<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities and Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
KLEINWORT BENSON AUSTRALIAN INCOME FUND, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3) Per unit price of other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
3) Filing Party:
-----------------------------------------------------------------------
4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
KLEINWORT BENSON AUSTRALIAN INCOME FUND, INC.
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111-4189
September 13, 1999
Dear Stockholders:
The Annual Meeting of Stockholders on October 15 will be a watershed event
for the Fund. As previously announced, your Board of Directors is recommending
that the stockholders approve a change in the Fund's investment mandate to
eliminate the requirement that the Fund invest primarily in Australian debt
securities and to permit the Fund to invest in a broad range of fixed-income
investment sectors on a global basis.
The rationale of the Fund when it commenced operations in 1986 was that it
was possible to achieve the Fund's objective of high income through investment
primarily in Australian debt securities because of the favorable yield
differential between high quality Australian and U.S. debt securities. This
yield spread has narrowed in recent periods to the point that your Board of
Directors believes the Fund can no longer achieve its historical favorable
yields under the current mandate.
After consideration of various alternatives, your Board of Directors has
concluded that the best way to achieve the Fund's primary objective of high
income is by expanding the Fund's available markets and asset classes to
encompass global investment, including investment in emerging markets and high
yield debt. Given the Fund's historical emphasis on investment in high quality
debt, the new investment mandate would, however, require that the
dollar-weighted average credit quality of the Fund's portfolio be investment
grade.
In addition to its recommendation to expand the Fund's investment mandate,
your Board of Directors also is recommending that Dresdner RCM Global Investors
LLC serve as the Fund's new investment adviser. Dresdner RCM and the Fund's
current Investment Advisor, Kleinwort Benson Investment Management Americas
Inc., are both subsidiaries of Dresdner Bank AG, an international banking
organization with principal offices in Frankfurt, Germany. With local centers in
North America, Europe and Asia and a worldwide staff of more than 170 investment
professionals, Dresdner RCM is optimally positioned to assist the Fund in the
achievement of its investment objectives. If stockholders approve these
proposals, the name of the Fund will be changed to "Dresdner RCM Global
Strategic Income Fund." This change will reflect the Fund's new global focus and
its important association with Dresdner RCM.
The details of the proposed change in the Fund's investment mandate and
other matters to be voted on at the meeting are set forth in the accompanying
proxy statement. Please read it carefully.
On behalf of your Board of Directors, I urge you to vote in favor of the
various changes in investment policy and the other matters proposed to you. Your
vote is very important.
[SIGNATURE]
Sir Robert Cotton
Chairman of the Board
YOU ARE URGED TO SIGN THE ENCLOSED PROXY AND MAIL IT IN THE ENCLOSED ENVELOPE TO
ASSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR
SHAREHOLDING.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
KLEINWORT BENSON AUSTRALIAN INCOME FUND, INC.
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111-4189
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
To Our Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Kleinwort Benson Australian Income Fund, Inc. (the "Fund") will be
held on October 15, 1999, at 10:00 a.m. at 75 Wall Street, 35th Floor, New York,
N.Y., for the following purposes:
(1) To amend the Fund's investment mandate and corresponding investment
policies and restrictions.
(2) To amend the Fund's investment restrictions on senior securities and
related restrictions on commodity contracts, margin and short sales.
(3) To amend the Fund's investment restriction to permit securities lending.
(4) To approve a new Investment Advisory Agreement between the Fund and
Dresdner RCM Global Investors LLC ("Dresdner RCM").
(5) To approve a Subadvisory Agreement among Dresdner RCM, Kleinwort Benson
Investment Management Americas Inc. and the Fund.
(6) To elect two Class II Directors, each to hold office for a term of three
years and until his successor is duly elected and qualified.
(7) To ratify the selection of PricewaterhouseCoopers LLP as Independent
Accountants for the Fund for the fiscal year ending October 31, 1999.
(8) To consider and act upon any other business that may properly come
before the Meeting or any adjournment thereof.
Stockholders of record at the close of business on August 16, 1999 will be
entitled to vote at the Meeting or any adjournment thereof.
Copies of the Fund's most recent Annual Report and any succeeding
Semi-Annual Report may be obtained without charge by stockholders who write or
call Robert J. Goldstein, c/o Kleinwort Benson Australian Income Fund, Inc.,
Four Embarcadero Center, San Francisco, CA 94111-4189, 1-800-227-5183.
By order of the Board of Directors,
[SIGNATURE]
Robert J. Goldstein
SECRETARY
September 13, 1999
San Francisco, California
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY
AND RETURN IT TO THE FUND'S TRANSFER AGENT. TO SAVE THE FUND THE ADDITIONAL
EXPENSE OF FURTHER SOLICITATION, PLEASE MAIL IN YOUR PROXY PROMPTLY.
<PAGE>
KLEINWORT BENSON AUSTRALIAN INCOME FUND, INC.
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111-4189
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 15, 1999
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished to the stockholders of KLEINWORT BENSON
AUSTRALIAN INCOME FUND, INC. (the "Fund"), in connection with the solicitation
by the Board of Directors of the Fund of proxies to be used at an Annual Meeting
of Stockholders of the Fund (the "Meeting") to be held at 10:00 a.m. on October
15, 1999 at 75 Wall Street, 35th Floor, New York, N.Y. The purpose of the
Meeting and the matters to be acted upon are set forth in the accompanying
Notice of Annual Meeting.
Stockholders of record at the close of business on August 16, 1999 (the
"Record Date") will be entitled to vote at the Meeting. If the accompanying form
of proxy is properly executed and returned, the shares represented thereby will
be voted at the Meeting. Any stockholder giving a proxy will have the power to
revoke it by notice in writing received by the Secretary of the Fund, c/o
Dresdner RCM Global Investors LLC, Four Embarcadero Center, San Francisco, CA
94111-4189, prior to the exercise of such proxy at the Meeting. Also, any
stockholder attending the Meeting may vote in person whether or not the
stockholder has previously filed an executed proxy. Each proxy will be voted in
accordance with the directions given thereon by the stockholder. If no specific
directions to the contrary are given, a proxy will be voted "FOR" the matters
specified on the proxy card.
Approval of each of Proposal Nos. 1 through 5 requires the affirmative vote
of a "majority of the outstanding voting securities" of the Fund. The term
"majority of the outstanding voting securities" as defined in the Investment
Company Act of 1940 (the "1940 Act") and as used in this proxy statement, means
the affirmative vote of the lesser of (1) 67% of the shares of the Fund present
at the Meeting if more than 50% of the outstanding shares of the Fund are
present in person or by proxy or (2) more than 50% of the outstanding shares of
the Fund (a "1940 Act Majority Vote"). Approval of each of Proposal Nos. 6 and 7
requires the affirmative vote of a majority of the shares cast at the Meeting.
The Fund intends to treat properly executed proxies that are marked
"abstain" and broker non-votes (defined below) as present for purposes of
determining the existence of a quorum for the transaction of business. A quorum
for the Meeting will consist of one-third of the shares outstanding. Under
Maryland law, abstentions do not constitute a vote "for" or "against" a matter
and will be disregarded in determining the "votes cast" on an issue. If a proxy
is properly executed and returned accompanied by instructions to withhold
authority to vote, it represents a broker "non-vote" (that is, a proxy from a
broker or nominee indicating that such person has not received instructions from
the beneficial owner or other person entitled to vote shares on a particular
matter with respect to which the broker or nominee does not have discretionary
power). Because of the affirmative votes required for Proposal Nos. 1 through 5,
abstentions and broker non-votes will have the same effect as votes "against"
such Proposals. The Fund does not anticipate receiving any broker non-votes with
respect to Proposal Nos. 6 and 7.
1
<PAGE>
In the event that a quorum is not represented at the Meeting or, even if a
quorum is so represented, in the event that sufficient votes in favor of any
proposal set forth in the Notice of Meeting are not received prior to the
Meeting, the persons named as proxies may, but are under no obligation to, with
no other notice than announcement at the Meeting, propose and vote for one or
more adjournments of the Meeting in order to permit further solicitation of
proxies with respect to such proposal. The Meeting may be adjourned with respect
to one or more of the proposals in the Proxy Statement, and a stockholder vote
may be taken on the other proposals prior to any adjournment if sufficient votes
have been received for its approval. Shares represented by proxies indicating a
vote against a proposal will be voted against adjournment as to that proposal.
On September 8, 1999 there were 11,954,566 outstanding shares of the Fund.
On such date, no person to the knowledge of the Fund owned 5% or more of the
outstanding shares of the Fund. Each share or fractional share outstanding on
the Record Date will be entitled to one vote or fractional vote at the Meeting.
The Investment Advisor of the Fund is Kleinwort Benson Investment Management
Americas Inc., Four Embarcadero Center, San Francisco, CA 94111, and the
Administrator of the Fund is Dresdner RCM Global Investors LLC, Four Embarcadero
Center, San Francisco, CA 94111.
The cost of preparing, printing, and mailing proxy materials in connection
with this solicitation will be borne by the Fund. In addition to the use of the
mails, proxies may be solicited personally by regular employees of the Fund or
the Investment Advisor by telephone or telegraph. The Fund may also solicit
proxies in the form of a telephonic proxy or "proxygram." In such event,
beneficial and record stockholders will receive mailgrams from the Fund
requesting each stockholder who wishes to vote by proxygram to call the
toll-free telephone number provided, furnish the operator with specified
information regarding the stockholder and the shares to be voted, and instruct
the operator how the stockholder wishes to vote on the proposals described in
this Proxy Statement. The operator will then electronically transmit the
stockholder's voting instructions to the designated broker, depository
institution, or other holder with actual voting authority, which then will vote
shares held of record by returning a signed proxy card. The operators who
receive the foregoing voting instructions will be independent of the Fund.
Brokerage houses, banks, and other fiduciaries may be requested to forward proxy
solicitation material to their principals to obtain authorization for the
execution of proxies, and they will be reimbursed by the Fund for out-of-pocket
expenses incurred in this connection. The Fund has also made arrangements with
Georgeson & Company Inc. to assist in the solicitation of proxies, if called
upon by the Fund, at an aggregate estimated fee of approximately $24,000 plus
reimbursement of normal expenses.
Proxies should be returned to the Fund's Transfer Agent, EquiServe, in the
enclosed envelope. This Proxy Statement and accompanying form of proxy are first
being sent to stockholders on or about September 13, 1999.
Copies of the Fund's most recent Annual Report and any succeeding
Semi-Annual Report may be obtained without charge by stockholders who write or
call Robert J. Goldstein, c/o Kleinwort Benson Australian Income Fund, Inc.,
Four Embarcadero Center, San Francisco, CA 94111-4189, 1-800-227-5183.
2
<PAGE>
PROPOSAL NO. 1: AMENDMENT OF THE FUND'S INVESTMENT MANDATE
AND CORRESPONDING INVESTMENT POLICIES AND RESTRICTIONS
BACKGROUND
The Fund's principal investment objective since its inception in 1986 has
been "high income through investment primarily in Australian dollar denominated
debt securities of Australian issuers." This means that under normal
circumstances at least 65% of its assets must be invested in such securities.
Long-term capital appreciation through such investment is a secondary objective
of the Fund. For many years, the Fund successfully achieved its investment
objective because of the favorable yield differential between high quality
Australian debt instruments and comparable U.S. issues. However, more recently,
this yield spread has narrowed making it increasingly difficult for the Fund to
fulfill its primary objective of providing stockholders with high current income
in excess of the yields currently available on comparable investments in the
U.S. Further, the Fund's income stream has been affected by the Fund's exposure
to currency risk resulting from changes in the currency exchange rates of the
Australian dollar and, to a lesser extent, the New Zealand dollar, relative to
the U.S. dollar. These currency exchange rates have, at times, detrimentally
affected the U.S. dollar value of the Fund's assets, the Fund's yield and the
amount of securities required to be liquidated to meet distribution
requirements.
Since the Fund's inception, there has been a globalization of the financial
markets and a greater harmonization of economic and monetary policies around the
world. As a result, the opportunity to invest in overseas fixed income markets
of the high credit standing sought by the Fund with the aim of producing a
higher return than that available in the U.S. has virtually disappeared. These
factors, and others, have compromised the ability of the Fund to continue to
provide stockholders with high current income by means of investing primarily in
Australian dollar denominated debt securities rated exclusively AA or above.
BOARD DELIBERATIONS; PROPOSED NEW MANDATE
Over the past year, the Board of Directors (the "Board") has been
considering the possible expansion of the Fund's investment policies. The
objective of these discussions was to find the most appropriate means of
enhancing stockholder value by improving the level and sustainability of the
Fund's income, reducing volatility and stabilizing the Fund's total return.
These discussions culminated in the Board's formally requesting an in-depth
study from Kleinwort Benson Investment Management Americas Inc. (the "Investment
Advisor") of the various alternatives available to fulfill these objectives
within reasonable risk parameters.
The Investment Advisor presented a preliminary report to the Board at its
meeting held on December 4, 1998. At this meeting, the Board approved the
formation of an Ad Hoc Committee comprised of the U.S.-based directors to work
closely with the Investment Advisor to develop a plan designed to improve
stockholder value. Several variations of the Investment Advisor's proposal
contained in its initial report were considered at a telephonic meeting of the
Ad Hoc Committee held on May 24, 1999. At a Board meeting on May 27, 1999,
further discussions were held regarding the details of the proposal, and a
special meeting of the Board and the Ad Hoc Committee was called for July 20,
1999 (the "Special Joint Meeting") to have a definitive proposal presented for
consideration and, if appropriate, approval.
In advance of the Special Joint Meeting, the Investment Advisor distributed
to the members of the Ad Hoc Committee and the Board the details of the proposal
to change the Fund's investment mandate. The
3
<PAGE>
proposal called for changes that would permit the Fund to invest, subject to
certain limitations, in countries and in investment sectors where opportunities
for meeting the Fund's primary investment objective of high current income were
expected to be the most attractive (the "New Mandate"). The Investment Advisor
indicated that, in its view, providing the Fund with the flexibility to invest
in a broad range of global fixed-income sectors (including emerging market and
high yield bonds), while maintaining an overall investment grade portfolio
quality, would provide the Fund with the best opportunity to deliver a higher
and more sustainable source of income to its stockholders. Under the New
Mandate, the Fund's investments would be allocated among debt securities of
issuers in three separate investment sectors: the U.S., developed foreign
markets, and emerging markets. It was also recommended that the Fund be
permitted to invest in high-yield bonds. "Emerging markets" would be defined as
those countries included in the JP Morgan Emerging Market Bond Index Plus.
