Section 4. Chairperson of the Board. The Chairperson of the Board, if
there be such an officer, shall be the senior officer of the Trust, preside at
all shareholders' meetings and at all meetings of the Board of Trustees, and
shall be ex officio a member of all committees of the Board of Trustees. The
Chairperson of the Board shall also call meetings of the Trustees and of any
committee thereof when he/she deems it necessary. He/She shall have such other
powers and perform such other duties as may be assigned to him/her from time to
time by the Board of Trustees.
Section 5. Vice-Chairperson of the Board. The Vice-Chairperson of the
Board, if there be such an officer, shall, in the absence of the Chairperson,
preside at all shareholders' meetings and at all meetings of the Board of
Trustees and shall have such powers and perform such other duties as may be
assigned to him/her from time to time by the Board of Trustees.
8
<PAGE> 9
Section 6. Powers and Duties of the President. The President, in the
absence of the Chairperson and Vice Chairperson, if any, may call meetings of
the Trustees and of any Committee thereof when he/she deems it necessary and, in
the absence of the Chairperson and Vice-Chairperson, if any, may preside at all
meetings of the Shareholders and at all meetings of the Trustees. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres, as provided by the Trustees, he/she shall at
all times exercise a general supervision and direction over the affairs of the
Trust. He/She shall have the power to employ attorneys and counsel for the Trust
and to employ such subordinate officers, agents, clerks and employees as he/she
may find necessary to transact the business of the Trust. He/She shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties,
as from time to time may be conferred upon or assigned to him/her by the
Trustees.
Section 7. Powers and Duties of Executive Vice Presidents and Vice
Presidents. In the absence or disability of the President, the Executive Vice
President or, if there be more than one Executive Vice President, any Executive
Vice President designated by the Trustees shall perform all the duties and may
exercise any of the powers of the President, subject to the control of the
Trustees. In the event no Executive Vice President is able so to serve, the Vice
President or, if there be more than one Vice President, any Vice President
designated by the Trustees shall perform all the duties and may exercise any of
the powers of the President, subject to the control of the Trustees. Each
Executive Vice President and Vice President shall perform such duties as may be
assigned to him/her from time to time by the Trustees and the President.
Section 8. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. He/She shall
deliver all funds of the Trust which
9
<PAGE> 10
may come into his/her hands to such Custodian as the Trustees may employ
pursuant to Article X of these By-Laws. He/She shall render a statement of
condition of the finances of the Trust to the Trustees as often as they shall
require the same and he/she shall in general perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him/her by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his/her duties, if required so to do by the Trustees, in
such sum and with such surety or sureties as the Trustees shall require.
Section 9. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he/she shall have custody of the seal of the
Trust; he/she shall have charge of the Share transfer books, lists and records
unless the same are in the charge of the Transfer Agent. He/She shall attend to
the giving and serving of all notices by the Trust in accordance with the
provisions of these By-Laws and as required by law; and subject to these
By-Laws, he/she shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him/her
by the Trustees.
Section 10. Powers and Duties of Assistant Treasurers. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him/her by the Trustees. Each Assistant
Treasurer shall give a bond for the faithful discharge of his/her duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
Section 11. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may
10
<PAGE> 11
exercise any of the powers, of the Secretary. Each Assistant Secretary shall
perform such other duties as from time to time may be assigned to him/her by the
Trustees.
Section 12. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he/she is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be as specified from time to time by
the Trustees.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
11
<PAGE> 12
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or sent by facsimile or other communication leaving a
visual record for the purposes of these By-Laws when it has been delivered to a
representative of any telegraph, cable or facsimile or other such communications
company with instructions that it be telegraphed, cabled, sent by facsimile or
electronic mail or other communication leaving a visual record.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank meeting
the requirements of a custodian of assets of a registered management investment
company prescribed in the 1940 Act and the rules and orders thereunder, and
shall be appointed from time to time by the Trustees, who shall fix its
remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
12
<PAGE> 13
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated.
Section 3. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian or a sub-custodian to deposit all or any part of the securities owned
by the Trust in a system for the central handling of securities established by a
national securities exchange or a national securities association registered
with Commission under the Securities Exchange Act of 1934, or such other person
as may be permitted by the Commission, or otherwise in accordance with the 1940
Act and the rules and orders thereunder, pursuant to which system all securities
of any particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust or its
Custodian.
Section 4. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted by (a) vote of a majority of the Common Shares
outstanding and entitled to vote and any vote required of holders of Preferred
Shares as provided by the terms of such Preferred
13
<PAGE> 14
Shares, or (b) the Trustees, provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration or these By-Laws, a vote of the
Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what time and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right of
inspecting any account or book or document of the Trust except as conferred by
laws or authorized by the Trustees or by resolution of the Shareholders.
14
<PAGE> 1
EXHIBIT 2(g)
INVESTMENT MANAGEMENT AGREEMENT
KEMPER FLOATING RATE FUND
222 SOUTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
March 31, 1999
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Ladies and Gentlemen:
The Kemper Floating Rate Fund (the "Fund") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Fund's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees may authorize the issuance of shares of
beneficial interest, par value $0.01 per share, (the "Shares") including shares
in separate classes and series.
The Fund has selected you to act as its investment manager and to provide
certain other services, as more fully set forth below, and you have indicated
that you are willing to act as such investment manager and to perform such
services under the terms and conditions hereinafter set forth. Accordingly, the
Fund agrees with you as follows:
1. Delivery of Documents. The Fund engages in the business of investing and
reinvesting its assets in the manner and in accordance with the investment
objectives, policies and restrictions specified in the Fund's Prospectus (the
"Prospectus") and Statement of Additional Information (the "SAI") relating to
the Fund included in the Fund's Registration Statement on Form N-2, as amended
from time to time, (the "Registration Statement") filed by the Fund under the
Investment Company Act of 1940, as amended (the "1940 Act") and the Securities
Act of 1933, as amended. Copies of the documents referred to in the preceding
sentence have been furnished to you by the Fund. The Fund has also furnished you
with copies (or will supply such copies prior to such time as the Fund commences
investment operations) properly certified or authenticated of each of the
following additional documents related to the Fund:
(a) The Declaration of Trust dated March 23, 1999, as amended to
date.
(b) By-Laws of the Fund as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees of the Fund and the shareholders
of the Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Classes of Shares of
Beneficial Interest dated March 31, 1999 relating to the Fund.
<PAGE> 2
The Fund will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objective, policies and restrictions set forth in
the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Fund's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Fund. You shall
also make available to the Fund promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Fund in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Fund are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Fund's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Fund's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Fund administrative services on behalf of
the Fund necessary for operating as an closed-end
2
<PAGE> 3
investment company and not provided by persons not parties to this Agreement
including, but not limited to, preparing reports to and meeting materials for
the Fund's Board of Trustees and reports and notices to Fund shareholders,
including notification of repurchase offers pursuant to Rule 23c-3 under the
1940 Act; supervising, negotiating contractual arrangements with, to the extent
appropriate, and monitoring the performance of, accounting agents, custodians,
depositories, transfer agents and pricing agents, accountants, attorneys,
printers, underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable to Fund operations; preparing and
making filings with the Securities and Exchange Commission (the "SEC") and other
regulatory and self-regulatory organizations, including, but not limited to,
preliminary and definitive proxy materials, post-effective amendments to the
Registration Statement, semi-annual reports on Form N-SAR, and notices pursuant
to Rule 23c-3 under the 1940 Act; overseeing the tabulation of proxies by the
Fund's transfer agent; assisting in the preparation and filing of the Fund's
federal, state and local tax returns; preparing and filing the Fund's federal
excise tax return pursuant to Section 4982 of the Code; providing assistance
with investor and public relations matters; monitoring the valuation of
portfolio securities and the calculation of net asset value; monitoring the
registration of Shares of the Fund under applicable federal and state securities
laws; maintaining or causing to be maintained for the Fund all books, records
and reports and any other information required under the 1940 Act, to the extent
that such books, records and reports and other information are not maintained by
the Fund's custodian or other agents of the Fund; assisting in establishing the
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting with
the Fund's independent accountants, legal counsel and the Fund's other agents as
necessary in connection therewith; establishing and monitoring the Fund's
operating expense budgets; reviewing the Fund's bills; processing the payment of
bills that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Fund as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control of the Fund's Board of
Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Fund (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
3
<PAGE> 4
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Fund; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Fund is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Fund business) of Trustees, officers and
employees of the Fund who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Fund; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Fund on behalf of any class of Shares shall have adopted a distribution plan
providing that the Fund (or some other party) shall assume some or all of such
expenses. You shall be required to pay such of the foregoing sales expenses as
are not required to be paid by the principal underwriter pursuant to the
underwriting agreement or are not permitted to be paid by the Fund (or some
other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Fund
shall pay you in United States Dollars on the last day of each month the unpaid
balance of a fee equal to the excess of 1/12 of 0.50 of 1 percent of the average
daily net assets (as defined below)
4
<PAGE> 5
of the Fund for such month; provided that, for any calendar month during which
the average of such values exceeds $1 billion, the fee payable for that month
based on such excess shall be 1/12 of 0.49 of 1 percent of such portion; further
provided that, for any calendar month during which the average of such values
exceeds $3 billion the fee payable for that month based on such excess shall be
1/12 of 0.48 of 1 percent of such portion; further provided that, for any
calendar month during which the average of such values exceeds $5 billion the
fee payable for that month based on such excess shall be 1/12 of 0.47 of 1
percent of such portion; and further provided that, for any calendar month
during which the average of such values exceeds $10 billion the fee payable for
that month based on such excess shall be 1/12 of 0.45 of 1 percent of such
portion over any compensation waived or reduced by you from time to time (as
more fully described below). You shall be entitled to receive during any month
such interim payments of your fee hereunder as you shall request, provided that
no such payment shall exceed 75 percent of the amount of your fee then accrued
on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall be calculated at such time or
times as the Trustees may determine in accordance with the provisions of the
1940 Act. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, for the purposes of this section 5, the net asset value shall be
deemed to be the net asset value as of the close of business on the last day on
which such calculation was made for the purpose of the foregoing computation. If
the Fund determines the value of the net assets of its portfolio more than once
on any day, then the last such determination thereof on that day shall be deemed
to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive or reduce all or a portion of your fees provided for hereunder and
such waiver or reduction shall be treated as a reduction in purchase price of
your services. You shall be contractually bound hereunder by the terms of any
publicly announced waiver of your fee, or any limitation of the Fund's expenses,
as if such waiver or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent
5
<PAGE> 6
contractor and not an agent of the Fund. Whenever the Fund and one or more other
accounts or investment companies advised by you have available funds for
investment, investments suitable and appropriate for each shall be allocated in
accordance with procedures believed by you to be equitable to each entity.