Except as otherwise limited by the credit quality and concentration limits
described below, there would be no minimum portfolio concentration requirements
with respect to these investment sectors.
Under the New Mandate, the Fund's investment adviser would strategically
adjust the Fund's relative allocations among these sectors to attempt to take
advantage of diverse global opportunities for current yield and, secondarily,
capital appreciation, based on the Fund's evaluation of the different yield,
risk, and return characteristics that investment in the fixed income markets of
different countries may provide for the Fund's stockholders. Within each
investment sector, the Fund would select securities of particular issuers based
on the investment adviser's views as to the best values then currently available
in the marketplace. These values are a function of, among other things, yield,
maturity, issue classification, liquidity, variability of weighted average life,
credit quality, and opportunity for capital appreciation, coupled with
expectations regarding local and world economies, movements in the general level
and term of interest rates, currency values, prepayment rates, political
developments and variations in the supply of funds available for investment in
the world bond market relative to the demands placed upon it.
The Board was also presented with the global investment credentials of
Dresdner RCM Global Investors LLC ("Dresdner RCM"), an affiliate of the
Investment Advisor that is also a subsidiary of Dresdner Bank AG, an
international banking organization with principal offices in Frankfurt, Germany.
Dresdner RCM presented to the Board its significant global resources and
expertise across a broad range of fixed income asset classes, including emerging
markets and high-yield bonds. Dresdner RCM represented to the Board that it was
the organization within the Dresdner Bank Group of companies best able to
deliver enhanced value to the Fund's stockholders under the New Mandate. If the
New Mandate is approved by stockholders, the name of the Fund will be changed to
"Dresdner RCM Global Strategic Income Fund" to reflect the Fund's global rather
than Australian focus and its new association with Dresdner RCM.
At the Special Joint Meeting, the Ad Hoc Committee determined to recommend
to the Board for presentation to stockholders the amendment of the Fund's
investment objectives and corresponding investment policies and restrictions set
forth in more detail below. ALL DIRECTORS PRESENT AT THE SPECIAL JOINT MEETING,
WHICH INCLUDED A MAJORITY OF THE INDEPENDENT DIRECTORS, DECIDED TO RECOMMEND TO
THE FUND'S STOCKHOLDERS THAT THE FUND'S INVESTMENT OBJECTIVES AND CORRESPONDING
INVESTMENT POLICIES AND RESTRICTIONS BE AMENDED AS SET FORTH IN THIS PROPOSAL
NO. 1 IN ORDER TO ENABLE THE FUND TO INVEST ACROSS A BROAD RANGE OF GLOBAL FIXED
INCOME ASSET SECTORS IN THE U.S, DEVELOPED FOREIGN MARKETS AND EMERGING MARKETS.
4
<PAGE>
CORRESPONDING INVESTMENT POLICIES AND RESTRICTIONS
The New Mandate cannot be implemented without amendment of certain
investment policies and restrictions that were appropriate to the Fund's current
investment objective of "investment primarily in Australian dollar denominated
debt securities of Australian issuers." The amendments of these policies and
restrictions described below are an essential and integral part of the shift
from an Australian-centered investment mandate to the global investment strategy
described above, including investment in high yield bonds and emerging market
debt, while mandating an overall investment grade quality portfolio. For this
reason, all of these amendments are presented as an integrated whole in this
Proposal No. 1.
As part of this Proposal No. 1, the Investment Advisor also proposed to the
Board that the Fund's current policy of limiting its investments to issuers or
debt securities rated AA or above be amended to take account of the high-yield
and emerging market components of the New Mandate. In particular, it was
recommended that the credit quality requirement of the Fund be amended to
require the Fund to maintain a dollar-weighted average portfolio quality of
investment grade. Investment grade bonds would be those rated BBB or better by
Standard & Poor's ("S&P") or Baa or better by Moody's Investors Service, Inc.
("Moody's") or unrated bonds deemed by the Investment Advisor to be of
comparable quality. See Appendix A for a description of S&P's and Moody's rating
categories. In addition to the credit quality parameters, this Proposal No. 1
provides that the Fund be permitted to invest no more than 10% of its total
assets in any one sovereign issuer rated below AA or Aa, no more than 5% of its
total assets in any one non-sovereign issuer and no more than 10% of its total
assets in issuers in any one emerging market country. "Sovereign issuers" are
entities that are government or semi-government related. "Non-sovereign issuers"
are all other issuers.
This Proposal No. 1 also provides that the Fund's investments will be
denominated primarily in the U.S. dollar with the Fund being permitted to invest
no more than 25% of its total assets in non-U.S. dollar denominated securities,
no more than 10% of its total assets in securities denominated in the currencies
of emerging market countries and no more than 5% of its total assets in
securities denominated in any one emerging market country currency. The
Investment Advisor believes that concentrating the Fund's investments in U.S.
dollar denominated securities will provide greater stability of income in U.S.
dollars and will limit the administrative expense and the complexities of
operating in local currency markets. However, in the event that there are
attractive investment opportunities in securities denominated in local
currencies, Proposal No. 1 also provides the Fund the flexibility to invest up
to 25% of its total assets in non-U.S. dollar denominated securities.
The policies with respect to portfolio credit quality and all of the
percentage limitations on investments described above would be required to be
met at the time of investment. The Fund would not be required to divest
investments for failure to meet any of these requirements as a result of market
factors subsequent to investment, unless the Investment Advisor deemed it
appropriate to do so.
TAX ISSUES
The New Mandate would necessitate a restructuring of the Fund's portfolio.
This process, depending upon the fiscal year or years in which it occurs, will
have certain related tax consequences that may impact the character of the
dividends paid by the Fund. The broader investment in non-U.S. denominated
securities and the higher turnover rate expected under the New Mandate may have
a similar impact on an ongoing basis.
5
<PAGE>
For U.S. Federal income tax purposes, substantially all of the Fund's
transactions are currently accounted for through a qualified business unit
("QBU") that uses the Australian dollar ("A$") as its functional currency. In
general, as a result of the Fund's use of the A$ as its functional currency, the
Fund does not at present recognize gain or loss due to currency fluctuations
related to purchases and sales of securities denominated in the A$. While
transactions in securities denominated in the New Zealand dollar have involved
currency gains or losses against the A$, the Fund's functional currency for tax
purposes, the limited trading and turnover in these securities has not resulted
in significant currency gains or losses to the Fund. Under the New Mandate, it
is expected that the Fund would have a higher portfolio turnover rate and that
currency gains and losses, with respect to transactions in non-U.S. dollar
denominated securities, would be a more significant factor than under the
current mandate. Currency gains or losses are treated for U.S. Federal income
tax purposes as ordinary income or ordinary loss, which may increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to its stockholders. Net currency losses in any fiscal year reduce
the amount of ordinary income generated by the Fund which, in turn, reduces the
amount distributable as ordinary income dividends. As the net currency losses in
any fiscal year, if any, will not be known until the end of the year, these
losses may result in all or a portion of ordinary income dividend distributions
paid during the course of the year being recharacterized as a non-taxable return
of capital to stockholders. Conversely, net currency gains will increase the
amount of ordinary income, taxable at ordinary income rates, required to be
distributed to stockholders.
The transfer of the Fund's assets to the U.S. dollar ("US$") home office
QBU, whether completed immediately or over a period of time, will have certain
currency gain or loss implications. The transfer of the Fund's assets from the
A$ QBU to the US$ QBU would result in the recognition of currency gains or
losses, which are treated as ordinary income or loss. For example, if a transfer
of all the Fund's assets had been effected at July 31, 1999, the Fund would have
recognized currency losses of US$8,093,446. This would have resulted in a
corresponding amount of ordinary income dividends previously paid in the fiscal
year ending October 31, 1999 as being recharacterized as a non-taxable return of
capital to stockholders. The transfer of the Fund's assets in fiscal year 2000
or later would result in the recognition of currency losses or gains at the time
of transfer. In the case of losses being recognized, this could have the effect
of recharacterizing ordinary income dividends paid during such year as
non-taxable returns of capital.
BOARD CONSIDERATIONS
The Board and the Ad Hoc Committee conducted a review of the following
matters before deciding to recommend the New Mandate to stockholders and, in
connection with such approval, that the Fund's corresponding investment policies
and restrictions be amended.
The Board relied heavily on the data contained in the report prepared by the
Investment Advisor. Several factors were noted in the report that indicated, in
the opinion of the Investment Advisor, that a significant potential for yield
enhancement existed by combining a cross-section of asset sectors within the
Fund's overall investment mix. The Board considered, in this regard, the
relatively low yield of Australian fixed income securities and the recent
relatively high volatility of Australian currency translations back into U.S.
dollars and the benefits of the imperfect correlation between yield returns of
Australian and non-Australian bonds.
The Board took into account the advice of the Investment Advisor that there
are significant advantages in combining the following multi-currency asset
sectors, in varying degrees and at varying times:
6
<PAGE>
U.S. Government/Mortgages/Corporate Bonds
Global Government Bonds - Hedged
Global Government Bonds - Unhedged
High Yield Bonds (Global)
Emerging Market U.S. Dollar Bonds
Emerging Market Local Currency Bonds
Each of these asset sectors was evaluated by the Investment Advisor and
presented to the Board in terms of historical return, current income yield,
historical volatility, source of volatility, default rates,
representative/expected turnover and ease of investment. Various combinations of
asset sectors were considered taking into account the Fund's overall portfolio
volatility, portfolio turnover rate, foreign exchange risk, and correlations
between asset sectors.
The Investment Advisor presented a number of characteristics of various
combinations of the investment classes permitted under the New Mandate as
compared to a 100% Australian high quality bond portfolio, in each case as
represented by the characteristics of market indices of these investment
classes. These combinations of market indices showed that for the 12 months
ended March 31, 1999, those consisting of a combination of the asset classes
permitted under the New Mandate would have provided yields of 8.57% to 9.14%, as
compared to 6.96% for a 100% high quality Australian bond index. If the use of
30% leverage, as recommended in Proposal No. 2, were added to the performance of
the combinations of indices under the New Mandate, the yields for this period
would have increased to 9.40% to 10.12%. There can, of course, be no assurance
that these yield differences will be achieved in the future.
The Board took into consideration the expertise and experience of Dresdner
RCM in investing across the key components of a global strategic income fund,
particularly in emerging markets and high-yield debt securities. The Board
reviewed the investment process that Dresdner RCM intends to use across each of
the investment sectors and the professional background and experience of the
team that would work to help the Fund successfully achieve its investment
objectives. The Board was cognizant of the fact that the Fund's ability to
invest across a broad range of asset sectors, especially emerging market bonds
and high-yield bonds with below investment grade credit ratings, might expose
the Fund to greater interest rate risk, credit risk, political and economic risk
and liquidity risk, than is currently the case. However, the Board noted that
Dresdner RCM's global resources and expertise would be a critical element to the
evaluation of investments in these sectors with a view toward minimizing risk
while obtaining higher returns than those achievable under the Fund's current
investment mandate. The Board also took into consideration that the New Mandate
provided for an investment grade dollar-weighted average portfolio quality,
thereby maintaining the overall investment-grade character of the Fund. Appendix
B further describes the risks associated with investment in foreign debt in
general and emerging market and high-yield bonds in particular. The Board also
considered the impact of currency rate fluctuations on the Fund's income under
its present mandate and noted that requiring the Fund to invest the majority of
its assets in U.S. dollar denominated securities would be an effective means of
stabilizing the Fund's future income stream. Furthermore, the Board consulted
with the Fund's independent accountants, PricewaterhouseCoopers LLP, regarding
the tax implications of the New Mandate and the options available to manage the
Fund effectively, from a tax perspective, during its transition to a strategic
global income fund and thereafter.
The Board took into consideration a number of alternative means of achieving
the objectives of the New Mandate, including the possibility of merging with
another closed-end or open-end investment company managed by Dresdner RCM or
another investment manager. In approving the New Mandate
7
<PAGE>
rather than these alternatives, the Board took into account, among other things,
the need of the Fund to operate in closed-end form in view of the proposed use
of leverage to enhance yield under the New Mandate, as set forth in Proposal No.
2, and the relative illiquidity of emerging markets securities. The Board also
considered the time and costs associated with finding an appropriate merger
partner as compared to the benefits of continuing to be managed by the Dresdner
Bank group of companies with the expertise demonstrated to the Board. The Board
concluded that the objectives of Proposal No. 1 could best be achieved under
current investment management and the proposed amendments to the investment
mandate.
PROPOSED AMENDMENTS
To implement the New Mandate, the Board has approved and recommends to
stockholders the following amendments to the Fund's fundamental investment
objectives and corresponding investment policies and restrictions.
Currently, the Fund's "principal investment objective is high income through
investment primarily in Australian dollar denominated debt securities of
Australian issuers. Long-term capital appreciation through such investment is a
secondary objective of the Fund." These investment objectives are "fundamental,"
which means that they may not be amended without a 1940 Act Majority Vote.
Accordingly, it is proposed that the Fund's principal investment objective,
which would remain fundamental, be amended to read as follows:
"The Fund's principal investment objective is high income through global
investment in debt securities."
The secondary investment objective of long-term capital appreciation would
remain unchanged.
As stated in the Fund's current 1940 Act registration statement, certain
limitations on investments corresponding to the Fund's current Australian
mandate are also fundamental policies. Due to the proposed change of the Fund's
principal investment objective, it is proposed that the following fundamental
policy:
"Normally at least 65% of the Fund's total assets are invested in Australian
dollar denominated debt securities of Australian banks, federal and state
governmental entities and corporations. To achieve its investment
objectives, the Fund may invest the remainder of its assets in debt
securities denominated in Australian or New Zealand dollars of other
issuers, whether or not Australian or New Zealand issuers. The Fund invests
only in debt securities for which there is an active secondary market and
does not purchase securities for which there would be any legal restrictions
on sale or disposition by the Fund. The Fund does not invest in convertible
debt securities. During periods when, in the Investment Advisor's judgment,
changes in the market for Australian and New Zealand debt securities or
other economic conditions warrant a temporary defensive investment policy,
the Fund may temporarily reduce its position in such securities and invest
in U.S. Treasury securities."
be conformed to the proposed investment objective, remain a fundamental policy
and be amended to read as follows:
"To achieve its investment objectives, the Fund may invest in debt
securities across a broad range of fixed-income investment sectors in the
U.S., developed foreign markets and emerging markets. The Fund is not
required to maintain a minimum or maximum allocation of investments in any
one of these investment sectors. The Fund's investments will be denominated
in the U.S. dollar, except that the Fund may invest up to 25% of its total
assets at the time of investment in non-U.S. dollar
8
<PAGE>
denominated securities, with no more than 10% of its total assets at the
time of investment in securities denominated in the currencies of emerging
market countries and no more than 5% of its total assets at the time of
investment in securities denominated in any one emerging market country
currency. "Emerging market countries" are defined as those countries
included in the J.P. Morgan Emerging Market Bond Index Plus from time to
time or, if this index is no longer available, any other recognized source
selected by the Board of Directors of the Fund."