Similarly, opportunities to sell securities shall be allocated in a manner
believed by you to be equitable. The Fund recognizes that in some cases this
procedure may adversely affect the size of the position that may be acquired or
disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Fund agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Fund, the Fund or
its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until September 30, 2000, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Fund, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Fund's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Fund. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a
6
<PAGE> 7
manner consistent with the 1940 Act and rules and regulations thereunder and any
applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of The Commonwealth of Massachusetts, provides that the name "Kemper Floating
Rate Fund" refers to the Trustees under the Declaration collectively as Trustees
and not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Fund, shall be subject to claims
against or obligations of the Fund or of the Fund to any extent whatsoever, but
that the Fund estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Fund
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Fund, or from any Trustee, officer, employee or agent of the Fund.
You understand that the rights and obligations of each Fund, or series, under
the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Fund.
7
<PAGE> 8
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
KEMPER FLOATING RATE FUND
/s/ Thomas W. Littauer
------------------------------------
By: Thomas W. Littauer
Title: Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
/s/ Stephen R. Beckwith
---------------------------------
By: Stephen R. Beckwith
Title: Managing Director
<PAGE> 1
EXHIBIT (2)(h)(1)
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 31st day of March, 1999, between KEMPER FLOATING
RATE FUND, a Massachusetts business trust (the "Fund"), and KEMPER DISTRIBUTORS,
INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for distribution of
shares of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may issue or sell
shares directly to holders of shares of the Fund upon such terms and conditions
and for such consideration, if any, as it may determine, whether in connection
with the distribution of subscription or purchase rights, the payment or
reinvestment of dividends or distributions, or otherwise. KDI may appoint
various broker-dealer firms or other service or administrative firms ("Firms")
to provide distribution services to investors. The Firms shall provide such
office space and equipment, telephone facilities, personnel, literature
distribution, advertising and promotion as is necessary or beneficial for
providing information and distribution services to existing and potential
clients of the Firms. KDI may also provide some of the above services for the
Fund.
KDI accepts such appointment as distributor and principal underwriter
and agrees to render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all purposes herein
provided be deemed to be an independent contractor and, unless expressly
provided herein or otherwise authorized, shall have no authority to act for or
represent the Fund in any way. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others so long as its services hereunder
are not impaired thereby.
In carrying out its duties and responsibilities hereunder, KDI may,
pursuant to separate written contracts, appoint various Firms to provide
advertising, promotion and other distribution services contemplated hereunder
directly to or for the benefit of existing and potential shareholders who may be
clients of such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such
part of the authorized shares of the Fund remaining unissued as from time to
time shall be effectively registered under the Securities Act of 1933
("Securities Act"), at prices determined as hereinafter provided and on terms
hereinafter set forth, all subject to applicable federal and state laws and
regulations and to the Fund's organizational documents.
<PAGE> 2
2. KDI shall sell shares of the Fund to or through qualified Firms in
such manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of the Fund offered for sale or sold by KDI shall
be so offered or sold at a price per share determined in accordance with the
then current prospectus of the Fund ("Prospectus"). The price the Fund shall
receive for all shares purchased from it shall be the net asset value used in
determining the public offering price applicable to the sale of such shares,
except with respect to shares sold during the Initial Offering Period, as
defined in the Prospectus, which shall be offered and sold at the price set
forth therein. KDI may compensate Firms for sales of shares at the commission
levels provided in the Prospectus from time to time. KDI may pay other
commissions, fees or concessions to Firms, and may pay them to others in its
discretion, in such amounts as KDI shall determine from time to time. KDI shall
be entitled to receive and retain any applicable contingent deferred sales
charge as described in the Prospectus. KDI shall also receive any distribution
services fees payable by the Fund as provided in the Fund's Distribution Plan,
as amended from time to time (the "Plan"), contingent upon receipt by the Fund
of exemptive relief under the Investment Company Act of 1940 ("Investment
Company Act") with respect to payment of such distribution service fees.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related Prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered
under the Securities Act for sale as herein contemplated such shares as KDI
shall reasonably request and as the Securities and Exchange Commission shall
permit to be so registered. Notwithstanding any other provision hereof, the Fund
may terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
2
<PAGE> 3
5. KDI shall issue and deliver or shall arrange for various Firms to
issue and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make: (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any Board member or officer of the Fund or to
any officer or Board member of KDI or of any corporation or association
furnishing investment advisory, managerial or supervisory services to the Fund,
or to any corporation or association, unless such sales are made in accordance
with the then current prospectus relating to the sale of such shares. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act, notice of
which shall have been given to KDI) which at the time in any way require, limit,
restrict, prohibit or otherwise regulate any action on the part of KDI
hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. The Fund will pay or cause to be paid expenses
(including the fees and disbursements of its own counsel) of any registration of
the Fund and its shares under the United States securities laws and expenses
incident to the issuance of shares of beneficial interest, such as the cost of
share certificates, issue taxes, and fees of the transfer agent. KDI will pay
all expenses (other than expenses which one or more Firms may bear pursuant to
any agreement with KDI) incident to the sale and distribution of the shares
issued or sold hereunder, including, without limiting the generality of the
foregoing, all (a) expenses of printing and distributing any prospectus and of
preparing, printing and distributing or disseminating any other literature,
advertising and selling aids in connection with the offering of the shares for
sale (except that such expenses need not include expenses incurred by the Fund
in connection with the preparation, typesetting, printing and distribution of
any registration statement or prospectus, report or other communication to
shareholders in their capacity as such), (b) expenses of advertising in
connection with such offering and (c) expenses (other than the Fund's auditing
expenses) of qualifying or continuing the qualification of the shares for sale
and, in connection therewith, of qualifying or continuing the qualification of
the Fund as a dealer or broker under the laws of such states as may be
designated by KDI under the conditions herein specified. No transfer taxes, if
any, which may be
3
<PAGE> 4
payable in connection with the issue or delivery of shares sold as herein
contemplated or of the certificates for such shares shall be borne by the Fund,
and KDI will indemnify and hold harmless the Fund against liability for all such
transfer taxes.
8. This Agreement shall become effective on the date hereof and shall
continue until September 30, 2000; and shall continue from year to year
thereafter only so long as such continuance is approved in the manner required
by the Investment Company Act.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days' written notice to the other party. The
Fund may effect termination with respect to any class of the Fund by a vote of
(i) a majority of the Board members who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan, this Agreement, or in any other agreement related to the Plan, or (ii) a
majority of the outstanding voting securities of such class. Without prejudice
to any other remedies of the Fund, the Fund may terminate this Agreement at any
time immediately upon KDI's failure to fulfill any of its obligations hereunder.
All material amendments to this Agreement must be approved by a vote of
a majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of
the outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as
set forth in the Distribution Plan. Termination of this Agreement shall not
affect the right of KDI to receive payments on any unpaid balance of the
compensation earned prior to such termination, as set forth in the Plan.
Notwithstanding anything in this Agreement to the contrary, KDI shall
be contractually bound hereunder by the terms of any publicly announced waiver
of or cap on the compensation received for its distribution services under the
Plan or by the terms of any written document provided to the Board of Trustees
of the Fund announcing a waiver or cap, as if such waiver or cap were fully set
forth herein.
9. KDI will not use or distribute, or authorize the use, distribution
or dissemination by Firms or others in connection with the sale of Fund shares
any statements other than those contained in the Fund's current prospectus,
except such supplemental literature or advertising as shall be lawful under
federal and state securities laws and regulations. KDI will furnish the Fund
with copies of all such material.
10. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
4
<PAGE> 5
12. All parties hereto are expressly put on notice of the Fund's
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Fund arising
hereunder allocated to a particular class, whether in accordance with the
express terms hereof or otherwise, KDI shall have recourse solely against the
assets of that class to satisfy such claim and shall have no recourse against
the assets of any other class for such purpose.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. This Agreement is the entire contract between the parties relating
to the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER FLOATING RATE FUND
/s/ Thomas W. Littauer
- ---------------------------------------
By: Thomas W. Littauer
Title: Vice President
KEMPER DISTRIBUTORS, INC.
/s/ James L. Greenawalt
- ---------------------------------------
By: James L. Greenawalt
Title: President
<PAGE> 1
EXHIBIT 2(h)(2)
SELLING GROUP AGREEMENT KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza, Chicago, Illinois 60606
Dear Financial Services Firm:
As principal underwriter and distributor, we invite you to join a Selling
Group for the distribution of shares of the Kemper Funds (herein called
"Funds"), but only in those states in which the shares of the respective Funds
may legally be offered for sale. As exclusive agent of each of the Funds, we
offer to sell to you shares of the Funds on the following terms:
1. In all sales of these shares to the public you shall act as dealer for
your own account, and in no transaction shall you have any authority to act as
agent for the issuer, for us, or for any other member of the Selling Group.
2. Orders received from you will be accepted by us only at the public
offering price applicable to each order, as established by the Prospectus of
each Fund, subject to the discount, commission or other concession, if any, as
provided in such Prospectus. Upon receipt from you of any order to purchase
shares of a Fund, we shall confirm to you in writing or by wire to be followed
by a confirmation in writing. Additional instructions may be forwarded to you
from time to time. All orders are subject to acceptance or rejection by us in
our sole discretion.
3. You may offer and sell shares to your customers only at the public
offering price determined in the manner described in the applicable Prospectus.
The public offering price is the net asset value per share as provided in the
applicable Prospectus plus, with respect to certain Funds, a sales charge from
which you shall receive a discount equal to a percentage of the applicable
offering price as provided in the applicable Prospectus. You shall receive a
sales commission, with respect to certain Funds, equal to a percentage of the
amount invested as provided in the applicable Prospectus. You shall receive a
distribution service fee, for certain Funds for which such fees are available,
as provided in the applicable Prospectus which fee shall be payable with respect
to such assets, for such periods and at such intervals as are from time to time
specified by us. The discounts or other concessions to which you may be entitled
in connection with sales to your customers pursuant to any special features of a
Fund (such as cumulative discounts, letters of intent, etc., the terms of which
shall be as described in the applicable Prospectus and related forms) shall be
in accordance with the terms of such features. You may receive an administrative
service fee, with respect to certain Funds for which such fees are available, as
provided in the applicable Prospectus, which fee shall be payable with respect
to such assets, for such periods and at such intervals as are from time to time
specified by us. Our liability to you with respect to the payment of any service
fee is limited to the proceeds received by us from the Funds for your services,
and you waive any right you may have to payment of any service fee until we are
in receipt of the proceeds from the Funds that are attributable to your
services.
<PAGE> 2
4. By accepting this agreement, you agree:
(a) To purchase shares only from us or from your customers.
(b) That you will purchase shares from us only to cover purchase
orders already received from your customers, or for your own bona fide
investments.
(c) That you will not purchase shares from your customers at a price
lower than the bid price then quoted by or for the Fund involved. You may,
however, sell shares for the account of your customer to the Fund, or to us as
agent for the Fund, at the bid price currently quoted by or for the Fund and
charge your customer a fair commission for handling the transaction.
(d) That you will not withhold placing with us orders received from
your customers so as to profit yourself as a result of such withholding.
5. We will not accept from you any conditional orders for shares.
6. If any shares confirmed to you under the terms of this agreement are
repurchased by the issuing Fund or by us as agent for the Fund, or are tendered
for repurchase, within seven business days after the date of our confirmation of
the original purchase order, you shall forthwith refund to us the full discount,
commission, finder's fee or other concession, if any, allowed or paid to you on
such shares.
7. Payment for shares ordered from us shall be in New York clearing house
funds and must be received by the appropriate Fund's shareholder service agent
within seven days after our acceptance of your order (or such shorter time
period as may be required by applicable regulations). If such payment is not
received, we reserve the right, without notice, forthwith to cancel the sale or,
at our option, to sell the shares ordered back to the Fund, in which case we may
hold you responsible for any loss, including loss of profit suffered by us as a
result of your failure to make such payment.
8. Shares sold to you hereunder shall be available in negotiable form for
delivery at the appropriate Fund's shareholder services agent, against payment,
unless other instructions have been given.
9. All sales will be made subject to our receipt of shares from the Fund.
We reserve the right, in our discretion, without notice, to suspend sales or
withdraw the offering of shares entirely. We reserve the right to modify, cancel
or change the terms of this agreement, upon 15 days prior written notice to you.
Also, the sales charges, discounts, commissions or other concessions, service
fees of any kind provided for hereunder are subject to change at any time by the
Funds and us.
10. All communications to us should be sent to the address in the heading
above. Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below.
11. This agreement shall be construed in accordance with the laws of
Illinois. This agreement is subject to the
<PAGE> 3
Prospectuses of the Funds from time to time in effect, and, in the event of a
conflict, the terms of the Prospectuses shall control. References herein to the
"Prospectus" of a Fund shall mean the prospectus and statement of additional
information of such Fund as from time to time in effect. Any changes,
modifications or additions reflected in any such Prospectus shall be effective
on the date of such Prospectus (or supplement thereto) unless specified
otherwise.
12. This agreement is subject to the Additional Stipulations and
Conditions on the reverse side hereof, all of which are a part of this
agreement.
Kemper Distributors, Inc.
By
----------------------------
Authorized Signature
Title
--------------------------
We have read the foregoing agreement and accept and agree to the terms and
conditions thereof.
Firm
---------------------------
Witness By
------------------------ -----------------------------
Authorized Representative
Dated Title
--------------------------- ---------------------------
<PAGE> 4
ADDITIONAL STIPULATIONS AND CONDITIONS
13. No person is authorized to make any representations concerning shares
of any Fund except those contained in the Prospectus of such Fund and in printed
information subsequently issued by the Fund or by us as information supplemental
to such Prospectus. If you wish to use your own advertising with respect to a
Fund, all such advertising must be approved by us or by the Fund prior to use.
You shall be responsible for any required filing of such advertising.
14. Your acceptance of this agreement constitutes a representation (i)
that you are a registered security dealer and a member in good standing of the
National Association of Securities Dealers, Inc. and that you agree to comply
with all state and federal laws, rules and regulations applicable to
transactions hereunder and to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., or (ii) if you are offering and selling
shares of the Funds only in jurisdictions outside of the several states,
territories and possessions of the United States and are not otherwise required
to be a member of the National Association of Securities Dealers, Inc., that you
nevertheless agree to conduct your business in accordance with the spirit of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
and to observe the laws and regulations of the applicable jurisdiction. You
likewise agree that you will not offer to sell shares of any Fund in any state
or other jurisdiction in which they may not lawfully be offered for sale.
15. You shall make available an investment management account for your
customers through the Funds and shall provide such office space and equipment,
telephone facilities, personnel and literature distribution as is necessary or
appropriate for providing information and services to your customer. Such
services and assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds, and
such other services as may be agreed upon from time to time and as may be
permitted by applicable statute, rule, or regulation. You agree to release,
indemnify and hold harmless the Funds, us and our respective representatives and
agents from any and all direct or indirect liabilities or losses resulting from
requests, directions, actions or inactions of or by you, your officers,
employees or agents regarding the purchase, redemption or transfer of
registration of shares of the Funds for accounts of you, your customers and
other shareholders or from any unauthorized or improper use of any on-line
computer facilities. You shall prepare such periodic reports for us as shall
reasonably be requested by us. You shall immediately inform the Funds or us of
all written complaints received by you from Fund shareholders relating to the
maintenance of their accounts and shall promptly answer all such complaints and
other similar correspondence. You shall provide the Funds and us on a timely
basis with such information as may be required to complete various regulatory
forms.
<PAGE> 5
16. As a result of the necessity to compute the amount of any contingent
deferred sales charge due with respect to the redemption of shares, you may not
hold shares of a Fund imposing such a charge in an account registered in your
name or in the name of your nominee for the benefit of certain of your customers
except with our prior written consent. Except as otherwise permitted by us,
shares of such a Fund owned by a shareholder must be in a separate identifiable
account for such shareholder.
17. Shares of certain Funds have been divided into separate classes: Class
A Shares, Class B Shares and Class C Shares. Class A Shares are offered at net
asset value plus an initial sales charge. Class B Shares are offered at net
asset value without an initial sales charge but are subject to a contingent
deferred sales charge and a Rule l2b-1 fee and have a conversion feature. Class
C Shares are offered at net asset value without an initial sales charge but are
subject to a contingent deferred sales charge and a Rule l2b-1 fee, and have no
conversion feature. Please see the appropriate Prospectuses for a more complete
description of the distinctions between the classes of shares.
It is important to investors not only to choose Funds appropriate for their
investment objectives, but also to choose the appropriate distribution
arrangement, based on the amount invested and the expected duration of the
investment. To assist investors in these decisions, we have instituted the
following policies with respect to orders for shares of the Funds. The following
policies and procedures with respect to sales of classes of shares of the Funds
apply to each broker/dealer that distributes shares of the Funds.
1. All purchase orders for $500,000 or more (not including street name or
omnibus accounts) should be for Class A Shares.
2. Any purchase order of less than $500,000 may be for either Class A,
Class B or Class C Shares in light of the relevant facts and circumstances,
including:
a. the specific purchase order dollar amount;
b. the length of time the investor expects to hold the shares; and
c. any other relevant circumstances such as the availability of
purchases under a Letter of Intent, Combined Purchases or
Cumulative Discount Privilege.
There are instances when one pricing structure may be more appropriate than
another. For example, investors who would qualify for a reduced sales charge on
Class A Shares may determine that payment of a reduced front-end sales charge is
preferable to payment of an ongoing Rule l2b-1 fee. On the other hand, investors
whose orders would not qualify for such a discount and who plan to hold their
investment for more than six years may wish to defer the sales charge and would
consider Class B Shares. Investors who prefer not to pay an initial sales charge
and who plan to redeem their shares within six years might consider Class C
Shares:
Appropriate supervisory personnel within your organization must ensure that
all employees receiving investor inquiries about
<PAGE> 6
the purchase of shares of the Funds advise the investor of the available pricing
structures offered by the Funds and the impact of choosing one method over
another, including breakpoints and the availability of Letters of Intent,
Combined Purchases and Cumulative Discounts. In some instances it may be
appropriate for a supervisory person to discuss a purchase with the investor.
18. This agreement shall be in substitution of any prior selling group
agreement between you and us regarding these shares. This agreement shall not be
applicable to the provision of services for Cash Equivalent Fund, Tax-Exempt
California Money Market Fund, Tax-Exempt New York Money Market Fund, Investors
Cash Trust and similar wholesale money market funds. The payment of related
distribution and services fees, shall be subject to separate services
agreements.
<PAGE> 1
EXHIBIT (2)(j)
CUSTODIAN CONTRACT
between
KEMPER FLOATING RATE FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Employment of Custodian and Property to be Held By It...........................................1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States.............................................2
2.1 Holding Securities.....................................................................2
2.2 Delivery of Securities.................................................................2
2.3 Registration of Securities.............................................................4
2.4 Bank Accounts..........................................................................4
2.5 Availability of Federal Funds..........................................................5
2.6 Collection of Income...................................................................5
2.7 Payment of Fund Monies.................................................................5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased...................................................................6
2.9 Appointment of Agents..................................................................7
2.10 Deposit of Securities in U.S. Securities System........................................7
2.11 Fund Assets Held in the Custodian's
Direct Paper System....................................................................8
2.12 Segregated Account.....................................................................9
2.13 Ownership Certificates for Tax Purposes ...............................................9
2.14 Proxies................................................................................9
2.15 Communications Relating to Fund Securities.............................................9
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside the United States........................................................10
3.1 Appointment of Foreign Sub-Custodians.................................................10
3.2 Assets to be Held.....................................................................10
3.3 Foreign Securities Depositories.......................................................10
3.4 Agreements with Foreign Banking Institutions..........................................10
3.5 Access of Independent Accountants of the Fund.........................................11
3.6 Reports by Custodian..................................................................11
3.7 Transactions in Foreign Custody Account...............................................11
3.8 Liability of Foreign Sub-Custodians...................................................12
3.9 Liability of Custodian................................................................12
3.10 Reimbursement for Advances............................................................12
3.11 Monitoring Responsibilities...........................................................12
3.12 Branches of U.S. Banks................................................................13
3.13 Tax Law...............................................................................13
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
4. Payments for Sales or Repurchases of Shares ...................................................13
5. Proper Instructions............................................................................14
6. Actions Permitted without Express Authority....................................................14
7. Evidence of Authority..........................................................................15
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income.............................................15
9. Records........................................................................................15
10. Opinion of Fund's Independent Accountants......................................................16
11. Reports to Fund by Independent Public Accountants..............................................16
12. Compensation of Custodian......................................................................16
13. Responsibility of Custodian....................................................................16
14. Effective Period, Termination and Amendment....................................................17
15. Successor Custodian............................................................................18
16. Interpretive and Additional Provisions.........................................................18
17. Additional Funds...............................................................................19
18. Massachusetts Law to Apply.....................................................................19
19. Prior Contracts................................................................................19
20. Shareholder Communications Election............................................................19
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between KEMPER FLOATING RATE FUND, a business trust
organized and existing under the laws of The Commonwealth of Massachusetts and
having its principal place of business at 222 South Riverside Plaza, Chicago,
Illinois 60606 (the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares of beneficial interest,
par value $0.01 (the "shares") and
WHEREAS, the Fund currently intends to offer its shares for sale to the
public;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities which the Fund desires to be held in places within the
United States of America ("domestic securities") and securities it desires to be
held outside the United States of America ("foreign securities") pursuant to the
provisions of the Fund's declaration of trust (the "Declaration of Trust"). The
Fund agrees to deliver to the Custodian all securities and cash, and all
payments of income, payments of principal or capital distributions received by
it with respect to all securities owned from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund as may be issued or sold from time to time. The Custodian
shall not be responsible for any property held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall from time to time employ one or
more sub-custodians located in the United States of America, including any state
or political subdivision thereof and any territory over which its political
sovereignty extends (the "United States" or "U.S."), but only in accordance with
an applicable vote by the board of trustees of the Fund (the "Board of
Trustees") and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian. The Custodian may employ as sub-custodians for the Fund's foreign
securities foreign banking institutions and foreign securities depositories
designated by the Fund but only in accordance with the provisions of Article 3.