Investment in foreign debt securities involves special risks. Generally, there
is less information available about foreign issuers and less stringent
regulatory practices and requirements than those applicable to U.S. issuers. The
possibility also exists of political instability, expropriation or
nationalization of assets, revaluation of currencies, confiscatory taxation,
limitations on foreign investment and the use or removal of funds (including the
withholding of dividends and limitations on the repatriation of currencies).
Foreign securities denominated in local currencies are also subject to foreign
exchange risk. There are also special additional risks associated with emerging
market debt investment. The securities markets of emerging market countries are
smaller, less developed and more volatile than those of the U.S. and developed
foreign markets. In addition, many emerging market countries have experienced
high rates of inflation and are highly dependent on international trade.
Governments of emerging market countries exercise significant control over the
economies of such countries, which could adversely affect issuers in those
countries or limit the amount of foreign currency reserves available for
external debt payments. See Appendix B for a more detailed description of the
risks associated with foreign and emerging market debt investment.
As a related change to enhance the Fund's potential for greater yield, the
Board determined that, subject to stockholder approval, it is desirable for the
Fund to have authority to invest in high yield debt, including debt of issuers
in emerging market countries. Because emerging market debt is typically rated
below "investment grade," such exposure necessitates an amendment to the current
credit rating requirements. The current credit rating standards are as follows:
"It is the Fund's policy to limit all its investments to issuers or debt
securities rated AA or better at the time of investment by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation (S&P-Australian
Ratings) or which, in the judgment of the investment adviser, are of
equivalent quality."
Due to practical necessity, the Board is now proposing a relaxation of these
credit standards, but with the addition of certain percentage limitation tests
as countervailing safeguards. The foregoing credit rating policy is proposed for
amendment as follows:
"It is a fundamental policy of the Fund to maintain a dollar-weighted
average portfolio quality of investment grade based on ratings of Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P")
(or, in the case of securities or issuers not rated by Moody's or S&P,
judged by the investment adviser to be of equivalent quality), measured at
the time of investment; provided, however, that no more than 10% of the
Fund's total assets at the time of investment will be invested in any one
sovereign issuer rated below AA by S&P or Aa by Moody's (or, in the case of
securities or issuers not rated by Moody's or S&P, judged by the investment
adviser to be of equivalent quality)."
Securities which bear the lowest investment grade ratings of BBB from S&P or Baa
from Moody's may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
of their issuers to make principal and interest payments than is the
9
<PAGE>
case with higher grade securities. Non-investment grade debt securities are
considered to have speculative characteristics and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than higher-quality
securities and may decline significantly in periods of general or regional
economic difficulty. See Appendix A "Bond Ratings" for a more detailed
description of the various ratings and Appendix B for a more detailed discussion
of the risks involved in non-investment grade debt investments.
As part of the New Mandate, it is now being proposed that the Fund's
fundamental policy that reads:
"As a non-diversified company, there is no investment restriction on the
percentage of the Fund's total assets that may be invested at any time in
the securities of any issuer other than the diversification requirements
applicable to regulated investment companies under the U.S. Internal Revenue
Code.
However, the Fund intends to limit its investments in the securities of any
issuer, except for the Australian or New Zealand government or governmental
entities or semi-governmental entities, to 5% of its total assets at the
time of purchase. Subject to the diversification requirements of the U.S.
Internal Revenue Code, the Fund invests more than 25% of its total assets in
debt securities of the Australian government or governmental entities or
semi-governmental entities denominated in Australian dollars and may invest
up to 25% of its total assets at the time of purchase in debt securities of
the New Zealand federal and state government or governmental entities."
be conformed to the proposed investment objective, remain a fundamental policy
and be amended to read as set forth below:
"As a non-diversified company there is no investment restriction on the
percentage of the Fund's total assets that may be invested at any time in
the securities of any issuer other than the diversification requirements
applicable to regulated investment companies under the U.S. Internal Revenue
Code. As a matter of fundamental policy, however, the Fund may invest, at
the time of investment, no more than: (i) 5% of its total assets in any one
non-sovereign issuer; and (ii) 10% of its total assets in issuers of any one
emerging market country."
Similarly, it is proposed that the Fund's current fundamental investment
restriction regarding concentration, which provides that the Fund may not:
"Invest more than 25% of its total assets at the time of purchase in any one
industry (including banking) except that the Fund will invest more than 25%
of its total assets in securities issued by the Australian government or
governmental entities or semi-governmental entities. U.S. Treasury
securities are excluded from this restriction."
remain a fundamental policy, but be amended to state that the Fund may not:
"Invest more than 25% of its total assets at the time of investment in any
one industry (including banking). U.S. Treasury securities are excluded from
this restriction."
REQUIRED VOTE
Proposal No. 1 requires approval by a 1940 Act Majority Vote. If Proposal
No. 1 is not approved, the Fund will continue to operate under its current
investment mandate.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 1.
10
<PAGE>
PROPOSAL NO. 2: AMENDMENTS TO THE FUND'S INVESTMENT RESTRICTIONS ON
SENIOR SECURITIES AND RELATED RESTRICTIONS ON COMMODITY
CONTRACTS, MARGIN AND SHORT SALES.
While not part of the integrated New Mandate set forth in Proposal No. 1,
the Investment Advisor recommended to the Board of Directors the use of leverage
in various forms to enhance current yield. As part of its presentation at the
Special Joint Meeting, the Investment Advisor presented "model portfolios" based
on securities indices representing the various asset classes included in the New
Mandate that showed historical yields of the model portfolios with and without
leverage. See Proposal No. 1-- "Board Deliberations; Proposed New Mandate." The
Board is recommending that the Fund be permitted to borrow in an aggregate
amount up to 30% of the Fund's total assets (including the amount borrowed) less
all liabilities and indebtedness other than bank or other borrowings and to
pledge its assets to secure any borrowings. The Fund could also borrow up to an
additional 5% of its total assets for temporary purposes, such as the clearance
and settlement of portfolio transactions. In addition to borrowings, on a
secured or unsecured basis, the Fund may utilize leverage through investments or
investment techniques that may involve the issuance of senior securities. These
include the purchase and sale of derivatives, such as futures contracts, options
and swaps, and reverse repurchase agreements and short sales. To the extent that
the Fund does not segregate cash, U.S. Government securities or other liquid
high grade debt securities in an amount equal to the Fund's obligations under
such investments or investment techniques, these obligations will be considered
senior securities subject to the 30% limit on borrowings described above. As
more fully described in Appendix B, these investments and investment techniques
may also be used for other purposes, including the use of futures contracts and
options for currency hedging, which would involve investment in commodity
contracts not permitted by the Fund's current investment policy. The use of
leverage, derivatives and short sales as described herein will be subject to
policies and procedures established by the Board from time to time. Markets for
certain of these investments, such as futures contracts, would require the
deposit by the Fund of initial margin in cash or U.S. Treasury bills of up to 5%
of the contract amount in the case of futures contracts plus the payment of
variation margin based on a marking-to-market process as the value of the
contract fluctuates.
The use of leverage through various means, including borrowings, the
purchase and sale of derivatives, and short sales, involves certain risks. For
example, interest costs of borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the return earned on the borrowed
funds. Leverage may result in higher volatility in the Fund's net asset value
and market value and create increased risk of capital loss. In addition,
successful use of derivative and short sales transactions are subject to the
Investment Advisor's ability to predict correctly the direction of the
securities markets. While the Fund may benefit from the use of derivative and
short sales transactions, unanticipated changes in interest rates, securities
prices, or currency exchange rates may result in less favorable overall
performance than if the Fund had not entered into these transactions. Losses
from the use of certain derivatives and engaging in uncovered short sales
transactions are potentially unlimited. In addition, the ability to close out
positions in various derivatives depends on the availability of a liquid
exchange market or the creditworthiness of counterparties in over-the-counter
transactions. For a more detailed description of certain of the instruments and
techniques that the Fund currently proposes to use and their associated risks,
see Appendix B.
For the Fund to engage in these strategies, certain of the Fund's
fundamental investment restrictions need to be amended. These proposed
amendments are described in this Proposal No. 2, and all amended investment
restrictions would continue to be fundamental policies of the Fund.
11
<PAGE>
It is proposed that the Fund's borrowing and pledging restriction, which
currently states that the Fund may not:
"Issue senior securities or borrow money or pledge its assets, except that
the Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount borrowed) and
will not make additional investments while any such borrowings are
outstanding."
be amended to provide that the Fund may not:
"Issue senior securities or borrow money, except that the Fund may issue
senior securities and borrow money, on a secured or unsecured basis, in an
amount, at the time of borrowing or investing, up to 30% of the Fund's total
assets (including the amount borrowed), less all liabilities and
indebtedness other than bank or other borrowings and may use the proceeds of
such senior securities or borrowings for investment purposes. In addition,
the Fund may borrow for temporary or emergency purposes an amount up to 5%
of the Fund's total assets (not including the amount borrowed)."
It is also proposed that the Fund's current investment restriction that
states that the Fund may not:
"Buy or sell commodities, commodity contracts, real estate or interests in
real estate."
be amended to provide that the Fund may not:
"Purchase or sell real estate or interests in real estate (other than
mortgage-related securities), commodities or commodity contracts, except
that the Fund may invest in futures contracts, options thereon and options
on currencies."
It is also proposed that the Fund's margin restriction, which now reads that
the Fund may not:
"Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions."
be amended to read as follows:
"Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions. For purposes of this
restriction, the deposit or payment by the Fund of securities and other
assets in escrow or collateral agreements with respect to initial or
variation margin in connection with futures contracts or options will not be
deemed to be a purchase of securities on margin."
It is also proposed that the investment restriction that now states that the
Fund may not:
"Make short sales of securities or maintain a short position."
be amended to provide that the Fund may not:
"Make short sales of securities or maintain a short position if the market
value of all securities sold short exceeds 25% of the value of the Fund's
total assets."
REQUIRED VOTE
Proposal No. 2 requires approval by a 1940 Act Majority Vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 2.
Appendix C sets forth the text of the Fund's fundamental investment
objectives, investment policies and investment restrictions as they would be
amended if Proposal Nos. 1 and 2 were approved.
12
<PAGE>
PROPOSAL NO. 3: AMENDING THE FUND'S INVESTMENT RESTRICTION
TO PERMIT SECURITIES LENDING
Securities lending is a strategy commonly used to enhance the income of
investment companies. The Investment Advisor believes that opportunities for
securities lending currently exist in the global debt securities markets,
potentially permitting the Fund to generate incremental income to stockholders.
Currently, the Fund has a fundamental investment restriction prohibiting loans,
except that the Fund may purchase publicly traded debt securities consistent
with the Fund's investment policies. The Fund's Investment Advisor has
recommended, and the Board has approved, that a change be made to permit the
Fund to lend the Fund's portfolio securities to the extent permitted by the 1940
Act and policies and procedures established by the Board from time to time.
If this proposal is approved by stockholders, the Fund may lend portfolio
securities to creditworthy U.S. and foreign brokers, dealers and banks that are
recommended by the Fund's investment adviser and approved by the Fund's Board
from time to time. The Fund will not lend securities to the Fund's investment
advisers or any of their affiliates, unless the Fund has applied for and
received specific authority to do so from the Securities and Exchange Commission
(the "SEC"). The Fund's loans of securities will be collateralized as required
by the SEC, by cash or cash equivalents, letters of credit or U.S. government
securities. The cash or instruments collateralizing the Fund's loans of
securities will be maintained at all times in a segregated account with the
Fund's custodian, or with a designated sub-custodian, in an amount at least
equal to the current market value of the loaned securities. From time to time,
the Fund may pay a part of the interest earned from the investment of collateral
received for securities loaned to the borrower and/or a third party that is
unaffiliated with the Fund and is acting as a "finder" (unless the SEC permits
affiliated persons to serve as "finders").
Whenever the Fund loans securities, it will comply with conditions
established by the SEC, which conditions currently include: (1) the Fund must
receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) voting rights on the loaned securities may pass to the borrower provided
that, if a material event adversely affecting the investment in the loaned
securities occurs, the Fund must terminate the loan and regain the right to vote
the securities. As with any lending arrangement, there are risks of delay in
recovery and in some cases, loss of rights in the collateral should the borrower
of the securities fail financially. There are additional risks with respect to
international lending. Although the Investment Advisor believes that soon after
entering into the securities lending transaction most collateral will be
transferred to the Fund's domestic custodian, should collateral be maintained by
a foreign subcustodian, there could be additional delays in recovering such
collateral. Further, should the Fund have difficulty in recovering securities
that are called, the Fund may be required to buy the same securities at market
price to cover its delivery obligations.
Accordingly, it is proposed that the Fund's lending restriction, which
provides that the Fund may not:
"Make loans (except for the purchase of publicly traded debt securities
consistent with the Fund's investment policies)."
13
<PAGE>
be amended to provide that the Fund may not:
"Make loans. This restriction does not apply to: (a) the purchase of
publicly traded debt securities consistent with the Fund's investment
objectives and policies (including participation interests in such
securities); and (b) loans of the Fund's portfolio securities."
REQUIRED VOTE
Proposal No. 3 requires approval by a 1940 Act Majority Vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 3.
PROPOSAL NO. 4: APPROVING A NEW INVESTMENT ADVISORY AGREEMENT
WITH DRESDNER RCM GLOBAL INVESTORS LLC
The Fund's stockholders are being asked to approve an Investment Advisory
Agreement (the "New Investment Advisory Agreement") between the Fund and
Dresdner RCM, pursuant to which Dresdner RCM will be the Fund's investment
adviser and administrator. The Fund's stockholders are also being asked to
approve a subadvisory agreement (the "Subadvisory Agreement") among Dresdner
RCM, Kleinwort Benson Investment Management Americas Inc. ("KBIMA" or the
"Subadvisor") the Fund's current investment adviser, and the Fund (see Proposal
No. 5). (The New Investment Advisory Agreement and the Subadvisory Agreement are
sometimes hereinafter referred to collectively as the "New Agreements"). As
explained in further detail below, the New Agreements are intended to reflect
the expanded global investment expertise and resources that will be dedicated to
the Fund under the New Mandate. The New Agreements will not change the rate of
fees that the Fund is currently paying for both investment advisory and
administrative services.