<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
all non-cash property to be held by it in the United States including
all domestic securities other than (a) securities which are maintained
in a "U.S. Securities System" (as such term is defined in Section 2.10
of this Contract) and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Custodian's Direct
Paper System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned and held by the Custodian or in a U.S.
Securities System account of the Custodian, which account shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account") or in the Custodian's Direct Paper book-entry system
account, which account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
<PAGE> 6
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that, in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's U.S.
Securities System Account, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund but, only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information (the "Prospectus"), in satisfaction of
requests by holders of Shares for repurchase; and
<PAGE> 7
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Board of Trustees or of
the executive committee thereof signed by an officer of the
Fund and certified by the Fund's Secretary or Assistant
Secretary specifying the securities of the Fund to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian under the terms of this Contract
shall be in "street name" or other good delivery form. If, however, the
Fund directs the Custodian to maintain securities in "street name", the
Custodian shall utilize reasonable efforts only to (i) timely collect
income due the Fund on such securities and (ii) notify the Fund of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940, as amended. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the banking department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940, as amended (the "Investment Company Act") and that each
such bank or trust company and the funds to be deposited with each such
bank or trust company shall be approved by vote of a majority of the
Board of Trustees. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund and the
Custodian, the Custodian shall, upon the receipt of Proper Instructions
from the Fund, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares which are deposited
into the Fund's account.
4
<PAGE> 8
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States-registered securities held hereunder to
which the Fund shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to domestic bearer securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to the Fund's account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Collection of income due the Fund on domestic securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund; the Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data in its possession as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
of the income to which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out monies of the Fund in the
following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act to act as a custodian and has been designated by
the Custodian as its agent for this purpose) registered in the
name of the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
5
<PAGE> 9
3) For the repurchase of Shares issued by the Fund as set forth
in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund , including but not limited to the following payments for
the account of the Fund: interest, taxes, management fees,
accounting fees, transfer agent fees, legal fees and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified
copy of a resolution of the Board of Trustees or of the
executive committee thereof signed by an officer of the Fund
and certified by the Fund's Secretary or an Assistant
Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities is made by
the Custodian in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies (a "U.S.
Securities System") in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
6
<PAGE> 10
1) The Custodian may keep domestic securities of the Fund in a
U.S. Securities System provided that such securities are
represented in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for
the account of the Fund upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the U.S. Securities System Account and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund ; the
Custodian shall transfer securities sold for the account of
the Fund upon (i) receipt of advice from the U.S. Securities
System that payment for such securities has been transferred
to the U.S. Securities System Account and (ii) the making of
an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies of
all advices from the U.S. Securities System of transfers of
securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
U.S. Securities System;
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage
to the Fund resulting from use of the U.S. Securities System
by reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent
to enforce effectively such rights as it may have against the
U.S. Securities System; at the election of the Fund, it shall
be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System
or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or
damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
7
<PAGE> 11
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in the
Direct Paper System Account which shall not include any assets
of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the Direct Paper System; and
6) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls which had been prepared
as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of each such Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in a U.S. Securities System Account by the
Custodian pursuant to Section 2.10 hereof (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered Contract
Market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the
Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the SEC relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other
8
<PAGE> 12
proper corporate purposes, but only, in the case of this clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable [ ], a certified copy of a resolution of the
Board of Trustees or of the executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it and
in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased or
sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Fund desires to take action
with respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three (3)
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories as may
be subsequently designated by the Fund (the "foreign sub-custodians").
Upon receipt of Proper Instructions, together with a certified
resolution of the Board of Trustees, the Custodian and the Fund may
agree to [provide for] additional foreign banking institutions and
foreign securities depositories to act as sub-custodian from time to
time. Upon receipt of Proper Instructions, the Fund may instruct the
Custodian to cease the employment of any one or more such foreign
sub-custodians for maintaining custody of the Fund's assets.
9
<PAGE> 13
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of the
Fund will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the assets of the Fund will
be freely transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Custodian on behalf of its
customers; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or its
agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign sub-custodians,
including but not limited to an identification of entities having
possession of Fund securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian
on behalf of its customers indicating, as to securities acquired for
the Fund , the identity of the entity having physical possession of
such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
10
<PAGE> 14
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against
a receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this Section 3.9, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of the Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange
11
<PAGE> 15
or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any
time held for the account of the Fund shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the
Fund's assets to the extent necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund during the month of June information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Fund's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
12
<PAGE> 16
4. Payments for Sales or Repurchases of Shares
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the Fund such payments as are
received for Shares of the Fund issued or sold from time to time. The Custodian
will provide timely notification to the Fund and the Transfer Agent of any
receipt by it of payments for Shares of the Fund.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for repurchase of their
Shares. In connection with the repurchase of Shares, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or through
a commercial bank designated by the tendering shareholders. In connection with
the repurchase of Shares, the Custodian shall honor checks drawn on the
Custodian by a holder of Shares, which checks have been furnished by the Fund to
the holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time between
the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. If given pursuant to procedures to be agreed upon by the
Custodian and the Fund, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three - party agreement which requires a segregated
asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, checks, drafts and other negotiable
instruments; and
13
<PAGE> 17
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Trustees.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of the Fund and/or compute the net asset value per share of the
outstanding Shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Fund as described in the Prospectus and shall advise the Fund and the
Transfer Agent daily of the total amount of such net income and, if instructed
in writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of the
Fund shall be made at the time or times described from time to time in the
Prospectus.
9. Records
The Custodian shall with respect to the Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Fund and employees and
agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
14
<PAGE> 18
10. Opinion of Fund's Independent Accountants
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A and N-SAR or other
annual reports to the SEC and with respect to any other SEC requirements.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a
15
<PAGE> 19
foreign securities depository or a branch of a U.S. bank as contemplated by
Section 3.12 hereof, the Custodian shall not be liable for any loss, damage,
cost, expense, liability or claim resulting from, or caused by, the direction of
or authorization by the Fund to maintain custody or any securities or cash of
the Fund in a foreign country including, but not limited to, losses resulting
from nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement), or in the event that
the Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund's assets to the
extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to the Fund act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has approved
the initial use of a particular Securities System by the Fund, as required by
Rule 17f-4 under the Investment Company Act and that the Custodian shall not
with respect to the Fund act under Section 2.11 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has approved the initial use of the Direct Paper System by the
Fund; provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund may
at any time by action of the Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
16
<PAGE> 20
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees,
the Custodian shall, upon termination, deliver to such successor custodian at
the offices of the Custodian, duly endorsed and in the form for transfer, all
securities of the Fund then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of the Fund held in a
Securities System. If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy of a vote of
the Board of Trustees, deliver at the offices of the Custodian and transfer such
securities, funds and other properties in accordance with such vote. In the
event that no written order designating a successor custodian or certified copy
of a vote of the Board of Trustees shall have been delivered to the Custodian on
or before the date when such termination shall become effective, then the
Custodian shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the Investment Company Act, doing business in Boston,
Massachusetts, or New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
the Custodian on behalf of the Fund and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract on behalf
of the Fund and to transfer to an account of such successor custodian all of the
securities of the Fund held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Contract.
17
<PAGE> 21
17. Additional Funds
In the event that the Fund establishes one or more series of Shares
with respect to which it desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the Custodian in writing,
and if the Custodian agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Fund.
20. Shareholder Communications Election
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
18
<PAGE> 22
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of [DATE OF AGREEMENT], 1999.
ATTEST KEMPER FLOATING RATE FUND
By:
- --------------------------------- --------------------------------
Name: Name:
Title:
ATTEST STATE STREET BANK AND TRUST COMPANY
By:
- -------------------------------- --------------------------------
Name: Name:
Title:
19
<PAGE> 1
EXHIBIT 2(k)(1)
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 31st day of March, 1999 by and between KEMPER FLOATING RATE
FUND (the "Fund"), a Massachusetts business trust, and KEMPER DISTRIBUTORS,
INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to provide information and administrative
services for the benefit of the Fund and its shareholders. In this regard, KDI
shall appoint various broker-dealer firms and other service or administrative
firms ("Firms") to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide such office space
and equipment, telephone facilities, personnel or other services as may be
necessary or beneficial for providing information and services to investors in
the Fund. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
repurchase transactions, answering routine inquiries regarding the Fund and its
special features, assistance to investors in changing dividend and investment
options, account designations and addresses, and such other administrative
services as the Fund or KDI may reasonably request. Firms may include affiliates
of KDI. KDI may also provide some of the above services for the Fund directly.
KDI accepts such appointment and agrees during such period to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. In carrying out its duties and
responsibilities hereunder, KDI will appoint various Firms to provide
administrative and other services described herein directly to or for the
benefit of investors in the Fund. Such Firms shall at all times be deemed to be
independent contractors retained by KDI and not the Fund. KDI and not the Fund
will be responsible for the payment of compensation to such Firms for such
services.
2. For the administrative services and facilities described in Section 1, the
Fund will pay to KDI at the end of each calendar month an administrative service
fee computed at an annual rate of up to 0.25 of 1% of the average daily net
assets of the Fund attributable to each class of the Fund's shares of beneficial
interest, par value $0.01 per share (the "Shares"). The initial fee schedule is
set forth as Appendix I hereto. The administrative service fee will be
calculated separately for each class of the Fund as an expense of each such
class. For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during such month and year,
respectively. The services of KDI to the Fund under this Agreement are not to be
deemed exclusive, and KDI shall be free to render similar services or other
services to others.
<PAGE> 2
The net asset value for each Share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a Share of the Fund shall be
deemed to be the net asset value of such a Share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
KDI shall be contractually bound hereunder by the terms of any publicly
announced fee cap or waiver of its fee or by the terms of any written document
provided to the Board of Trustees of the Fund announcing a fee cap or waiver of
its fee, or any limitation of the Fund's expenses, as if such fee cap, fee
waiver or expense limitation were fully set forth herein.
3. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Fund or by KDI on sixty (60) days written notice to the other
party. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation described in Section
2 hereof earned prior to such termination. This Agreement may not be amended for
any class to increase the amount to be paid to KDI for services hereunder above
0.25 of 1% of the average daily net assets of such class without the vote of a
majority of the outstanding voting securities of such class. All material
amendments to this Agreement must in any event be approved by vote of the Board
of Trustees of the Fund.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. All parties hereto are expressly put on notice of the Fund's Declaration of
Trust and all amendments thereto, all of which are on file with the Secretary of
The Commonwealth of Massachusetts, and the limitation of shareholder and trustee
liability contained therein. This Declaration of Trust has been executed by and
on behalf of the Fund by its representatives as such representatives and not
individually, and the obligations to the Fund thereunder are not binding upon
any of the trustees, officers or shareholders of the Fund individually but are
binding upon only the assets and property of the Fund.
8. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 7 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
[SIGNATURES APPEAR ON THE NEXT PAGE]
2
<PAGE> 3
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
KEMPER FLOATING RATE FUND
By: /s/ Thomas W. Littauer
---------------------------------------
Name: Thomas W. Littauer
Title: Vice President
KEMPER DISTRIBUTORS, INC.
By: /s/ James L. Greenawalt
---------------------------------------
Name: James L. Greenawalt
Title: President
3
<PAGE> 4
APPENDIX I
FEE SCHEDULE FOR ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to which this
Appendix is attached, the Fund and KDI agree that the administrative service fee
will be computed at an annual rate of 0.25 of 1% (the "Fee Rate") based upon
assets with respect to which a Firm provides administrative services.
KEMPER FLOATING RATE FUND
By: /s/ Thomas W. Littauer
---------------------------------------
Name: Thomas W. Littauer
Title: Vice President
KEMPER DISTRIBUTORS, INC.
By: /s/ James L. Greenawalt
---------------------------------------
Name: James L. Greenawalt
Title: President
Dated: March 31, 1999
4
<PAGE> 1
EXHIBIT 2(K)(2)
AGENCY AGREEMENT
AGREEMENT dated the 23rd day of April, 1999 by and between KEMPER FLOATING RATE
FUND, a Massachusetts business trust (the "Fund"), and KEMPER SERVICE COMPANY, a
Delaware corporation ("Service Company").
WHEREAS, the Fund wants to appoint Service Company as Transfer Agent and
Dividend Disbursing Agent, and Service Company wants to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Documents to be Filed with Appointment. In connection with the
appointment of Service Company as Transfer Agent and Dividend
Disbursing Agent for the Fund, there will be filed with
Service Company the following documents:
A. A certified copy of the resolutions of the Board of
Trustees of the Fund appointing Service Company as
Transfer Agent and Dividend Disbursing Agent,
approving the form of this Agreement, and designating
certain persons to give written instructions and
requests on behalf of the Fund.
B. A certified copy of the Agreement and Declaration of
Trust of the Fund dated March 23, 1999 and any
amendments thereto.
C. A certified copy of the Bylaws of the Fund as in
effect on March 31, 1999.
D. Copies of Registration Statements of the Fund filed
with the Securities and Exchange Commission.
E. Specimens of all forms of outstanding share
certificates as approved by the Board of Trustees of
the Fund, with a certificate of the Secretary of the
Fund as to such approval.
F. Specimens of the signatures of the officers of the
Fund authorized to sign share certificates and
individuals authorized to sign written instructions
and requests on behalf of the Fund.
G. An opinion of counsel for the Fund:
(1) With respect to the Fund's organization and
existence under the laws of The Commonwealth
of Massachusetts.
(2) With respect to the status of all shares of
the Fund covered by this appointment under
the Securities Act of 1933, and any other
applicable federal or state statute.
(3) To the effect that all issued shares are,
and all unissued shares will be when issued,
validly issued, fully paid and
non-assessable by the Fund.
<PAGE> 2
2. Certain Representations and Warranties of Service Company.
Service Company represents and warrants to the Fund that:
A. It is a corporation duly organized and existing and
in good standing under the laws of the State of
Delaware.
B. It is duly qualified to carry on its business in the
State of Missouri.
C. It is empowered under applicable laws and by its
Certificate of Incorporation and Bylaws to enter into
and perform the services contemplated in this
Agreement.
D. All requisite corporate action has been taken to
authorize it to enter into and perform this
Agreement.
E. It has and will continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
F. It is, and will continue to be, registered as a
transfer agent under the Securities Exchange Act of
1934.
3. Certain Representations and Warranties of the Fund. The Fund
represents and warrants to Service Company that:
A. It is a business trust duly organized and existing
and in good standing under the laws of The
Commonwealth of Massachusetts.
B. It is an investment company registered under the
Investment Company Act of 1940.
C. A registration statement under the Securities Act of
1933 has been filed and will be effective with
respect to all shares of the Fund being offered for
sale at any time and from time to time.
D. All requisite steps have been or will be taken to
register the Fund's shares for sale in all applicable
states, including the District of Columbia if
necessary pursuant to the laws of such states or the
District of Columbia.
E. The Trustees, on behalf of the Fund, are empowered
under applicable laws and by the Fund's Agreement and
Declaration of Trust and Bylaws to enter into and
perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this
Agreement, the Fund hereby employs and appoints
Service Company as Transfer Agent and Dividend
Disbursing Agent effective the date hereof.
<PAGE> 3
B. Service Company hereby accepts such employment and
appointment and agrees that it will act as the Fund's
Transfer Agent and Dividend Disbursing Agent. Service
Company agrees that it will also act as agent in
connection with the Fund's periodic withdrawal
payment accounts and other open-account or similar
plans for shareholders, if any.
C. Service Company agrees to provide the necessary
facilities, equipment and personnel to perform its
duties and obligations hereunder in accordance with
industry practice.
D. The Fund agrees to use all reasonable efforts to
deliver to Service Company in Kansas City, Missouri,
as soon as they are available, all its shareholder
account records.
E. Subject to the provisions of Sections 20 and 21
hereof, Service Company agrees that it will perform
all the usual and ordinary services of Transfer Agent
and Dividend Disbursing Agent and as agent for the
various shareholder accounts, including, without
limitation, the following: issuing, transferring and
canceling share certificates, maintaining all
shareholder accounts, preparing shareholder meeting
lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports and
prospectuses, withholding federal income taxes,
preparing and mailing checks for disbursement of
income and capital gains dividends, preparing and
filing all required U.S. Treasury Department
information returns for all shareholders, preparing
and mailing confirmation forms to shareholders and
dealers with respect to all purchases and
liquidations of the Fund shares and other
transactions in shareholder accounts for which
confirmations are required, recording reinvestments
of dividends and distributions in Fund shares,
recording repurchases of Fund shares and preparing
and mailing checks for payments upon repurchase and
for disbursements to systematic withdrawal plan
shareholders, if applicable.
5. Compensation and Expenses.
A. In consideration for the services provided hereunder
by Service Company as Transfer Agent and Dividend
Disbursing Agent, the Fund will pay to Service
Company from time to time compensation as agreed upon
for all services rendered as Agent, and also, all its
reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency.
Such compensation will be set forth in a separate
schedule to be agreed to by the Fund and Service
Company. The initial agreement regarding compensation
is attached as Exhibit A.
B. The Fund agrees to promptly reimburse Service Company
for all reasonable out-of-pocket expenses or advances
incurred by Service Company in connection with the
performance of services under this Agreement
including, but not limited to, postage (and first
class mail
<PAGE> 4
insurance in connection with mailing share
certificates), envelopes, check forms, continuous
forms, forms for reports and statements, stationery,
and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers
or shareholders, microfilm used each year to record
the previous year's transactions in shareholder
accounts and computer tapes used for permanent
storage of records and cost of insertion of materials
in mailing envelopes by outside firms. Service
Company may, at its option, arrange to have various
service providers submit invoices directly to the
Fund for payment of out-of-pocket expenses
reimbursable hereunder.
C. Service Company shall be contractually bound
hereunder by the terms of any publicly announced fee
cap or waiver of its fee or by the terms of any
written document provided to the Board of Trustees of
the Fund announcing a fee cap or waiver of its fee,
or any limitation of the Fund's expenses, as if such
fee cap, fee waiver or expense limitation were fully
set forth herein
6. Efficient Operation of Service Company System.
A. In connection with the performance of its services
under this Agreement, Service Company is responsible
for the accurate and efficient functioning of its
system at all times, including:
(1) The accuracy of the entries in Service
Company's records reflecting purchase orders
and repurchase requests and other
instructions received by Service Company
from dealers, shareholders, the Fund or its
principal underwriter.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other
shareholder account information to be
produced from Service Company's records or
data.
(3) The accurate and timely issuance of dividend
and distribution checks in accordance with
instructions received from the Fund.
(4) The accuracy of repurchase transactions and
payments in accordance with repurchase
instructions received from dealers,
shareholders or Fund or other authorized
persons.
(5) The deposit daily in the Fund's appropriate
special bank account of all checks and
payments received from dealers or
shareholders for investment in shares.
(6) The requiring of proper forms of
instructions, signatures and signature
guarantees and any necessary documents
supporting the rightfulness of transfers,
repurchase requests and other shareholder
account transactions, all in conformance
with Service Company's present procedures
with such changes as may be deemed
reasonably appropriate by Service Company or
as may be reasonably approved by or on
behalf of the Fund.
(7) The maintenance of a current duplicate set
of the Fund's essential or required records,
as agreed upon from time to time by the Fund
and Service Company, at a secure distant
location, in form available and usable
forthwith in the event of any breakdown or
disaster disrupting its main operation.
<PAGE> 5
7. Indemnification.
A. The Fund shall indemnify and hold Service Company
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has acted in good faith, without
negligence and without willful misconduct.
B. Service Company shall indemnify and hold the Fund
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has not acted in good faith, without
negligence and without willful misconduct.
C. In order that the indemnification provisions
contained in this Section 7 shall apply, upon the
assertion of a claim for which either party (the
"Indemnifying Party") may be required to provide
indemnification hereunder, the party seeking
indemnification (the "Indemnitee") shall promptly
notify the Indemnifying Party of such assertion, and
shall keep such party advised with respect to all
developments concerning such claim. The Indemnifying
Party shall be entitled to assume control of the
defense and the negotiations, if any, regarding
settlement of the claim. If the Indemnifying Party
assumes control, the Indemnitee shall have the option
to participate in the defense and negotiations of
such claim at its own expense. The Indemnitee shall
in no event confess, admit to, compromise, or settle
any claim for which the Indemnifying Party may be
required to indemnify it except with the prior
written consent of the Indemnifying Party, which
shall not be unreasonably withheld.
8. Certain Covenants of Service Company and the Fund.
A. All requisite steps will be taken by the Fund from
time to time when and as necessary to register the
Fund's shares for sale in all states in which the
Fund's shares shall at the time be offered for sale
and require registration. If at any time the Fund
receives notice of any stop order or other proceeding
in any such state affecting such registration or the
sale of the Fund's shares, or of any stop order or
other proceeding under the Federal securities laws
affecting the sale of the Fund's shares, the Fund
will give prompt notice thereof to Service Company.