Currently, the Fund has an investment advisory agreement with KBIMA (the
"Existing Investment Advisory Agreement"), which provides for both advisory and
administration services. KBIMA has in turn entered into a sub-administration
contract with Dresdner RCM (the "Sub-Administration Contract"), pursuant to
which Dresdner RCM presently performs all administrative and non-investment
advisory services for the Fund. The administration services under the
Sub-Administration Contract are substantially identical to the administrative
services described in the Existing Investment Advisory Agreement and the New
Investment Advisory Agreement.
Dresdner RCM and KBIMA are both indirect wholly owned subsidiaries of
Dresdner Bank AG, an international banking organization headquartered in
Frankfurt, Germany ("Dresdner Bank"). The Board believes that the proposed
engagement of Dresdner RCM as the investment adviser of the Fund, and of KBIMA
as the subadviser of the Fund, will make available to the Fund the full range of
investment expertise and global strategic leadership of the Dresdner Bank
organization. These New Agreements have been structured so that there will be no
change in the fee rate paid by the Fund for investment advisory and
administrative services. KBIMA would be paid by Dresdner RCM for the services it
provides to the Fund pursuant to the Subadvisory Agreement.
If the Fund's stockholders approve the New Agreements at the Meeting, the
Existing Investment Advisory and the Sub-Administration Agreement will
terminate, and the New Agreements will become effective on the business day
immediately following such approval. The terms of the New Investment Advisory
Agreement are substantially similar in all material respects to the terms of the
Existing Investment Advisory Agreement, and the fee schedule is identical. (The
Existing Investment Advisory
14
<PAGE>
Agreement and the New Investment Advisory Agreement are sometimes hereinafter
referred to individually, as an "Advisory Agreement" and collectively, as the
"Advisory Agreements") The form of the New Investment Advisory Agreement is set
forth as Appendix D to this proxy statement. The form of the Subadvisory
Agreement is set forth as Appendix E to this proxy statement.
BOARD APPROVAL OF NEW AGREEMENTS
At the Special Joint Meeting, the Fund's Board of Directors, including a
majority of the disinterested directors, approved the New Agreements. In
approving the New Investment Advisory Agreement and the Subadvisory Agreement,
the Board of Directors relied on the fact that the adoption of the New
Agreements would not result in any material change to the investment management
and administrative services currently provided to the Fund nor would there be
any change in the fee schedule for such services.
EXISTING INVESTMENT ADVISORY AGREEMENT
Under the Existing Investment Advisory Agreement, which has been in effect
since August 8, 1995, and as amended September 17, 1996 to add a breakpoint in
the fee schedule, KBIMA serves as the Fund's investment adviser. The Existing
Investment Advisory Agreement was most recently approved by the Board of
Directors, including a majority of the directors who are not "interested
persons", as defined in the 1940 Act, on December 5, 1998. The Existing
Investment Advisory Agreement was last approved by an affirmative vote of the
stockholders on December 5, 1995.
As the Fund's investment adviser, KBIMA, subject to the supervision of the
Fund's Board of Directors, determines which securities and other investments
will be purchased, retained or sold by the Fund. KBIMA also selects brokers and
dealers to execute portfolio transactions on behalf of the Fund and determines
the timing of portfolio transactions and other matters related to securities
execution.
NEW INVESTMENT ADVISORY AGREEMENT
The following description of the New Investment Advisory Agreement is
subject to and qualified by the text of the form of agreement set forth as
Appendix D to this Proxy Statement.
Subject to the terms of the New Investment Advisory Agreement, Dresdner RCM
will be responsible for the investment program for the Fund and will also
provide investment research and management with respect to all securities and
investments and cash equivalents. Dresdner RCM's management duties will include
the conduct of research in global fixed income securities and other eligible
portfolio securities, the formulation of investment strategies for the Fund and
the implementation of decisions to purchase or sell portfolio securities,
including the selection of brokers and dealers to effect transactions for the
portfolio. Among its services as administrator of the Fund, Dresdner RCM will
monitor the valuation of the Fund's portfolio securities and the calculation of
the net asset value of the Fund; calculate the amount of dividends and
distributions to be paid to the Fund's stockholders; prepare reports to the
Fund's Board of Directors and notices to stockholders and prepare and make
filings with the Securities and Exchange Commission, the New York Stock Exchange
and other regulatory and self-regulatory organizations; prepare the Fund's
financial statements and prepare and file the Fund's tax returns; maintain
certain books and records required under the 1940 Act; reconcile account
information and balances among the Fund's custodian, transfer agent,
dividend-paying agent and other agents; oversee the performance of professional
services rendered to the Fund by others, including the Fund's custodian,
transfer agent and dividend-paying agent; and provide the Fund with adequate
general office space and facilities and with personnel
15
<PAGE>
competent to perform the foregoing services. The New Investment Advisory
Agreement authorizes Dresdner RCM to delegate any or all of its duties under the
Agreement to a subadviser (such as KBIMA) or a subadministrator.
TERMS OF BOTH ADVISORY AGREEMENTS
The Fund pays an investment advisory fee at an annual rate of 0.70% of the
Fund's weekly net assets up to $100 million and at an annual rate of 0.65% of
the Fund's weekly net assets in excess of $100 million. The fee is computed
based upon the net asset value at the end of each week and payable at the end of
each calendar month. (For the fiscal year ended October 31, 1998, the Fund paid
KBIMA investment advisory fees of $706,840.)
The investment adviser will pay all expenses of its employees and overhead
incurred by them in connection with their duties as directors and officers under
the Advisory Agreement. The Fund bears all of its own expenses, including, but
not limited to, fees under the Advisory Agreement; fees of directors who are not
"interested persons" (as defined in the 1940 Act) of the Fund or its investment
adviser; out-of-pocket travel expenses of the Fund's disinterested directors and
other expenses incurred by the Fund in connection with directors' meetings;
interest expenses; taxes and government fees; brokerage commissions and other
expenses incurred in acquiring or disposing of the Fund's portfolio securities;
expenses of preparing stock certificates; expenses of registering and qualifying
the Fund's shares for sale with the Securities and Exchange Commission and in
various states and foreign jurisdictions; auditing, accounting, legal and
insurance costs; custodian, dividend disbursing and transfer agent expenses;
expenses of obtaining and maintaining stock exchange listings of the Fund's
shares; and expenses of stockholders' meetings.
The Advisory Agreement may be terminated by the Fund, without the payment of
any penalty, upon a vote of a majority of the directors of the Fund who are not
interested persons or a 1940 Act Majority Vote at any time upon not less than 60
days' prior written notice to the investment adviser or by the investment
adviser upon not less than 60 days' prior written notice to the Fund. The
Advisory Agreement will terminate automatically in the event of its assignment
(as defined in the 1940 Act). The Advisory Agreement provides that the
investment adviser will not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the services provided to the Fund,
except a loss resulting from a breach of fiduciary duty with respect to receipt
of compensation for services (in which case any award of damages will be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or a
loss resulting from its willful misfeasance, bad faith, gross negligence or its
reckless disregard of its obligations and duties under the Advisory Agreement.
The services of the investment adviser under the Advisory Agreement are not
deemed to be exclusive. The investment adviser or any of its affiliates may
provide similar services to other investment companies and other clients
(whether or not their investment objectives and policies are similar to those of
the Fund) and may engage in other activities.
The Advisory Agreement continues in effect from year to year, subject to
approval annually in accordance with the 1940 Act.
INFORMATION ABOUT DRESDNER RCM GLOBAL INVESTORS LLC
It is proposed that Dresdner RCM, a Delaware limited liability company with
principal offices at Four Embarcadero Center, San Francisco, California 94111,
act as investment adviser. Dresdner RCM is an indirect wholly owned subsidiary
of Dresdner Bank AG, an international banking organization with principal
16
<PAGE>
executive offices in Frankfurt, Germany. Dresdner RCM is actively engaged in
providing investment supervisory services to institutional and individual
clients. Dresdner RCM was established in December of 1998 and is the successor
to the business of its holding company, Dresdner RCM Global Investors US
Holdings LLC. Dresdner RCM was originally formed as Rosenberg Capital Management
in 1970, and it and its successors have been consistently in business since
then.
Dresdner RCM currently provides investment advisory services to the
following funds that have investment objectives similar to those being proposed
for the Fund (Dresdner RCM does not provide investment advisory services to any
other funds with investment objectives that are similar to the Fund's current
objectives):
<TABLE>
<CAPTION>
NET ASSETS AS OF
OPEN-END MANAGEMENT JULY 31, 1999 ANNUAL MANAGEMENT FEE
INVESTMENT COMPANY (IN 000'S) (AS A % OF NET ASSETS)
- ------------------------------------------- ---------------- ------------------------------------------------
<S> <C> <C>
Dresdner RCM Strategic Income Fund $ 2,927 0.75% on the first $500 million
0.70% on the next $500 million
0.65% in excess of $1 billion
With a 1.50% expense cap on Class N shares and a
1.25% expense cap on Class I shares
<CAPTION>
CLOSED-END MANAGEMENT
INVESTMENT COMPANY
- -------------------------------------------
<S> <C> <C>
RCM Strategic Global Government Fund $ 331,129 0.95%
</TABLE>
Certain information regarding the directors and principal executive officers
of Dresdner RCM is set forth below:
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS DRESDNER RCM PRINCIPAL OCCUPATION
- ---------------------------------- ------------------------ ----------------------------------------------------
<S> <C> <C>
Gerhard Eberstadt Member of Board of Member of Board of Managers, Dresdner Bank AG
Jurgen-Ponto-Platz 1 Managers
D-60301 Frankfurt-am-Main
Germany
George N. Fugelsang Member of Board of President/Chief Executive Officer/Chairman, Dresdner
75 Wall Street Managers Kleinwort Benson North America LLC
New York, NY
Susan C. Gause(1) Member of Board of Same
Managers; Chief
Operating Officer; and
Senior Managing Director
Luke D. Knecht(1) Member of Board of Same
Managers; and Managing
Director
Joachim Madler Member of Board of Same
Mainzer Landstrasse 15-17 Managers; and Managing
D-60301 Frankfurt-am-Main Director
Germany
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS DRESDNER RCM PRINCIPAL OCCUPATION
- ---------------------------------- ------------------------ ----------------------------------------------------
<S> <C> <C>
William L. Price(1) Member of Board of Same
Managers; Senior
Managing Director; Chief
Executive Officer; and
Global Chief Investment
Officer
William S. Stack(1) Member of Board of Same
Managers; Senior
Managing Director; and
Global Equity Chief
Investment Officer
Kenneth B. Weeman, Jr.(1) Member of Board of Same
Managers; Vice Chairman;
and Senior Managing
Director
</TABLE>
- ------------------------
(1) The address for these directors and officers is Four Embarcadero Center, San
Francisco, California 94111.
The following directors and officers of the Fund are directors, officers,
employees, or stockholders of Dresdner RCM: Luke D. Knecht, Robert J. Goldstein,
Jennie Klein, Karin Brotman and Judith W. O'Connell. None of the directors or
officers of the Fund owns securities or has a direct or indirect material
interest in Dresdner RCM or Dresdner Bank (not including directors of Dresdner
RCM). No director of the Fund had a material interest in a material transaction
during the fiscal year ended October 31, 1998 nor has such an interest in a
proposed material transaction to which Dresdner RCM, Dresdner Bank, or any
subsidiaries thereof were or will be parties.
REQUIRED VOTE
Approval of the New Investment Advisory Agreement will require a 1940 Act
Majority Vote; however, the effectiveness of this Proposal is contingent upon
stockholder approval of Proposal No. 5. Accordingly, if Proposal Nos. 4 and 5
are not both approved, the Existing Investment Advisory Agreement and the Sub-
Administration Contract will remain in effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 4.
PROPOSAL NO. 5: SUBADVISORY AGREEMENT FOR THE FUND
The Board of Directors proposes that stockholders of the Fund approve a
Subadvisory Agreement among Dresdner RCM, KBIMA and the Fund. The proposed
Subadvisory Agreement would permit Dresdner RCM to grant to KBIMA investment
management authority to buy and sell securities on behalf of
18
<PAGE>
the Fund. KBIMA would be subject to the direct supervision of Dresdner RCM.
Since Dresdner RCM would pay all of KBIMA's fees under the Subadvisory
Agreement, the proposed agreement would not affect the fees payable by the Fund
to Dresdner RCM. For the services to be rendered pursuant to the Subadvisory
Agreement, Dresdner RCM will pay to KBIMA the percentage of Dresdner RCM's
management fee equal to the percentage of the Fund's weekly net assets
sub-advised by KBIMA.
At the Special Joint Meeting, the Board of Directors, including a majority
of the disinterested Directors, approved the proposed Subadvisory Agreement,
subject to approval of stockholders of the Fund. The form of the Subadvisory
Agreement is attached to this proxy statement as Appendix E, and the following
description of the Subadvisory Agreement is subject to and qualified by the text
of such form of agreement.
Under the Subadvisory Agreement, KBIMA would provide research and investment
services to Dresdner RCM, and Dresdner RCM would grant to KBIMA investment
management authority with respect to the Fund's assets. In the exercise of its
investment management authority on behalf of the Fund, KBIMA would be required,
subject to the supervision of Dresdner RCM, to direct investments of the Fund in
accordance with the Fund's investment objectives, policies and limitations and
the 1940 Act. KBIMA would be authorized to buy or sell securities for the Fund
subject to the overall supervision of Dresdner RCM and the Board of Directors.
KBIMA would continue to be subject to the control and direction of Dresdner RCM
and the Board of Directors with respect to these investment management services
and to be bound by the investment objectives, policies and limitations of the
Fund. KBIMA would also have access to Dresdner RCM's substantial research
resources and expertise.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties under the Subadvisory Agreement
on the part of KBIMA, KBIMA will not be subject to liability to Dresdner RCM,
the Fund or to any stockholder of the Fund for any act or omission in the course
of, or connected with, rendering services thereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
If approved by stockholders, the Subadvisory Agreement would continue in
force from year to year, so long as its continuance is approved annually in
accordance with the 1940 Act.
The Subadvisory Agreement could be transferred to a successor of KBIMA
without resulting in termination and without stockholder approval, as long as
the transfer does not constitute an assignment under the 1940 Act. The
Subadvisory Agreement would be terminable on 60 days' written notice by any
party to the agreement, and the Subadvisory Agreement would terminate
automatically in the event of its assignment.
INFORMATION ABOUT KLEINWORT BENSON INVESTMENT MANAGEMENT AMERICAS INC.
It is proposed that Kleinwort Benson Investment Management Americas Inc.
("KBIMA"), a Delaware corporation with principal offices at Four Embarcadero
Center, San Francisco, California 94111, act as Subadvisor. KBIMA is an indirect
wholly owned subsidiary of Dresdner Bank, an international banking organization
with principal executive offices in Frankfurt, Germany. KBIMA is actively
engaged in providing investment management and investment supervisory services
to institutions, collective investment trusts (including mutual funds) and
individual clients. KBIMA does not currently advise any other funds with
investment objectives similar to the Fund's current or proposed investment
objectives. KBIMA was organized in 1993.
19
<PAGE>
Certain information regarding the directors and principal executive officers
of KBIMA is set forth below:
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS KBIMA PRINCIPAL OCCUPATION
- ---------------------------------- ------------------------ ----------------------------------------------------
<S> <C> <C>
Gerhard Eberstadt Director Member of Board of Managers of Dresdner Bank AG
Jurgen-Ponto-Platz 1
D-60301 Frankfurt-am-Main
Germany
George N. Fugelsang Director President/Chief Executive Officer/Chairman, Dresdner
75 Wall Street Kleinwort Benson North America LLC
Susan C. Gause(1) Director and Chief Member of Board of Managers; Chief Operating
Operating Officer Officer; and Senior Managing Director of Dresdner
RCM
Luke D. Knecht(1) Director Member of Board of Managers and Managing Director of
Dresdner RCM
Joachim Madler Director Member of Board of Managers and Managing Director of
Mainzer Landstrasse 15-17 Dresdner RCM
D-60301 Frankfurt-am-Main
William L. Price(1) Director and Chief Member of Board of Managers; Senior Managing
Executive Officer Director; Chief Executive Officer; and Global Chief
Investment Officer of Dresdner RCM
William S. Stack(1) Director Member of Board of Managers; Senior Managing
Director; and Global Equity Chief Investment Officer
of Dresdner RCM
Kenneth B. Weeman, Jr.(1) Director Member of Board of Managers; Vice Chairman; and
Senior Managing Director of Dresdner RCM
</TABLE>
- ------------------------
(1) The address for these directors and officers is Four Embarcadero Center, San
Francisco, California 94111.
Other than Luke D. Knecht, there are no directors and officers of the Fund
who are directors, officers, employees, or stockholders of KBIMA. None of the
directors or officers of the Fund own securities or have a direct or indirect
material interest in KBIMA or Dresdner Bank (not including directors of KBIMA).
No director of the Fund had a material interest in a material transaction during
the fiscal year ended October 31, 1998 nor has such an interest in a proposed
material transaction to which KBIMA, Dresdner Bank, or any subsidiaries thereof
were or will be parties.
REQUIRED VOTE
Approval of the Subadvisory Agreement will require a 1940 Act Majority Vote;
however, the effectiveness of this Proposal is contingent upon stockholder
approval of Proposal No. 4. Accordingly, if Proposal Nos. 4 and 5 are not both
approved, the Existing Investment Advisory Agreement and the Sub-Administration
Contract will remain in effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 5
20
<PAGE>
PROPOSAL NO. 6: ELECTION OF CLASS II DIRECTORS
At the Meeting, two nominees are being proposed for election as Class II
Directors of the Fund. Each of the two Class II Directors will serve until the
Class II term expires in 2002 or until his successor has been elected and
qualified. It is the intention of the persons named in the enclosed form of
proxy to vote the shares represented thereby for the election of the following
nominees as Directors of the Fund:
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED AT
POSITION(S) PRINCIPAL OCCUPATION AND SEPTEMBER 8,
NAME AND ADDRESS AGE WITH THE FUND OTHER AFFILIATIONS 1999 CLASS
- --------------------- --- ------------- --------------------------- --------------- -----
<S> <C> <C> <C> <C> <C>
Luke D. Knecht(+) 45 Director and Member of Board of Managers 4,500 II
4 Embarcadero Center President and Managing Director,
San Francisco, CA since 1999 Dresdner RCM since 1998;
94111 Director, KBIMA since July
1998; Chairman and
President, RCM Strategic
Global Government Fund,
Inc. since March 1999;
Chairman, Caywood Scholl
Capital Management since
December 1998; Executive
Director, Russell Reynolds
Associates from 1995 to
1997; President, CSI Asset
Management from 1993 to
1995.
Stephen K. West 70 Director Partner, Sullivan & 2,000 II
42 Old Wood Road since 1997 Cromwell (1964-1996); Of
Bernardsville, NJ Counsel, Sullivan &
07924 Cromwell (since 1997);
Director, AMVESCAP plc;
First ING Life Insurance
Company of New York; ING
American Holdings, Inc.;
Pioneer Funds; Swiss
Helvetia Fund, Inc.;
Winthrop Focus Funds.
</TABLE>
- ------------------------
(+) If Proposal Nos. 4 and 5 are approved Mr. Knecht would be an "interested
person" of the Fund because he is an officer of the Fund's investment
adviser.
21
<PAGE>
Class III Directors' terms will expire in 2000 and Class I Directors' terms
will expire in 2001. The following Directors of the Fund may serve in such
capacity until their terms of office expire and their successors are duly
elected and qualified.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED AT
POSITION(S) PRINCIPAL OCCUPATION AND SEPTEMBER 8,
NAME AND ADDRESS AGE WITH THE FUND OTHER AFFILIATIONS 1999 CLASS
- --------------------- --- ------------- --------------------------- --------------- -----
<S> <C> <C> <C> <C> <C>
Sir Robert C. Cotton 83 Director and Chairman, Australian 0 I
2 Spruson Street Chairman of Photonics Co-operative
Neutral Bay the Board Research Centre; Director,
NSW 2089 since 1986 Thomson-CSF Pacific Pty.
Australia Ltd. Formerly Australian
Ambassador to the United
States (1982 to 1985)
James J. Foley(1) 75 Director From 1952 to 1995, Faculty 1,538 I
60 Pond Street since 1986 Member, Harvard Graduate
Belmont, MA 02478 School of Business. Since
1967, Consultant to Courier
Corp.
The Earl of 69 Director Chairman, Pirelli UK plc 0 III
Limerick(1) since 1986 (since 1989); Deputy
11 Berkeley Street Chairman, Henderson plc
London, WIX 6BU (since 1998); Chairman,
England London Guildhall University
(since 1984), formerly
Deputy Chairman, Kleinwort
Benson Ltd. (retired 1987),
Chairman, De La Rue plc
(retired 1997); Chairman,
AMP Asset Management plc
(1992 to 1998).
Leonard T. Hinde(1) 74 Director Formerly Advisor to the 0 III
8 Earl Street since 1987 Governor, Reserve Bank of
Mosman, NSW Australia (retired 1985).
2088
Australia
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED AT
POSITION(S) PRINCIPAL OCCUPATION AND SEPTEMBER 8,
NAME AND ADDRESS AGE WITH THE FUND OTHER AFFILIATIONS 1999 CLASS
- --------------------- --- ------------- --------------------------- --------------- -----
<S> <C> <C> <C> <C> <C>
G. William Miller(1) 74 Director and G. William Miller & Co. 5,000 III
1215 19th Street N.W. Deputy Inc., merchant banking
Washington, D.C. Chairman (since 1983); Chairman and
20036 since 1986 Director, HomePlace of
America, Inc. (since
October 1995); Director, GS
Industries, Inc. (since
October 1995), Simon
Property Group, Inc. (since
August 1996), and Repligen
Corporation (since 1982);
Trustee, Marine Biological
Laboratory (since August
1996).
</TABLE>
- ------------------------
(1) Member, Audit Committee.
The executive officers of the Fund, other than as shown above, are: Robert
J. Goldstein, Secretary since April, 1998 and Jennie M. Klein, Treasurer since
April, 1998. Mr. Goldstein is 36 years old and has been a Director and Associate
General Counsel of Dresdner RCM since July 1998. Prior to joining Dresdner RCM
in 1997, Mr. Goldstein was an associate in the New York office of Weil, Gotshal
& Manges LLP from 1990 through 1996. Ms. Klein is 34 years old and has been the
Director of Commingled Fund Services at Dresdner RCM since July 1998. Ms. Klein
joined Dresdner RCM in 1994.
The Directors and officers of the Fund as a group owned less than 1% of the
shares outstanding as of September 8, 1999.
The Fund reimburses all non-interested Directors for their out-of-pocket and
travel expenses. During the Fund's fiscal year ended October 31, 1998, there
were two meetings of the Fund's Board of Directors. All directors, except Mr.
Miller, attended all meetings held during the year. The Board of Directors has
an Audit Committee, but does not have a nominating committee.
The Audit Committee makes recommendations to the full Board with respect to
the engagement of independent accountants and reviews with the independent
accountants the plan and results of the audit engagement and matters having a
material effect upon the Fund's financial operations. The members of the Audit
Committee during fiscal 1998 were Messrs. Foley, Hinde, Miller and The Earl of
Limerick. The Audit Committee met twice during the fiscal year ended October 31,
1998. During the Fund's 1998 fiscal year, no director other than Mr. Miller
attended less than 75% of the aggregate of the total number of meetings of the
Board of Directors and, as applicable, the Audit Committee.
23
<PAGE>
Set forth below is information concerning compensation paid to the Fund's
directors and officers during its fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM FUND AND
AGGREGATE ACCRUED AS ESTIMATED FUND COMPLEX*
COMPENSATION PART OF FUND ANNUAL BENEFITS PAID TO
NAME AND POSITION FROM THE FUND EXPENSES UPON RETIREMENT DIRECTORS
- ------------------------------------------------ ------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sir Robert Cotton
Director & Chairman of the Board $8,492 None None $8,492
David M. Felder,-
Director & President None None None None
James J. Foley,
Director $11,000 None None $11,000
Leonard T. Hinde,
Director $10,321 None None $10,321
The Earl of Limerick,
Director $12,338 None None $12,338
Nigel S. MacEwan,-
Director $7,000 None None $7,000
G. William Miller,
Director & Deputy Chairman $7,000 None None $7,000
Stephen K. West,
Director $7,000 None None $7,000
Robert J. Goldstein
Secretary None None None None
Jennie W. Klein
Treasurer None None None None
</TABLE>
- ------------------------
- - Mr. Felder was a Director and the President of the Fund until December 31,
1998, and Mr. McEwan was a Director until February 20, 1999.
* The Fund is the only fund in the Fund Complex.
REQUIRED VOTE
The election of each Director requires the affirmative vote of a majority of
the shares cast for the Director at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 6.
PROPOSAL NO. 7: SELECTION OF INDEPENDENT ACCOUNTANTS
A majority of the members of the Board of Directors who are not interested
persons of the Fund have selected PricewaterhouseCoopers LLP as independent
accountants for the Fund for the fiscal year ending October 31, 1999. The
ratification of the selection of independent accountants is to be voted upon at
the
24
<PAGE>
meeting and it is intended that the persons named in the accompanying proxy vote
for PricewaterhouseCoopers LLP. A representative of PricewaterhouseCoopers LLP
will attend the meeting if so requested in writing by a stockholder at least 14
days in advance of the Meeting.
The Board of Directors' policy regarding engaging independent accountants'
services is that Management may engage the Fund's independent accountants to
perform any service(s) normally provided by independent accounting firms,
provided that such service(s) meets any and all of the independence requirements
of the American Institute of Certified Public Accountants and the SEC. The Audit
Committee will review and approve services provided by the independent
accountants prior to their being rendered. The Board of Directors also receives
a report from the Audit Committee relating to all services after they have been
performed by the Fund's independent accountants.
REQUIRED VOTE
The ratification of PricewaterhouseCoopers LLP as the Fund's independent
accountants for the fiscal year ending October 31, 1999 requires the affirmative
vote of a majority of the shares cast on the matter at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 7.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(h) of the 1940 Act requires the Fund's directors, officers,
investment adviser, affiliated persons of its investment adviser, and the
beneficial owners of more than 10% of the Fund's capital stock to file initial
reports of ownership and reports of changes of ownership with the SEC and the
New York Stock Exchange, and to provide copies of such reports to the Fund.
Based solely on a review of the copies of such reports received by the Fund
and written representations by reporting persons that no additional reports are
due, the Fund is of the opinion that all Section 30(h) requirements for 1998
were satisfied.
OTHER MATTERS
Management does not know of any matters to be presented at the Meeting other
than those stated above. If any other business should come before the Meeting,
the persons named in the Proxies intend to vote thereon in accordance with the
views of the Fund's management.
STOCKHOLDER PROPOSALS
It is anticipated that the date of the Fund's Annual Meeting of Stockholders
in 2000 (the "2000 Annual Meeting Date") will be earlier than 30 days prior to
the first anniversary date of this year's Meeting. Therefore, according to
federal rules, the deadline for submitting stockholder proposals for inclusion
in the Fund's proxy statement and form of proxy for the Fund's Annual Meeting in
2000 is a reasonable time before the Fund begins to print and mail its proxy
materials. In accordance with the Fund's Advance Notice By-Laws, any stockholder
proposal that is intended to be presented at such Annual Meeting, but not
submitted for inclusion in the Fund's proxy statement and form of proxy in
accordance with the foregoing sentence, must be received by the Fund's Secretary
at the address indicated on the first page of this Proxy Statement by the later
of the close of business on (i) the date 90 days prior to the 2000 Annual
Meeting Date or (ii) the 10th day following the date the 2000 Annual Meeting
Date is first publicly
25
<PAGE>
announced or disclosed. Any such proposal received after such date will be
considered untimely and will be excluded from consideration at the next Annual
Meeting. The mere submission of a proposal or notice of proposal by a
stockholder does not guarantee that such proposal will be either included in the
proxy statement or otherwise considered at such Annual Meeting because certain
federal rules or the Fund's Advance Notice By-Law, respectively, must be
complied with before consideration of the proposal is required.
By order of the Board of Directors,
[SIGNATURE]
Robert J. Goldstein
SECRETARY
September 13, 1999
STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO HAVE
THEIR SHARES VOTED ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT TO THE FUND'S TRANSFER AGENT.
26
<PAGE>
APPENDIX A
BOND RATINGS
STANDARD & POOR'S CORPORATION ("S&P")
<TABLE>
<S> <C>
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay interest
and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay principal and
differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal.
BB: Bonds rated BB are less vulnerable to default than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to inadequate capacity to pay
interest or repay principal.
B: Bonds rated B have the capacity to pay interest and repay principal; however, they
are more vulnerable to default than bonds rated BB. Adverse business, financial, or
economic conditions will likely impair the capacity or willingness to pay interest
or repay principal.
CCC: Bonds rated CCC are currently vulnerable to default, and are dependent upon
favorable business, financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business, financial or
economic conditions, they are not likely to pay interest and repay principal.