B. Service Company hereby agrees to establish and
maintain facilities and procedures reasonably
acceptable to the Fund for safekeeping of share
certificates, check forms, and facsimile signature
imprinting devices, if any;
<PAGE> 6
and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
Further, Service Company agrees to carry insurance,
as specified in Exhibit B hereto, with insurers
reasonably acceptable to the Fund and in minimum
amounts that are reasonably acceptable to the Fund,
which will not be changed without the consent of the
Fund, which consent shall not be unreasonably
withheld, and which will be expanded in coverage or
increased in amounts from time to time if and when
reasonably requested by the Fund. If Service Company
determines that it is unable to obtain any such
insurance upon commercially reasonable terms, it
shall promptly so advise the Fund in writing. In such
event, the Fund shall have the right to terminate
this Agreement upon 30 days notice.
C. To the extent required by Section 31 of the
Investment Company Act of 1940 and Rules thereunder,
Service Company agrees that all records maintained by
Service Company relating to the services to be
performed by Service Company under this Agreement are
the property of the Fund and will be preserved and
will be surrendered promptly to the Fund on request.
D. Service Company agrees to furnish the Fund
semi-annual reports of its financial condition,
consisting of a balance sheet, earnings statement and
any other reasonably available financial information
reasonably requested by the Fund. The annual
financial statements will be certified by Service
Company's certified public accountants.
E. Service Company represents and agrees that it will
use all reasonable efforts to keep current on the
trends of the investment company industry relating to
shareholder services and will use all reasonable
efforts to continue to modernize and improve its
system without additional cost to the Fund.
F. Service Company will permit the Fund and its
authorized representatives to make periodic
inspections of its operations at reasonable times
during business hours.
G. If Service Company is prevented from complying,
either totally or in part, with any of the terms or
provisions of this Agreement, by reason of fire,
flood, storm, strike, lockout or other labor trouble,
riot, war, rebellion, accidents, acts of God,
equipment, utility or transmission failure or damage,
and/or any other cause or casualty beyond the
reasonable control of Service Company, whether
similar to the foregoing matters or not, then upon
written notice to the Fund, the requirements of this
Agreement that are affected by such disability, to
the extent so affected, shall be suspended during the
period of such disability; provided, however, that
Service Company shall make reasonable effort to
remove such disability as soon as possible. During
such period, the Fund may seek alternate sources of
service without liability hereunder; and Service
Company will use all reasonable efforts to assist the
Fund to obtain alternate sources of service. Service
Company shall have no liability to the Fund for
nonperformance because of the reasons set forth in
this Section 8.G; but if a disability that,
<PAGE> 7
in the Fund's reasonable belief, materially affects
Service Company's ability to perform its obligations
under this Agreement continues for a period of 30
days, then the Fund shall have the right to terminate
this Agreement upon 10 days written notice to Service
Company.
9. Adjustment. In case of any recapitalization, readjustment or
other change in the structure of the Fund requiring a change
in the form of share certificates, Service Company will issue
or register certificates in the new form in exchange for, or
in transfer of, the outstanding certificates in the old form,
upon receiving the following:
A. Written instructions from an officer of the Fund.
B. Certified copy of any amendment to the Agreement and
Declaration of Trust or other document effecting the
change.
C. Certified copy of any order or consent of each
governmental or regulatory authority required by law
for the issuance of the shares in the new form, and
an opinion of counsel that no order or consent of any
other government or regulatory authority is required.
D. Specimens of the new certificates in the form
approved by the Board of Trustees of the Fund, with a
certificate of the Secretary of the Fund as to such
approval.
E. Opinion of counsel for the Fund:
(1) With respect to the status of the shares of
the Fund in the new form under the
Securities Act of 1933, and any other
applicable federal or state laws.
(2) To the effect that the issued shares in the
new form are, and all unissued shares will
be when issued, validly issued, fully paid
and non-assessable.
10. Share Certificates. The Fund will furnish Service Company with
a sufficient supply of blank share certificates and from time
to time will renew such supply upon the request of Service
Company. Such certificates will be signed manually or by
facsimile signatures of the officers of the Fund authorized by
law and the Fund's Bylaws to sign share certificates and, if
required, will bear the trust seal or facsimile thereof.
11. Death, Resignation or Removal of Signing Officer. The Fund
will file promptly with Service Company written notice of any
change in the officers authorized to sign share certificates,
written instructions or requests, together with two signature
cards bearing the specimen signature of each newly authorized
officer, all as certified by an appropriate officer of the
Fund. In case any officer of the Fund who will have signed
manually or whose facsimile signature will have been affixed
to blank share certificates will die, resign, or be removed
prior to the issuance of such
<PAGE> 8
certificates, Service Company may issue or register such share
certificates as the share certificates of the Fund
notwithstanding such death, resignation, or removal, until
specifically directed to the contrary by the Fund in writing.
In the absence of such direction, the Fund will file promptly
with Service Company such approval, adoption, or ratification
as may be required by law.
12. Future Amendments of Agreement and Declaration of Trust and
Bylaws. The Fund will promptly file with Service Company
copies of all material amendments to its Agreement and
Declaration of Trust and Bylaws and Registration Statement
made after the date of this Agreement.
13. Instructions, Opinion of Counsel and Signatures. At any time
Service Company may apply to any officer of the Fund for
instructions, and may consult with legal counsel for the Fund
at the expense of the Fund, or with its own legal counsel at
its own expense, with respect to any matter arising in
connection with the agency; and it will not be liable for any
action taken or omitted by it in good faith in reliance upon
such instructions or upon the opinion of such counsel. Service
Company is authorized to act on the orders, directions or
instructions of such persons as the Board of Trustees of the
Fund shall from time to time designate by resolution. Service
Company will be protected in acting upon any paper or
document, including any orders, directions or instructions,
reasonably believed by it to be genuine and to have been
signed by the proper person or persons; and Service Company
will not be held to have notice of any change of authority of
any person so authorized by the Fund until receipt of written
notice thereof from the Fund. Service Company will also be
protected in recognizing share certificates that it reasonably
believes to bear the proper manual or facsimile signatures of
the officers of the Fund, and the proper countersignature of
any former Transfer Agent or Registrar, or of a Co-Transfer
Agent or Co-Registrar.
14. Papers Subject to Approval of Counsel. The acceptance by
Service Company of its appointment as Transfer Agent and
Dividend Disbursing Agent, and all documents filed in
connection with such appointment and thereafter in connection
with the agencies, will be subject to the approval of legal
counsel for Service Company, which approval will not be
unreasonably withheld.
15. Certification of Documents. The required copy of the Agreement
and Declaration of Trust and copies of all amendments thereto
will be certified by the appropriate official of The
Commonwealth of Massachusetts; and if such Agreement and
Declaration of Trust of the Fund and amendments are required
by law to be also filed with a county, city or other officer
or official body, a certificate of such filing will appear on
the certified copy submitted to Service Company. A copy of the
order or consent of each governmental or regulatory authority
required by law for the issuance of Fund shares will be
certified by the Secretary or Clerk of such governmental or
regulatory authority, under proper seal of such authority. The
copy of the Bylaws and copies of all amendments thereto and
copies of resolutions of the Board of Trustees of the Fund
will be certified by the Secretary or an Assistant Secretary
of the Fund.
<PAGE> 9
16. Records. Service Company will maintain customary records in
connection with its agency, and particularly will maintain
those records required to be maintained pursuant to
sub-paragraph (2)(iv) of paragraph (b) of Rule 31a-1 under the
Investment Company Act of 1940, if any.
17. Disposition of Books, Records and Cancelled Certificates.
Service Company will send periodically to the Fund, or to
where designated by the Secretary or an Assistant Secretary of
the Fund, all books, documents, and all records no longer
deemed needed for current purposes and share certificates
which have been cancelled in transfer or in exchange, upon the
understanding that such books, documents, records, and share
certificates will not be destroyed by the Fund without the
consent of Service Company (which consent will not be
unreasonably withheld), but will be safely stored for possible
future reference.
18. Provisions Relating to Service Company as Transfer Agent.
A. Service Company will make original issues of share
certificates upon written request of an officer of
the Fund and upon being furnished with a certified
copy of a resolution of the Board of Trustees
authorizing such original issue, an opinion of
counsel as outlined in Section 1.G or 9.E of this
Agreement, the certificates required by Section 10 of
this Agreement and any other documents required by
Section 1 or 9 of this Agreement.
B. Before making any original issue of certificates, the
Fund will furnish Service Company with sufficient
funds to pay any taxes required on the original issue
of the shares. The Fund will furnish Service Company
such evidence as may be required by Service Company
to show the actual value of the shares. If no taxes
are payable, Service Company will upon request be
furnished with an opinion of outside counsel to that
effect.
C. Shares will be transferred and new certificates
issued in transfer, or shares accepted for redemption
and funds remitted therefor, upon surrender of the
old certificates in form deemed by Service Company
properly endorsed for transfer or redemption
accompanied by such documents as Service Company may
deem necessary to evidence the authority of the
person making the transfer or redemption, and bearing
satisfactory evidence of the payment of any
applicable share transfer taxes. Service Company
reserves the right to refuse to transfer or redeem
shares until it is satisfied that the endorsement or
signature on the certificate or any other document is
valid and genuine, and for that purpose it may
require a guarantee of signature by such persons as
may from time to time be specified in the prospectus
related to such shares or otherwise authorized by the
Fund. Service Company also reserves the right to
refuse to transfer or redeem shares until it is
satisfied that the requested transfer or redemption
is legally authorized, and it will incur no liability
for the refusal in good faith to make transfers or
redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. Service
Company may, in effecting transfers or redemptions,
rely upon Simplification Acts or other statutes which
protect it and the Fund in not requiring complete
fiduciary documentation.
<PAGE> 10
D. When mail is used for delivery of share certificates,
Service Company will forward share certificates in
"nonnegotiable" form as provided by the Fund by first
class mail, all such mail deliveries to be covered
while in transit to the addressee by insurance
arranged for by Service Company.
E. Service Company will issue and mail subscription
warrants and certificates provided by the Fund and
representing share dividends, exchanges or split-ups,
or act as Conversion Agent upon receiving written
instructions from any officer of the Fund and such
other documents as Service Company deems necessary.
F. Service Company will issue, transfer, and split-up
certificates upon receiving written instructions from
an officer of the Fund and such other documents as
Service Company may deem necessary.
G. Service Company may issue new certificates in place
of certificates represented to have been lost,
destroyed, stolen or otherwise wrongfully taken, upon
receiving indemnity satisfactory to Service Company,
and may issue new certificates in exchange for, and
upon surrender of, mutilated certificates. Any such
issuance shall be in accordance with the provisions
of law governing such matter and any procedures
adopted by the Board of Trustees of the Fund of which
Service Company has notice.