</TABLE>
The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
r: This symbol is attached to the ratings of bonds with significant noncredit
risks. It highlights risks to principal or volatility of expected returns which
are not addressed in the credit rating.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-1
<PAGE>
MOODY'S INVESTORS SERVICE ("MOODY'S")
<TABLE>
<S> <C>
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 edged."
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 risk
appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
</TABLE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
its generic rating category.
A-2
<PAGE>
APPENDIX B
RISKS INVOLVED IN FOREIGN DEBT INVESTMENT
Securities of foreign issuers involve different, and sometimes greater risks
than securities of U.S. issuers. Information about foreign issuers may be less
readily available than information about U.S. issuers. Foreign issuers generally
are not subject to accounting, auditing, and financial reporting standards or to
other regulatory practices and requirements comparable to those applicable to
U.S. issuers. Furthermore, with respect to certain foreign countries, the
possibility exists of expropriation, nationalization, revaluation of currencies,
confiscatory taxation, and limitations on foreign investment and the use or
removal of funds or other assets of a fund, including the withholding of tax on
interest, dividends and other distributions and limitations on the repatriation
of currencies. In addition, a fund may experience difficulties or delays in
obtaining or enforcing judgments. Foreign securities may be subject to foreign
government taxes that could reduce the yield and total return on such
securities.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct and complete such transactions. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to a fund
due to subsequent declines in the value of the portfolio security or, if the
fund has entered into a contract to sell that security, could result in possible
liability of the fund to the purchaser. Delays in settlement could adversely
affect a fund's ability to implement its investment strategies and achieve its
investment objectives.
In addition, the costs associated with transactions in securities traded on
foreign markets or of foreign issuers, and the expense of maintaining custody of
such securities with foreign custodians, generally are higher than the costs
associated with transactions in U.S. securities on U.S. markets. Investments in
foreign securities may result in higher expenses due to the cost of converting
currency to U.S. dollars, the payment of fixed brokerage commissions on foreign
exchanges, the expense of maintaining securities with foreign custodians and the
imposition of transfer taxes or transaction charges associated with foreign
exchanges.
To the extent that the Investment Advisor determines that investment in
securities denominated in foreign currencies will assist the Fund in achieving
its investment objectives, such securities will be subject to foreign exchange
risk; fluctuations in value due to changes in the value of the currency against
the U.S. dollar. A decline in the value of a foreign currency compared to the
U.S. dollar will give rise to an ordinary loss to the Fund. Income received from
securities denominated in a foreign currency is also translated into and
distributed in U.S. dollars, so that a decline in the value of a foreign
currency will result in a decline in income to the Fund. Currency exchange rates
can fluctuate significantly over short periods and can be subject to
unpredictable change based on such factors as political developments and
currency controls by foreign governments. Exchange rate fluctuation and local
currency devaluation could have a material effect on the value of the Fund's
securities that are denominated in foreign currencies.
RISKS INVOLVED IN EMERGING MARKET DEBT INVESTMENT
Special risks associated with investments in emerging market debt securities
are in addition to the usual risks of investing in debt securities of developed
foreign markets around the world. The securities markets of emerging market
countries are substantially smaller, less developed and more volatile than the
securities markets of developed foreign markets. Such securities when
denominated in their local currencies also tend to be less liquid than others in
developed foreign markets. Disclosure and regulatory standards in many respects
are less stringent than in developed foreign markets. There also may be a lower
B-1
<PAGE>
level of monitoring and regulation of securities markets in emerging market
countries and the activities of investors in such markets, and enforcement of
existing regulations has been extremely limited.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain emerging market
countries. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency value, and other protectionist measures imposed or negotiated by the
countries with which they trade. Their economies also have been and may continue
to be adversely affected by economic conditions in the countries in which they
trade.
In many cases, governments of emerging market countries continue to exercise
a significant degree of control over the economies of such countries, and
government actions concerning the economy may adversely affect issuers within
those countries. Government actions relative to the economy, as well as economic
developments generally, may also affect a given country's international foreign
currency reserves. Fluctuations in the level of these reserves affect the amount
of foreign exchange readily available for external debt payments and thus could
have a bearing on the capacity of issuers of emerging market debt securities to
make payments on their debt obligations, regardless of their financial
condition. This risk is increased when the securities are denominated in US
dollars. In addition, there is a heightened possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on interest payments, or
other similar developments that could affect investments in those countries.
RISKS INVOLVED IN NON-INVESTMENT GRADE DEBT INVESTMENT
Non-investment grade securities are regarded as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse business, financial, economic, or political conditions.
The market values of non-investment grade debt securities tend to reflect
individual developments of the issuer and the foreign country to a greater
extent than do higher quality securities, which react primarily to fluctuations
in the general level of interest rates. In addition, non-investment grade debt
securities tend to be more sensitive to economic conditions and generally have
more volatile prices than higher quality securities. Certain emerging market
governments that issue non-investment grade debt securities are among the
largest debtors to commercial banks, foreign governments, and supranational
organizations such as the World Bank and may not be able or willing to make
principal and/or interest payments as they come due.
The rating of a debt security may change over time. Internationally
recognized rating organizations monitor and evaluate the ratings assigned to
debt securities on an ongoing basis. As a result, debt securities held by the
Fund could receive a higher rating (which would tend to increase their value) or
a lower rating (which would tend to decrease their value) during the time they
are held by the Fund.
When the Fund invests in non-investment grade securities, achievement of the
Fund's investment objectives is more dependent upon the Investment Advisor's
analysis than would be the case if the Fund were investing in higher-rated
instruments. The Investment Advisor will try to reduce the risk inherent in the
Fund's investments in such securities through credit analysis, diversification
and attention to current developments and trends in interest rates and economic
conditions. However, there can be no assurance that losses will not occur. Since
the risk of default is higher for non-investment grade bonds, the
B-2
<PAGE>
Investment Advisor's research and credit analysis are a correspondingly more
important aspect of its program for managing the Fund's investments in such
securities. The Investment Advisor will attempt to identify those issuers of
high-yielding securities whose financial conditions are adequate to meet future
obligations, or have improved or are expected to improve in the future.
LEVERAGE AND ASSOCIATED RISKS
Leverage may be utilized by the Fund to both generate and stabilize the
Fund's future income stream. The Fund may utilize leverage by borrowing in an
amount not to exceed 30% of its total assets (including the amount borrowed).
The Fund may also utilize leverage through the purchase and sale of derivative
instruments, such as futures contracts, options and swaps. The Fund will only
exercise its authority to leverage the Fund's assets when the investment adviser
believes that such borrowings or derivatives transactions will benefit the Fund,
after taking into account considerations such as interest income and possible
gains or losses upon liquidation.
Borrowings by the Fund create an opportunity for increased income. To the
extent that income derived from securities purchased with borrowed funds exceeds
the interest the Fund will have to pay, the Fund's net income will be greater
than if borrowings had not been used. Conversely, if the income from securities
purchased with borrowed funds is not sufficient to cover the costs of borrowing,
the net income of the Fund will be less than if borrowing had not been used, and
therefore the amount available for distribution to shareholders as dividends
will be reduced. Borrowing may also result in higher volatility of the Fund's
net asset value and market value. The use of leverage by the Fund creates an
opportunity for increased net income/or capital gain, but, at the same time,
creates special risks including greater risk of capital loss. To the extent that
the Fund does not collateralize its leverage obligations (i.e. futures contracts
and swaps, etc.), they will be treated as senior securities for purposes of the
1940 Act. Under Proposal No. 2, the Fund may not enter into any senior security
transactions if the Fund's senior securities would thereby exceed 30% of its
total assets (including the amount borrowed).
The use of leverage is an important adjunct to Proposal No. 1 to expand the
Fund's investment mandate. The Investment Advisor anticipates utilizing certain
derivatives and other instruments to generate leverage. However, derivatives may
also be utilized for the following purposes: to hedge risks associated with
interest rate and currency rate fluctuations; to enhance liquidity and credit
quality in less developed markets; to gain exposure to particular countries that
would otherwise be unavailable due to lack of available paper or government
regulations; and to minimize transaction costs and achieve transactional
efficiencies.
Gains and losses on "derivatives" transactions depend on the Investment
Advisor's ability to predict correctly the direction of interest rates,
securities prices, currency exchange rates, or other factors. Risks in the use
of derivatives include:
- imperfect correlation between the prices of derivatives and the movements
of the securities prices, interest rates or currency exchange rates being
hedged;
- the possible absence of a liquid secondary market;
- the potential loss if the counterparty to the transaction does not perform
as promised; and
- the possible need to defer closing out certain positions to avoid adverse
tax consequences.
If Proposal No. 2 is approved, certain of the Fund's fundamental investment
restrictions that previously disallowed the issuance of senior securities, the
borrowing of money (except for temporary or
B-3
<PAGE>
emergency purposes or for the clearance of transactions), the ability to invest
in commodity contracts (i.e. futures contracts) and the ability of the Fund to
place initial and variation margin payments will be amended. The following
paragraphs provide examples of the types of transactions that the Fund may
engage in as a result of the amendments to the above referenced fundamental
policies. They are not intended to represent an exhaustive list of the
techniques that may be utilized by the Fund or their associated risks.
FUTURES CONTRACTS. The Fund may purchase and sell various kinds of futures
contracts. The futures contracts may be based on various securities (such as
U.S. government securities), securities indexes, interest rates, prepayment
rates, foreign currencies, or other financial instruments or indexes.
When futures are used for risk management purposes, the Fund will generally
take long or short positions in futures contracts in order to increase the
Fund's exposure to a particular market, market segment or foreign currency. For
example, to increase the Fund's exposure to long-term U.S. government
securities, the Investment Advisor may cause the Fund to take long positions in
futures contracts on U.S. Treasury bonds. Sometimes this will be done in
connection with the positions in futures contracts on U.S. government and other
high quality securities in an amount, marked-to-market daily, equal to the
Fund's obligations under the futures contracts, thereby producing a synthetic
security. In other cases, the Fund will only deposit initial and variation
margin as required by relevant Commodity Futures Trading Commission regulations
and the rules of the contract markets. The Fund can also increase its exposure
to foreign currencies and other markets through risk management policies
involving futures on foreign currencies and futures on securities or interest
rate indexes, respectively. Risk management transactions may have the effect of
providing a degree of investment leverage, particularly when the Fund does not
segregate assets equal to its obligation under the contract since the futures
contracts will increase or decrease in value at a rate which is a multiple of
the rate of increase or decrease in the value of the initial and variation
margin that the Fund is required to deposit. As a result, the value of the
Fund's portfolio may at times be more volatile than the value of comparable
portfolios that do not engage in risk management transactions.
The purchase and sale of futures contracts involve risk. Thus, while the
Fund may benefit from the use of futures, unanticipated changes in interest
rates, securities prices, or currency exchange rates may result in less
favorable overall performance for the Fund than if it had not entered into any
futures contracts. Losses incurred in transactions in futures contracts and the
costs of these transactions will affect the Fund's performance, and losses from
investing in futures transactions are potentially unlimited. In addition,
positions in futures contracts may be closed out only on the exchange or board
of trade on which they were entered into and no assurance can be given that an
active market will exist for a particular contract at any particular time. To
the extent that the Fund engages in futures for hedging purposes, there is a
risk of imperfect correlation between movements in the price of the futures
contract and movements in the price of the security, currency or instrument that
is the subject of the hedge.
OPTIONS TRANSACTIONS. The Fund may purchase put and call options on
currencies, interest rates, prepayment rates, individual securities, indexes of
securities, or other financial instruments or indexes. The Fund may purchase
both exchange-traded and over-the-counter options.
An option is created when the writer grants to the purchaser an option to
purchase or sell a particular currency, security, index of securities, or other
index at a specified price (the "exercise price") in return for payment of a
specified amount (the "option premium"). A call option gives the holder the
right, but not the obligation, to purchase at or until a specified time (the
"expiration date") the underlying currency or instrument (or, in the case of an
index, to receive payments linked to changes in the price of the index) by
B-4
<PAGE>
paying the exercise price. A put option generally conveys to the holder the
right to sell at or until the option expiration date the underlying currency or
instrument (or, in the case of an index, to receive payments linked to a
decrease in the price of the index below a certain level) at the exercise price.
American-style options may be exercised at any point prior to and including the
expiration date; European-style options may be exercised only on the expiration
date. The Fund may purchase and sell both American-style and European-style
options.
Successful use by the Fund of options will depend on the accuracy of the
Investment Advisor's assumptions concerning movements in the direction of the
security, currency or index underlying the option used as a hedge. The purchase
of an option may constitute an effective hedge against price fluctuations in the
underlying currency, security, or index; however, in the event of price
movements adverse to the Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. The benefit to the Fund derived
from the purchase of an option will be reduced by the amount of the premium and
related transaction costs.
With respect to exchange-traded options, the ability of the Fund to engage
in closing transactions with respect to options that the Fund has purchased
depends on the existence of a liquid secondary market. In a closing purchase or
sale transaction, the Fund acquires a position that offsets and cancels an
options position then held by the Fund. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing sale transaction with respect to any option that it
has purchased, the Fund would have to exercise the option in order to realize
any profit on the options position and would incur transaction costs.
In addition, the Fund may purchase and sell options over-the-counter with
broker-dealers or other financial institutions that make markets in these
options. The ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers or
others acting as counterparty in such transactions will not, or may not be able
to, fulfill their obligations. If the Fund purchases an over-the-counter option
and the counterparty defaults, the Fund may be unable to exercise the option and
may suffer a loss.
The purchase of options is a highly specialized activity that involves
investment techniques and risks different from and potentially greater than
those associated with ordinary portfolio securities transactions. The successful
use of options for hedging purposes depends in part on the accuracy of the
Investment Advisor's assumptions concerning future price fluctuations and the
degree of correlation between the options and the securities markets. If the
Investment Advisor is incorrect in its determination of the direction or the
extent of the movement of the yield differential, the investment performance of
the Fund may be less favorable than it would have been in the absence of such
options transactions.
SWAPS. The Fund may enter into swaps on various securities (such as U.S.
Government securities), securities indexes, interest rates, prepayment rates,
foreign currencies or other financial instruments or indexes, for both hedging
and non-hedging purposes. While swaps (sometimes hereinafter referred to as
"swap contracts") are different from futures contracts in that swap contracts
are individually negotiated with specific counterparties, the Fund will use swap
contracts for purposes similar to the purposes for which it uses options and
futures. These uses of swap contracts present the Fund with risks and
opportunities similar to those associated with options contracts and futures
contracts.
Swap contracts typically involve an exchange of obligations by two
sophisticated parties. For example, in an interest rate swap, the Fund and
another party may exchange their respective rights to receive
B-5
<PAGE>
interest, such as an exchange of fixed rate payments for floating rate payments.