H. Service Company will supply a shareholder's list to
the Fund properly certified by an officer of Service
Company for any shareholder meeting upon receiving a
request from an officer of the Fund. It will also
supply lists at such other times as may be reasonably
requested by an officer of the Fund.
I. Upon receipt of written instructions of an officer of
the Fund, Service Company will address and mail
notices to shareholders.
J. In case of any request or demand for the inspection
of the share books of the Fund or any other books of
the Fund in the possession of Service Company,
Service Company will endeavor to notify the Fund and
to secure instructions as to permitting or refusing
such inspection. Service Company reserves the right,
however, to exhibit the share books or other books to
any person in case it is advised by its counsel that
it may be held responsible for the failure to exhibit
the share books or other books to such person.
19. Provisions Relating to Dividend Disbursing Agency.
A. Service Company will, at the expense of the Fund,
provide a special form of check containing the
imprint of any device or other matter desired by the
Fund. Said checks must, however, be of a form and
size convenient for use by Service Company.
<PAGE> 11
B. If the Fund wants to include additional printed
matter, financial statements, etc., with the dividend
checks, the same will be furnished to Service Company
within a reasonable time prior to the date of mailing
of the dividend checks, at the expense of the Fund.
C. If the Fund wants its distributions mailed in any
special form of envelopes, sufficient supply of the
same will be furnished to Service Company but the
size and form of said envelopes will be subject to
the approval of Service Company. If stamped envelopes
are used, they must be furnished by the Fund; or, if
postage stamps are to be affixed to the envelopes,
the stamps or the cash necessary for such stamps must
be furnished by the Fund.
D. Service Company will maintain one or more deposit
accounts as Agent for the Fund, into which the funds
for payment of dividends, distributions, redemptions
or other disbursements provided for hereunder will be
deposited, and against which checks will be drawn.
20. Termination of Agreement.
A. This Agreement may be terminated by either party upon
sixty (60) days prior written notice to the other
party.
B. The Fund, in addition to any other rights and
remedies, shall have the right to terminate this
Agreement forthwith upon the occurrence at any time
of any of the following events:
(1) Any interruption or cessation of operations
by Service Company or its assigns which
materially interferes with the business
operation of the Fund.
(2) The bankruptcy of Service Company or its
assigns or the appointment of a receiver for
Service Company or its assigns.
(3) Any merger, consolidation or sale of
substantially all the assets of Service
Company or its assigns.
(4) The acquisition of a controlling interest in
Service Company or its assigns, by any
broker, dealer, investment adviser or
investment company except as may presently
exist.
(5) Failure by Service Company or its assigns to
perform its duties in accordance with this
Agreement, which failure materially
adversely affects the business operations of
the Fund and which failure continues for
thirty (30) days after written notice from
the Fund.
(6) The registration of Service Company or its
assigns as a transfer agent under the
Securities Exchange Act of 1934 is revoked,
terminated or suspended for any reason.
<PAGE> 12
C. In the event of termination, the Fund will promptly
pay Service Company all amounts due to Service
Company hereunder. Upon termination of this
Agreement, Service Company shall deliver all
shareholder and account records pertaining to the
Fund either to the Fund or as directed in writing by
the Fund.
21. Assignment.
A. Neither this Agreement nor any rights or obligations
hereunder may be assigned by Service Company without
the written consent of the Fund; provided, however,
no assignment will relieve Service Company of any of
its obligations hereunder.
B. This Agreement including, without limitation, the
provisions of Section 7 will inure to the benefit of
and be binding upon the parties and their respective
successors and assigns.
C. Service Company is authorized by the Fund to use the
system services of DST Systems, Inc. and the system
and other services, including data entry, of
Administrative Management Group, Inc.
22. Confidentiality.
A. Except as provided in the last sentence of Section
18.J hereof, or as otherwise required by law, Service
Company will keep confidential all records of and
information in its possession relating to the Fund or
its shareholders or shareholder accounts and will not
disclose the same to any person except at the request
or with the consent of the Fund.
B. Except as otherwise required by law, the Fund will
keep confidential all financial statements and other
financial records (other than statements and records
relating solely to the Fund's business dealings with
Service Company) and all manuals, systems and other
technical information and data, not publicly
disclosed, relating to Service Company's operations
and programs furnished to it by Service Company
pursuant to this Agreement and will not disclose the
same to any person except at the request or with the
consent of Service Company. Notwithstanding anything
to the contrary in this Section 22.B, if an attempt
is made pursuant to subpoena or other legal process
to require the Fund to disclose or produce any of the
aforementioned manuals, systems or other technical
information and data, the Fund shall give Service
Company prompt notice thereof prior to disclosure or
production so that Service Company may, at its
expense, resist such attempt.
23. Survival of Representations and Warranties. All
representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
<PAGE> 13
24. Miscellaneous.
A. This Agreement is executed and delivered in the State
of Illinois and shall be governed by the laws of said
state (except as to Section 24.G hereof which shall
be governed by the laws of The Commonwealth of
Massachusetts).
B. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties
hereto.
C. The captions in this Agreement are included for
convenience of reference only, and in no way define
or limit any of the provisions hereof or otherwise
affect their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original but all of which together shall
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is
held by the courts to be illegal, in conflict with
any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be
affected, and the rights and obligations of the
parties shall be construed and enforced as if the
Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. All parties hereto are expressly put on notice of the
Fund's Agreement and Declaration of Trust which is on
file with the Secretary of The Commonwealth of
Massachusetts, and the limitation of shareholder and
trustee liability contained therein. This Agreement
has been executed by and on behalf of the Fund by its
representatives as such representatives and not
individually, and the obligations of the Fund
hereunder are not binding upon any of the Trustees,
officers or shareholders of the Fund individually but
are binding upon only the assets and property of the
Fund. With respect to any claim by Service Company
for recovery of that portion of the compensation and
expenses (or any other liability of the Fund arising
hereunder) allocated to a particular series, whether
in accordance with the express terms hereof or
otherwise, Service Company shall have recourse solely
against the assets of that series to satisfy such
claim and shall have no recourse against the assets
of any other series for such purpose.
H. This Agreement, together with the Fee Schedule, is
the entire contract between the parties relating to
the subject matter hereof and supersedes all prior
agreements between the parties.
<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized officer as of the day and year first set forth
above.
KEMPER FLOATING RATE FUND,
/s/ Thomas W. Littauer
-------------------------------------
By: Thomas W. Littauer
Title: Vice President
KEMPER SERVICE COMPANY,
/s/ Michael J. Curran
-------------------------------------
By: Michael J. Curran
Title: President
<PAGE> 15
EXHIBIT A
FEE SCHEDULE
Kemper Service Company as transfer agent and dividend-paying agent receives the
following:
o an asset-based fee of 0.05%
o annual account fees of $14.00 ($23.00 for retirement accounts) per open
account
o new account fee of $5.00
o annual fees associated with early withdrawal charge of $2.00 per open
account
<PAGE> 16
EXHIBIT B
INSURANCE COVERAGE
DESCRIPTION OF POLICY:
BROKERS BLANKET BOND, STANDARD FORM 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
ERRORS AND OMISSIONS INSURANCE
Covering replacement of destroyed records and computer errors and omissions.
SPECIAL FORGERY BOND
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
MAIL INSURANCE (APPLIES TO ALL FULL SERVICE OPERATIONS) Provides indemnity for
the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered
mail.
o Non-negotiable securities mailed to domestic locations via first-class
or certified mail.
o Non-negotiable securities mailed to foreign locations via registered
mail.
o Negotiable securities mailed to all locations via registered mail.
<PAGE> 1
EXHIBIT 2(k)(3)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 23rd day of April, 1999 between KEMPER FLOATING
RATE FUND (the "Fund"), a registered closed-end management investment company
with its principal place of business at 222 South Riverside Plaza, Chicago,
Illinois 60606, and Scudder Fund Accounting Corporation, with its principal
place of business in Boston, Massachusetts (hereinafter called "FUND
ACCOUNTING").
WHEREAS, the Fund has need to determine its net asset value which service FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement
to calculate the net asset value of the Fund as provided in the
prospectus of the Fund, as amended from time to time, and in connection
therewith shall:
a. Maintain and preserve all accounts, books, financial records
and other documents as are required of the Fund under Section
31 of the Investment Company Act of 1940 (the "1940 Act") and
Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal
and state laws and any other law or administrative rules or
procedures which may be applicable to the Fund, other than
those accounts, books and financial records required to be
maintained by the Fund's investment adviser, custodian or
transfer agent and/or books and records maintained by all
other service providers necessary for the Fund to conduct its
business as a registered open-end management investment
company. All such books and records shall be the property of
the Fund and shall at all times during regular business hours
be open for inspection by, and shall be surrendered promptly
upon request of, duly authorized officers of the Fund. All
such books and records shall at all times during regular
business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange
Commission.
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary for determining
that day's net asset value and net income.
c. Render statements or copies of records as from time to time
are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by
the Fund or by any regulatory body with jurisdiction over the
Fund.
<PAGE> 2
e. Compute the Fund 's public offering price and/or its daily
dividend rates and money market yields, if applicable, in
accordance with Section 3 of the Agreement and notify the Fund
and such other persons as the Fund may reasonably request of
the net asset value per share, the public offering price
and/or its daily dividend rates and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with: (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING; and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one
or more external pricing services, including broker-dealers, provided
that an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Fund 's net asset value, including
net income, in a manner consistent with the specific provisions of the
Registration Statement. Such computation shall be made as of the time
or times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Fund 's books of account and making the necessary
computations FUND ACCOUNTING shall be entitled to receive, and may rely
upon, information furnished it by means of Proper Instructions,
including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Fund ;
b. The source of quotations to be used for such securities as may
not be available through FUND ACCOUNTING's normal pricing
services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
2
<PAGE> 3
e. Transactions in Fund securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Fund and shall be
without liability for any action taken or thing done in good faith in
reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and to have been properly made or signed by
any authorized officer of the Fund or person certified to FUND
ACCOUNTING as being authorized by the Board of Trustees. The Fund,
shall cause oral instructions to be confirmed in writing. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices as from time to time agreed to
by an authorized officer of the Fund and FUND ACCOUNTING.
The Fund, agrees to furnish to the appropriate person(s) within FUND
ACCOUNTING a copy of the Registration Statement as in effect from time
to time. FUND ACCOUNTING may conclusively rely on the Fund's most
recently delivered Registration Statement for all purposes under this
Agreement and shall not be liable to the Fund in acting in reliance
thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with the
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund or its shareholders to which FUND
ACCOUNTING would otherwise be subject by reason of willful misfeasance,
bad faith or negligence in the performance of its duties, or by reason
of its reckless disregard of its obligations and duties hereunder.