Currency swaps involve the exchange of respective rights to make or receive
payments in specified currencies.
Because swap contracts are individually negotiated, they remain the
obligation of the respective counterparties, and there is a risk that a
counterparty will be unable to meet its obligations under a particular swap
contract. If a counterparty defaults on a swap contract with the Fund, the Fund
may suffer a loss. To address this risk, the Fund will usually enter into
interest rate swaps on a net basis, which means that the two payment streams
(one from the Fund to the counterparty, one to the Fund from the counterparty)
are netted out, with the Fund receiving or paying, as the case may be, only the
net amount of the two payments. Interest rate swaps do not involve the delivery
of securities, other underlying assets, or principal. Accordingly, the risk of
loss with respect to interest rate swaps entered into on a net basis would be
limited to the net amount of the interest payments that the Fund is
contractually obligated to make. If the other party to an interest rate swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency swaps and other types of swaps may involve the delivery of the entire
principal value of one designated currency or financial instrument in exchange
for the other designated currency or financial instrument. Therefore, the entire
principal value of such swaps may be subject to the risk that the other party
will default on its contractual obligations.
In addition, because swap contracts are individually negotiated and
ordinarily non-transferable, there also may be circumstances in which it would
be impossible for the Fund to close out its obligations under the swap contract.
Under such circumstances, the Fund might be able to negotiate another swap
contract with a different counterparty to offset the risk associated with the
first swap contract. Unless the Fund is able to negotiate such an offsetting
swap contract, however, the Fund could be subject to continued adverse
developments, even after the Investment Advisor has determined that it would be
prudent to close out or offset the first swap contract.
As with futures contracts, when the Fund uses swap contracts for risk
management purposes, it is not necessarily required to segregate assets (on a
mark-to-market basis) to cover its contractual obligations under the swap
contract. In those cases, the swap contracts will have the effect of providing a
degree of investment leverage similar to the leverage associated with
non-segregated futures contracts. Also, when the Fund does not segregate to
cover its contractual obligations under a swap contract, the amount of the
Fund's contractual obligation (calculated daily on a mark-to-market basis)
generally will be treated as a senior security under the 1940 Act.
The use of swaps involves investment techniques and risks different from and
potentially greater than those associated with ordinary portfolio securities
transactions. If the Investment Advisor is incorrect in its expectations of
market values, interest rates, or currency exchange rates, the investment
performance of the Fund would be less favorable than it would have been if this
investment technique were not used.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse
repurchase agreements in which the Fund sells securities to a bank or dealer and
agrees to repurchase them at a mutually agreed date and price. Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous
if the interest cost to the Fund of the reverse repurchase transaction is less
than the cost of otherwise obtaining the cash.
B-6
<PAGE>
The Fund may establish a segregated account with its custodian in which it
will maintain cash and/or liquid high-grade debt securities equal in value to
its obligations in respect of reverse repurchase agreements. Placing securities
rather than cash in the segregated account may have a leveraging effect on the
Fund's net asset value per share. Also, to the extent that the Fund does not
establish such a segregated account with respect to any reverse repurchase
agreement, the reverse repurchase agreement will involve leverage and therefore
will be considered a "senior security" under the 1940 Act. Reverse repurchase
agreements involve the risk that the market value of the securities that the
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
SHORT SALES. The Fund may engage in short sales transactions. A short sale
transaction by the Fund typically would be a transaction in which the Fund sells
a security it does not own in anticipation of a decline in market price of such
a security. When the Fund makes such a short sale, the proceeds it receives are
retained by the broker effecting such transactions until the Fund replaces the
borrowed security or provides adequate collateral for the short position. In
order to deliver the security to the buyer, the Fund must arrange through a
broker to borrow the security and, in doing so, the Fund becomes obligated to
replace the security borrowed at its market price at the time of replacement,
whatever that price may be.
Short sales by the Fund create opportunities to increase the Fund's return
but, at the same time, involve special risk considerations and may be considered
a speculative technique. Since the Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, the Fund's net asset
value per share will tend to increase more when the securities it has sold short
decrease in value, and to decrease more when the securities it has sold short
increase in value, than would otherwise be the case if it had not engaged in
such short sales. Short sales theoretically involve unlimited loss potential, as
the market price of securities sold short may continuously increase, although
the Fund may mitigate such losses by replacing the securities sold short before
the market price has increased significantly. Under adverse market conditions,
the Fund might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
It is anticipated that the Fund will engage in short sales transactions in
an effort to both generate and stabilize the Fund's income. Typically the Fund
would do so when the proceeds of such sale (the "short position") can be
invested by the Fund in a security (the "long position") of comparable duration,
thereby allowing the Fund to earn the yield difference between the long and the
short position. For example, the Fund may sell short a low yielding bond (e.g.
U.S. Treasuries) to buy a higher-yielding bond (e.g. emerging market bond) of
comparable duration. This type of transaction would be entered into by the Fund
when the Investment Advisor believes that the relationship between the long and
the short position is expected to remain stable or move in a favorable
direction.
To avoid violating the borrowing limitations of the Fund and those in the
1940 Act, the Fund's obligations to deliver the securities sold short will be
"covered" by segregating cash, U.S. Government securities or other liquid debt
securities in an amount equal to the market value of its delivery obligations.
The Fund will not make a short sale if, after giving effect to such sale, the
market value of all securities sold short exceeds 25% of the value of its total
assets.
B-7
<PAGE>
APPENDIX C
NEW INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
If Proposal Nos. 1 and 2 are approved by stockholders, the Fund's
fundamental investment objectives, policies and restrictions would be as
follows:
INVESTMENT OBJECTIVES AND POLICIES
The Fund's principal investment objective is high income through global
investment in debt securities. Long-term capital appreciation through such
investment is a secondary objective of the Fund. These objectives and the
limitations on investments set forth in the following three paragraphs are
fundamental policies of the Fund that may not be changed without approval of the
holders of a majority of the Fund's outstanding voting securities. The vote of a
"majority of the Fund's outstanding voting securities" means the vote, at the
annual or a special meeting of the stockholders duly called, (A) of 67% or more
of the voting shares present at such meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy or (B) of more than
50% of the outstanding voting shares, whichever is less. The Fund policies that
are not fundamental may be modified by the Board of Directors if, in the
reasonable exercise of its business judgment, modification is determined to be
necessary or appropriate to carry out the Fund's investment objectives.
PORTFOLIO STRUCTURE
To achieve its investment objectives, the Fund may invest in debt securities
across a broad range of fixed-income investment sectors in the U.S., developed
foreign markets and emerging markets. The Fund is not required to maintain a
minimum or maximum allocation of investments in any one of these investment
sectors. The Fund's investments will be denominated in the U.S. dollar, except
that the Fund may invest up to 25% of its total assets at the time of investment
in non-U.S. dollar denominated securities, with no more than 10% of its total
assets at the time of investment in securities denominated in the currencies of
emerging market countries and no more than 5% of its total assets at the time of
investment in securities denominated in any one emerging market country
currency. "Emerging market countries" are defined as those countries included in
the J.P. Morgan Emerging Market Bond Index Plus from time to time or, if this
index is no longer available, any other recognized listing of emerging market
countries selected by the Board of Directors of the Fund.
It is a fundamental policy of the Fund to maintain a dollar-weighted average
portfolio quality of investment grade based on ratings of Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") (or, in the
case of securities or issuers not rated by Moody's or S&P, judged by the
investment adviser to be of equivalent quality), measured at the time of
investment; provided, however, that no more than 10% of the Fund's total assets
at the time of investment will be invested in any one sovereign issuer rated
below AA by S&P or Aa by Moody's (or, in the case of securities or issuers not
rated by Moody's or S&P, judged by the investment adviser to be of equivalent
quality).
As a non-diversified company there is no investment restriction on the
percentage of the Fund's total assets that may be invested at any time in the
securities of any issuer other than the diversification requirements applicable
to regulated investment companies under the U.S. Internal Revenue Code. As a
matter of fundamental policy, however, the Fund may invest, at the time of
investment, up to: (i) 5% of its total assets in any one non-sovereign issuer;
and (ii) 10% of its total assets in issuers of any one emerging market country.
The Fund invests in a variety of debt securities, with differing issuers,
maturities and
C-1
<PAGE>
interest rates, to comply with the diversification and other requirements of the
U.S. Internal Revenue Code applicable to regulated investment companies so that
the Fund will not be subject to U.S. taxes on its net investment income and net
capital gains that it distributes to its stockholders. The average dollar-
weighted maturity of the Fund's portfolio has not exceeded, and is not expected
to exceed, 10 years.
The policies with respect to portfolio credit quality and all of the
percentage limitations on investments described above are required to be met at
the time of investment. The Fund will not be required to divest investments for
failure to meet any of these requirements as a result of market factors
subsequent to investment, unless the Investment Advisor deems it appropriate to
do so.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies, which cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions. For purposes of this
restriction, the deposit or payment by the Fund of securities and other
assets in escrow or collateral agreements with respect to initial or
variation margin in connection with futures contracts or options will not
be deemed to be a purchase of securities on margin.
2. Make short sales of securities or maintain a short position if the
market value of all securities sold short exceeds 25% of the value of the
Fund's total assets.
3. Issue senior securities or borrow money, except that the Fund may issue
senior securities and borrow money, on a secured or unsecured basis, in
an amount, at the time of borrowing or investing, up to 30% of the Fund's
total assets (including the amount borrowed), less all liabilities and
indebtedness other than bank or other borrowings and may use the proceeds
of such senior securities or borrowings for investment purposes. In
addition, the Fund may borrow for temporary or emergency purposes an
amount up to 5% of the Fund's total assets (not including the amount
borrowed).
4. Purchase or sell real estate or interests in real estate (other than
mortgage-related securities), commodities or commodity contracts, except
that the Fund may invest in futures contracts, options thereon and
options on currencies.
5. Make loans. This restriction does not apply to: (a) the purchase of
publicly traded debt securities consistent with the Fund's investment
objectives and policies (including participation interests in such
securities); and (b) loans of the Fund's portfolio securities.
6. Make investments for the purpose of exercising control or management.
7. Act as an underwriter (except to the extent the Fund may be deemed to be
an underwriter in connection with the sale of securities in the Fund's
investment portfolio).
8. Invest more than 25% of its total assets at the time of investment in
any one industry (including banking). U.S. Treasury securities are
excluded from this restriction.
C-2
<PAGE>
APPENDIX D
[DATE]
Dresdner RCM Global Investors LLC
Four Embarcadero Center
San Francisco, California 94111
Dear Sirs:
FORM OF INVESTMENT ADVISORY AGREEMENT
On the authority of the Board of Directors of [Kleinwort Benson Australian
Income Fund, Inc.], I write to confirm the agreed terms of your appointment as
Investment Advisor to the [Kleinwort Benson Australian Income Fund, Inc.] (the
"Fund") and send you herewith copies of the following documents:
(a) the Fund's Articles of Incorporation
(b) the By-Laws of the Fund as in effect at the date hereof
(c) the Fund's most recent Registration Statement
(d) resolutions of the Board of Directors of the Fund selecting you as
Investment Advisor for the Fund and approving the terms of your
appointment as set out in this letter.
Any amendment to any of these instruments will be notified to you forthwith.
Will you kindly confirm your agreement with these terms by having the
acknowledgement at the foot of the enclosed duplicate copy of this letter signed
by an appropriate officer of Dresdner RCM Global Investors LLC under authority
of its Board of Directors, and return to us together with a certified copy of
the Board resolution authorizing such signature.
TERMS OF APPOINTMENT
(A) Your duties will be to provide the Fund with investment research, advice
and supervision and to furnish continuously an investment program for the Fund
in accordance with the Fund's then current investment objectives, policies and
limitations, and the Investment Company Act of 1940 (the "1940 Act"). You will
also be required to advise at all times what securities shall be purchased for
the portfolio and what securities shall be sold from its portfolio and what
proportion of the Fund's assets shall be held uninvested, subject always to the
provisions of the Articles of Incorporation and By-laws as each may from time to
time be amended. You will also advise and assist the officers of the Fund in
taking such steps as may be necessary or appropriate for carrying out the
decisions of its Board of Directors and the appropriate committees of such Board
regarding the foregoing matters and the general conduct of the investment
business of the Fund.
(B) In addition, you shall, subject to the general supervision of the Board
of Directors of the Fund, provide for the administration of all other affairs of
the Fund. In this regard, you shall act as an independent contractor of the
Fund:
(i) to the extent not provided by the Fund's custodian and financial
agent and the Fund's transfer agent and registrar, provide the Fund with
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of the Fund.
(ii) to the extent not arranged by the Fund's custodian and financial
agent and the Fund's transfer agent and registrar, arrange for (A) the
preparation and submission of proxy statements and quarterly and annual
reports to stockholders and (B) the periodic updating of the Fund's
Registration
D-1
<PAGE>
Statement and the preparation of reports filed with the Securities and Exchange
Commission ("SEC") and other regulatory authorities:
(iii) to the extent not provided by the Fund's custodian and financial
agent and the Fund's transfer agent and registrar, provide the Fund with
adequate office space and all necessary office equipment and services,
including telephone service, heat, utilities, stationery supplies and
similar items. The Investment Advisor shall bear all expenses of its
employees and overhead incurred by them in connection with their duties as
officers and directors under this Agreement. The Fund will bear its own
expenses, including fees of the Fund's directors who are not interested
persons (as defined in the 1940 Act) of any party or any sub-advisor to the
Fund; out-of-pocket travel expenses for all directors and other expenses
incurred by the Fund in connection with meetings of directors; interest
expenses; tax and governmental fees; brokerage commissions and other
expenses incurred in acquiring or disposing of the Fund's portfolio
securities; expenses of preparing stock certificates; expenses of
registering and qualifying the Fund's shares for sale with the Securities
and Exchange Commission and in various states and foreign jurisdictions;
auditing, accounting, legal and insurance costs; custodian, dividend
disbursing and transfer agent expenses; expense of obtaining and maintaining
stock exchange listings of the Fund's shares; and the expenses of
stockholder meetings.
(iv) to maintain and preserve all records which the Fund is required to
maintain and preserve by the 1940 Act and the rules and regulations
thereunder, other than records maintained and preserved by the Fund's
custodian and financial agent and the Fund's transfer agent and registrar,
all such records maintained and preserved, nevertheless being the property
of the Fund.
(v) to prepare the Fund's U.S. federal, state and local income tax
returns.
(vi) to respond to or refer to the Fund's officers or transfer agent
stockholder inquiries relating to the Fund.
(vii) to arrange, at the Fund's expense, for the determining and
publishing of the Fund's net asset value in accordance with the Fund's
policy as adopted from time to time by the Board of Directors.
(C) You shall not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act) or a loss resulting from willful misfeasance, bad faith, gross
negligence or reckless disregard by you of your obligations and duties under
this Agreement.
(D) In consideration of your services under paragraphs (A) and (B) above you
shall be entitled by way of remuneration to a fee at the annual rate of 0.70% of
the Fund's weekly net assets up to $100 million; and 0.65% of the Fund's weekly
net assets in excess of $100 million, computed based upon net asset value at the
end of each week and payable at the end of each calendar month.
(E) Payments of the fees referred to in paragraph (D) above shall be made
within 14 days from the last day of the month. Such fees shall be deemed to
cover and include all your staff and office expenses and all other expenses of
providing services and fulfilling your duties hereunder.
(F) The Investment Advisor shall determine the securities to be purchased or
sold by the Fund and will place orders from or through and sell securities to or
through such persons, brokers or dealers as it shall deem appropriate
(including, in case of brokerage transactions, affiliated persons (as defined in
the 1940 Act) of the Investment Advisor or any subadviser to the Fund in
accordance with Section 17(e) of the 1940 Act and Rule 17e-1 thereunder). Where
the Investment Advisor places orders for the execution of portfolio transactions
for the Fund, the Investment Advisor may allocate such transactions to such
brokers and dealers for execution in such markets, at such prices and at such
commission rates as in the good faith judgment of the Investment Advisor will be
in the best interest of the Fund, taking into consideration in the
D-2
<PAGE>
selection of such brokers and dealers not only the available prices and rates of
brokerage commissions, but also other relevant factors (such as, without
limitation, execution capabilities, research and other services provided by such
brokers or dealers which are expected to enhance the general portfolio
management capabilities of the Investment Advisor) without having to demonstrate
that such factors are of a direct benefit to the Fund.
(G) If the Investment Advisor resigns or is otherwise terminated from its
position with respect to the Fund, the Investment Advisor, at its option, may
require the Fund to change its name to reflect an entity that does not include
the use of the words "Dresdner" and/or "RCM" in its name as registered with SEC,
as specified in its charter or as marketed to the public. The party initiating
the change will bear the expense for any such name change. This provision shall
survive the termination of this Agreement and shall remain in full force and
effect for so long as the Fund is in existence.
(H) This appointment shall take effect as from and shall
continue in effect annually if approved by the Board of Directors of the Fund or
by vote of "a majority of the outstanding voting securities" (as defined in the
1940 Act) of the Fund, and in either case by a majority of the directors of the
Fund who are not interested persons of either party to this Agreement. This
contract may be terminated by the Fund or by you at any time upon sixty days'
written notice on either side without the payment of any penalty, provided
always that either party may at any time terminate this Agreement by notice in
writing to the other party in the event of (i) the other party entering into
liquidation or (ii) a receiver being appointed over the whole or any part of its
undertaking or assets or (iii) its shares or its undertaking being nationalized
or expropriated by a government authority or (iv) its committing any breach of
its obligation under this Agreement and failing within thirty days of receipt of
notice requiring it do so, to make good such breach.
(I) Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Investment Advisor who may also be a
director, officer or employee of the Fund to engage in any other business or to
devote his time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or restrict the
right of the Investment Advisor to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
(J) During the term of the Agreement, the Fund agrees to furnish the
Investment Advisor at its principal office, prior to use thereof, any and all
prospectuses, proxy statements, reports to stockholders, sales literature, or
other material prepared for distribution to stockholders of the Fund or the
public that refer in any way to the Investment Advisor and not to use such
material if the Investment Advisor reasonably objects in writing within five
business days (or such other time as may be mutually agreed) after receipt
thereof. In the event of termination of this Agreement, the Fund will continue
to furnish to the Investment Advisor copies any of the above mentioned materials
that refer in any way to the Investment Advisor. The Fund shall furnish or
otherwise make available to the Investment Advisor such other information
relating to the business affairs of the Fund as the Investment Advisor at any
time, or from time to time, reasonably requests in order to discharge its
obligations hereunder.
(K) Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Investment Advisor at Four Embarcadero Center, San
Francisco, California, 94111, Attention: ______; or (2) to the Fund at Four
Embarcadero Center, San Francisco, California, 94111, Attention: Secretary.
(L) This appointment shall be automatically terminated in the event of its
assignment. The term "assignment" shall have the meaning specified in the 1940
Act as now in effect or as hereafter amended.
(M) The Investment Advisor may enter into one or more contracts (each a
"Subadvisory Contract" or "Subadministration Contract") with a subadviser or
subadministrator in which the Investment Advisor delegates to such subadviser or
subadministrator any or all duties specified in this Agreement, provided
D-3
<PAGE>
that each Subadvisory Contract or Subadministration Contract imposes on the
subadviser or subadministrator bound thereby all applicable duties and
conditions to which the Investment Advisor is subject under this Agreement, and
further provided that each Subadvisory Contract meets all requirements of the
1940 Act and any rules, regulations, or orders of the Securities and Exchange
Commission thereunder.
(N) This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Yours faithfully,
KLEINWORT BENSON AUSTRALIAN INCOME
FUND, INC.
By:
We hereby confirm our agreement with the terms set out in the letter, of
which the above is a duplicate, and accept the same as a binding contract as at
the date thereof.
For
DRESDNER RCM GLOBAL INVESTORS LLC
By:
D-4
<PAGE>
APPENDIX E
FORM OF SUBADVISORY AGREEMENT AMONG DRESDNER RCM GLOBAL INVESTORS LLC,
KLEINWORT BENSON INVESTMENT MANAGEMENT AMERICAS INC.
AND KLEINWORT BENSON AUSTRALIAN INCOME FUND, INC.
AGREEMENT made this day of 1999 by and among Dresdner RCM Global
Investors, a Delaware Limited Liability Company with principal offices at Four
Embarcadero Center, San Francisco California 94111 (hereinafter called the
"Advisor"); Kleinwort Benson Investment Management Americas Inc., a Delaware
corporation with principal offices at Four Embarcadero Center, San Francisco, CA
94111-4189 (hereinafter called the "Subadvisor"); and Kleinwort Benson
Australian Income Fund, Inc., a Maryland Corporation (hereinafter called the
"Fund").
WHEREAS the Fund and the Advisor have entered into an Investment Advisory
Agreement pursuant to which the Advisor is to act as investment adviser of the
Fund;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the Fund, the Advisor and the Subadvisor agree as
follows:
1. Duties: The Advisor, may, in its discretion, appoint the Subadvisor to
perform one or more of the following services with respect to all or a
portion of the investments of the Portfolio. The services and the portion of
the investments of the Fund to be advised or managed by the Subadvisor shall
be as agreed upon from time to time by the Advisor and the Subadvisor. The
Subadvisor shall pay the salaries and fees of all personnel of the
Subadvisor performing services for the Fund relating to research and
investment activities.
(a) Investment Advice: If and to the extent requested by the Advisor, the
Subadvisor shall provide investment advice to the Fund and the Advisor
with respect to all or a portion of the investments of the Fund, and in
connection with such advice shall furnish the Fund and the Advisor such
factual information, research reports and investment recommendations, all
as the Advisor may reasonably require. Such information may include
written and oral reports and analyses.
(b) Investment Management: If and to the extent requested by the Advisor,
the Subadvisor shall, subject to the supervision of the Advisor, manage
all or a portion of the investments of the Fund in accordance with the
Fund's then current investment objectives, policies and limitations, the
Investment Company Act of 1940 (the "1940 Act"), and such other
limitations as the Fund or Advisor may impose with respect to the Fund by
notice to the Subadvisor. The Subadvisor is authorized to make investment
decisions on behalf of the Fund and to place orders for the purchase and
sale of securities through such broker-dealers as the Subadvisor may
select. All investment management and other activities of the Subadvisor
shall at all times be subject to the control and direction of the Advisor
and the Fund's Board of Directors.
2. Information to be Provided to the Fund and the Advisor: The Subadvisor shall
furnish such reports, evaluations, information or analyses to the Fund and
the Advisor as the Fund's Board of Directors or the Advisor may request from
time to time, or as the Subadvisor may deem to be desirable.
3. Brokerage: In connection with the services provided under subparagraph (b)
of paragraph 1 of this Agreement, the Subadvisor shall determine the
securities to be purchased or sold by the Fund and will place orders from or
through and sell securities to or through such persons, brokers or dealers
as it shall deem appropriate (including, in case of brokerage transactions,
affiliated persons (as defined in
E-1
<PAGE>
the 1940 Act) of the Advisor or Subadvisor in accordance with Section 17(e)
of the 1940 Act and Rule 17e-1 thereunder). Where the Subadvisor places
orders for the execution of portfolio transactions for the Fund, the
Subadvisor may allocate such transactions to such brokers and dealers for
execution in such markets, at such prices and at such commission rates as in
the good faith judgment of the Subadvisor will be in the best interest of
the Fund, taking into consideration in the selection of such brokers and
dealers not only the available prices and rates of brokerage commissions,
but also other relevant factors (such as, without limitation, execution
capabilities, research and other services provided by such brokers or
dealers which are expected to enhance the general portfolio management
capabilities of the Subadvisor) without having to demonstrate that such
factors are of a direct benefit to the Fund.
4. Compensation: For the services to be rendered hereunder, the Advisor shall
compensate the Subadvisor the percentage of the Advisor's management fee
equal to the percentage of the Fund's weekly net assets managed by the
Subadvisor.
5. Expenses: It is understood that the Fund will pay all of its expenses other
than those expressly stated to be payable by the Subadvisor hereunder or by
the Advisor under the Investment Advisory Agreement with the Fund, which
expenses payable by the Fund shall include fees of the Fund's directors who
are not interested persons (as defined in the 1940 Act) of any party;
out-of-pocket travel expenses for all directors and other expenses incurred
by the Fund in connection with meetings of directors; interest expenses; tax
and governmental fees; brokerage commissions and other expenses incurred in
acquiring or disposing of the Fund's portfolio securities; expenses of
preparing stock certificates; expenses of registering and qualifying the
Fund's shares for sale with the Securities and Exchange Commission and in
various states and foreign jurisdictions; auditing, accounting, legal and
insurance costs; custodian, dividend disbursing and transfer agent expenses;
expense of obtaining and maintaining stock exchange listings of the Fund's
shares; and the expenses of stockholder meetings.
6. Services to Other Companies or Accounts: The services of the Subadvisor to
the Advisor are not to be deemed to be exclusive, the Subadvisor being free
to render services to others and engage in other activities, provided,
however, that such other services and activities do not, during the term of
this Agreement, interfere, in a material manner, with the Subadvisor's
ability to meet all of its obligations hereunder. The Subadvisor shall for
all purposes be an independent contractor and not an agent or employee of
the Advisor or the Fund.
7. Standard of Care: In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties hereunder on
the part of the Subadvisor, the Subadvisor shall not be subject to liability
to the Advisor, the Fund or to any stockholder of the Fund for any act or
omission in the course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase, holding or sale of
any security.
8. Duration and Termination of Agreement; Amendments:
(a) This appointment shall take effect as from and shall continue
in effect annually if approved by the Board of Directors of the Fund or
by vote of "a majority of the outstanding voting securities" (as defined
in the 1940 Act) of the Fund, and in either case by a majority of the
directors of the Fund who are not interested persons of either party to
this Agreement. This contract may be terminated by the Fund the Advisor
or the Subadvisor at any time upon sixty days' written notice to the
others without the payment of any penalty, provided always that any party
may at any time terminate this Agreement by notice in writing to the
other parties in the
E-2
<PAGE>
event of (i) any other party entering into liquidation or (ii) a receiver
being appointed over the whole or any part of its undertaking or assets
or (iii) its shares or its undertaking being nationalized or expropriated
by a government authority or (iv) its committing any breach of its
obligation under this Agreement and failing within thirty days of receipt
of notice requiring it do so, to make good such breach.
(b) This appointment shall be automatically terminated in the event of its
assignment. The term "assignment" shall have the meaning specified in the
1940 Act as now in effect or as hereafter amended.
9. Governing Law: This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect
to the choice of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their respective officers thereunto duly authorized,
and their respective seals hereunto affixed, all as of the date written above.
DRESDNER RCM GLOBAL INVESTORS LLC
KLEINWORT BENSON INVESTMENT
MANAGEMENT AMERICAS INC.
KLEINWORT BENSON AUSTRALIAN
INCOME FUND, INC.
E-3
<PAGE>
PROXY
KLEINWORT BENSON AUSTRALIAN INCOME FUND, INC.
Four Embarcadero Center
San Francisco, CA 94111-4189
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 15, 1999
The undersigned hereby appoints Robert J. Goldstein and Karin L. Brotman as
proxies, each with full power of substitution, and hereby authorizes each of
them to represent and to vote, as designated on the reverse side, all shares of
Common Stock of the Kleinwort Benson Australian Income Fund, Inc. (the "Fund")
held of record by the undersigned on August 16, 1999, at the Annual Meeting of
Stockholders to be held on October 15, 1999 or any adjournment thereof. The
undersigned hereby further authorizes such proxies to vote in their discretion
upon such other business as may properly come before such Annual Meeting or any
adjournment thereof. Receipt of Notice of Annual Meeting and Proxy Statement is
hereby acknowledged.
EVERY PROPERLY SIGNED PROXY WILL BE VOTED IN THE MANNER SPECIFIED HEREON. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5, 6, 7
AND 8.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SEE REVERSE
SIDE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
Page 1
<PAGE>
[X] Please mark votes as in this example.
The Board of Directors recommends that you vote for Proposals 1, 2, 3, 4, 5, 6,
7 and 8
1. Approval of amendments to the Fund's investment mandate and
corresponding investment policies and restrictions.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of amendments to the Fund's investment restrictions on senior
securities and related restrictions on commodity contracts, margin and
short sales.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of amendment to the Fund's investment restriction to permit
securities lending.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of a new Investment Advisory Agreement between the Fund and
Dresdner RCM Global Investors LLC.
[ ] FOR [ ] AGAINST [ ]ABSTAIN
5. Approval of a Subadvisory Agreement among Dresdner RCM Global Investors
LLC, Kleinwort Benson Investment Management Americas Inc. and the Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Election of Directors.
Luke D. Knecht
[ ] FOR [ ] WITHHELD
Stephen K. West
[ ] FOR [ ] WITHHELD
7. Ratification of the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the fiscal year
ending October 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please be sure to sign and date this Proxy.
Signature: Date: Signature: Date:
Page 2