3
<PAGE> 4
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled,
if agreed to by the Fund, to recover its reasonable telephone, courier
or delivery service, and all other reasonable out-of-pocket, expenses
as incurred, including, without limitation, reasonable attorneys' fees
and reasonable fees for pricing services.
Fund Accounting shall be contractually bound hereunder by the terms of
any publicly announced fee cap or waiver of its fee or by the terms of
any written document provided to the Board of Trustees of the Fund
announcing a fee cap or waiver of its fee, or any limitation of the
Fund's expenses, as if such fee cap, fee waiver or expense limitation
were fully set forth herein.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take
effect not sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination, FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the
calculations of net asset value and all other records pertaining to its
services hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such records and
documents which it determines appropriate or for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not
an agent of the Fund.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn.: Vice President
If to the Fund: Kemper Floating Rate Fund
222 South Riverside Plaza
Chicago, IL 60606
Attn.: President, Secretary or Treasurer
4
<PAGE> 5
Section 11. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its
Board of Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive
or additional provisions shall be in writing, signed by both parties
and annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
KEMPER FLOATING RATE FUND
By: /s/ Thomas W. Littauer
---------------------------------
Name: Thomas W. Littauer
Title: Vice President
SCUDDER FUND ACCOUNTING CORPORATION
By: /s/ John R. Hebble
---------------------------------
Name: John R. Hebble
Title: Senior Vice President
5
<PAGE> 1
EXHIBIT 2(k)(4)
FUND: KEMPER FLOATING RATE FUND ("FUND")
CLASS: CLASS B (THE "CLASS")
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") has been adopted for the Fund with
respect to the Class (all as noted and defined above) by a majority of the
members of the Fund's Board of Trustees (the "Board"), including a majority of
the Board members who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan (the "Qualified Board Members") at a meeting
called for the purpose of voting on this Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc.
("KDI") at the end of each calendar month a distribution services fee computed
at the annual rate of 0.60% of the average daily net assets attributable to the
Class shares. KDI may compensate various financial service firms appointed by
KDI ("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee levels provided in the Fund's prospectus from time to time. KDI may pay
other commissions, fees or concessions to Firms, and may pay them to others in
its discretion, in such amounts as KDI shall determine from time to time. The
distribution services fee for the Class shall be based upon average daily net
assets attributable to the Class and such fee shall be charged only to the
Class. For the month and year in which this Plan becomes effective or
terminates, there shall be an appropriate proration of the distribution services
fee set forth in Paragraph 1 hereof on the basis of the number of days that the
Plan and any agreements related to the Plan are in effect during the month and
year, respectively. The distribution services fee shall be in addition to and
shall not be reduced or offset by the amount of any contingent deferred sales
charge received by KDI.
2. Periodic Reporting. KDI shall prepare reports for the Board on
a quarterly basis for the Class showing amounts paid to the various Firms and
such other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without
penalty with respect to the Class by vote of a majority of the Qualified Board
Members or by vote of the majority of the outstanding voting securities of the
Class.
<PAGE> 2
5. Amendment. This Plan may not be amended to increase materially
the amount to be paid to KDI by the Fund for distribution services with respect
to the Class without the vote of a majority of the outstanding voting securities
of the Class. All material amendments to this Plan must in any event be approved
by a vote of a majority of the Board, and of the Qualified Board Members, cast
in person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this
Plan is in effect, the selection and nomination of those Board members who are
not interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder
shall be binding only upon the assets of the Class and shall not be binding on
any Board member, officer, employee, agent, or shareholder of the Fund. Neither
the authorization of any action by the Board members or shareholders of the Fund
nor the adoption of the Plan on behalf of the Fund shall impose any liability
upon any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a
majority of the outstanding voting securities" shall have the meanings set forth
in the Investment Company Act of 1940, as amended (the "Act"), and the rules and
regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan
shall be held or made invalid by a court decision, rule or otherwise, the
remainder of this Plan shall not be affected thereby. Action shall be taken
separately for the Class as the Act or the rules thereunder so require.
11. Effectiveness. This Plan shall become effective upon receipt
of an exemptive order from the Securities and Exchange Commission with respect
to the Plan, which order shall provide that the Fund will comply with the terms
and conditions of Rule 12b-1 under the Act as if the Fund were an open-end
investment company.
<PAGE> 1
EXHIBIT 2(k)(5)
KEMPER FLOATING RATE FUND
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, Kemper Floating Rate Fund (the "Fund") is a closed-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act") that has sought an order from the Securities and Exchange
Commission to permit it to issue common shares of beneficial interest in
separate series pursuant to Rule 18f-3 under the 1940 Act (the "Order");
WHEREAS, Scudder Kemper Investments, Inc. ("Scudder Kemper") serves as
investment adviser and Kemper Distributors, Inc. serves as principal underwriter
for the Fund;
WHEREAS, the Fund has an administrative services agreement providing
for a service fee at an annual rate of up to .25% of average daily net assets;
WHEREAS, the Fund has established a Multi-Distribution System to enable
the Fund, as more fully reflected in its prospectus, as may be amended from time
to time (the "Prospectus"), to offer investors the option of purchasing shares
without a front-end sales load, but subject to a contingent deferred sales
charge ("CDSC"), a distribution plan providing for a distribution fee, and an
administrative service fee ("Class B shares") that convert to shares with an
administrative service fee but without a distribution plan or CDSC ("Class A
shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation of
each class and any related conversion features or exchange privileges;
NOW, THEREFORE, the Fund, wishing to be governed by Rule 18f-3 under
the 1940 Act, hereby adopts this Multi-Distribution System Plan, contingent upon
receipt of the Order, as follows:
1. Each class of shares will represent interests in the same portfolio
of investments of the Fund, and be identical in all respects to each other
class, except as set forth below. The only differences among the various classes
of shares of the Fund will relate solely to: (a) different distribution fee
payments associated with any Distribution Plan(1) for a particular class of
shares and any other costs relating to implementing or amending such
Distribution Plan (including obtaining shareholder approval of such Distribution
Plan or any amendment thereto), which will be borne solely by shareholders of
such classes; (b) different administrative service fees; (c) different
shareholder servicing fees; (d) different class expenses, which will be limited
to the following expenses determined by the Fund's Board of Trustees to be
attributable to a specific
- ---------
(1) The term "Distribution Plan" means a plan of distribution adopted by
the Fund in compliance with the terms of Rule 12b-1 under the 1940 Act.
<PAGE> 2
class of shares: (i) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class; (ii) Securities and
Exchange Commission registration fees incurred by a specific class; (iii)
litigation or other legal expenses relating to a specific class; (iv) Board
member fees or expenses incurred as a result of issues relating to a specific
class; and (v) accounting expenses relating to a specific class; (e) the voting
rights related to any Distribution Plan affecting a specific class of shares;
(f) conversion features; (g) exchange privileges; and (h) class names or
designations. Any additional incremental expenses not specifically identified
above that are subsequently identified and determined to be properly applied to
one class of shares of the Fund shall be so applied upon approval by a majority
of the members of the Fund's Board, including a majority of the Board members
who are not interested persons of the Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative aggregate
net assets of the classes, except that, if the Fund has series, expenses will
first be allocated among series, based upon their relative aggregate net assets.
Expenses that are attributable to a particular series, but not to a particular
class thereof, will be borne by each class of that series on the basis of the
relative aggregate net assets of the classes. Notwithstanding the foregoing, the
underwriter, the investment manager or other provider of services to the Fund
may waive or reimburse the expenses of a specific class or classes to the extent
permitted under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to that class including: (a) any distribution fees associated with
any Distribution Plan for a particular class and any other costs relating to
implementing or amending such Distribution Plan (including obtaining shareholder
approval of such Distribution Plan or any amendment thereto); (b) any service
fees attributable to such class; (c) any shareholder servicing fees attributable
to such class; and (d) any class expenses determined by the Fund Board to be
attributable to such class.
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund at the
relative net asset values of the two classes and will thereafter not be subject
to a Distribution Plan. Class B shares issued upon reinvestment of income and
capital gain dividends and other distributions will be converted to Class A
shares on a pro rata basis with the Class B shares.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the
Fund will be exchangeable with shares of the same class of certain other shares
of funds in the Scudder Kemper family as described in the Prospectus. Exchanges
will comply with all applicable provisions of Rule 11a-3 under the 1940 Act. For
purposes of calculating the time period
2
<PAGE> 3
remaining on the conversion of Class B shares to Class A shares, Class B shares
received on exchange retain their original purchase date.
6. Dividends paid by the Fund as to each class of its shares, to the
extent any dividends are paid, will be calculated in the same manner, at the
same time, on the same day, and will be in the same amount; except that any
distribution fees, administrative service fees, shareholder servicing fees and
class expenses allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of the Fund, including distribution
fees, front-end sales loads and CDSCs, will comply with Rule 2830(d) of the
Conduct Rules of the National Association of Securities Dealers, Inc.
8. All material amendments to this Plan must be approved by a majority
of the members of the Fund's Board, including a majority of the Board members
who are not interested persons of the Fund.
For use on or after: March 31, 1999
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent the reference to our firm under the caption "Independent Auditors" in
the Registration Statement (Form N-2) of Kemper Floating Rate Fund, filed with
the Securities and Exchange Commission in this Pre-Effective Amendment No. 1 to
the Registration Statement under the Securities Act of 1933 (Registration No.
33-74911) and in this Amendment No. 1 to the Registration Statement under the
Investment Company Act of 1940 (Registration No. 811-09269).
ERNST & YOUNG LLP
Chicago, Illinois
April 23, 1999
<PAGE> 1
EXHIBIT 99.2 (n)(2)
Powers of Attorney
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. By so signing the undersigned in his
capacity as trustee or officer, or both, as the case may be, of the Registrant,
does hereby appoint Mark S. Casady, Kathryn L. Quirk, Philip J. Collora,
Caroline Pearson and Maureen E. Kane and each of them, severally, or if more
than one acts, a majority of them, his/her true and lawful attorney and agent
to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall
have power to act with or without the other and have full power and authority
to do and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys
and agents and each of them.
<TABLE>
<S> <C> <C>
/s/ James E. Akins Trustee April 20, 1999
- ---------------------------
James E. Akins
Trustee
- ---------------------------
Arthur R. Gottschalk
/s/ Frederick T. Kelsey Trustee April 20, 1999
- ---------------------------
Frederick T. Kelsey
/s/ Thomas W. Littauer Trustee April 20, 1999
- ---------------------------
Thomas W. Littauer
Trustee
- ---------------------------
Kathryn L. Quirk
/s/ Fred B. Renwick Trustee April 20, 1999
- ---------------------------
Fred B. Renwick
/s/ Cornelia M. Small Trustee April 20, 1999
- ---------------------------
Cornelia M. Small
/s/ John G. Weithers Trustee April 20, 1999
- ---------------------------
John G. Weithers
</TABLE>
